December 07, 2011

Here's An Application

You're a cataloger ... belittled by the digerati, smart enough to still be generating profit after all of these years of customer migration to the online channel.  Good for you!


Now, you're smart.  You categorized customers into Traditionals / Transitionals / Transformationals.  You're basically ahead of your competition.  Good for you!


You're so smart that you executed a mail/holdout test on your November catalog.  Six weeks passed since the in-home date, so you're analyzing results now.  Good for you!


Here's what the test tells you:
You already know that the "mail" line represents matchback results.  Look at the profit numbers ... they look sumptuous, don't they?


But they don't reflect reality.  Reality is contained in the "Increment" line, where we subtract the difference between the mailed group and the holdout group.


It's here that things get interesting.


Look at Traditionals.  These folks are very profitable, from a catalog marketing standpoint.  By and large, these customers are more profitable than are Transitionals or Transformationals.  We've know this for a decade, we keep telling each other that online customers have lower long-term value.


And that keeps us from maximizing our business.  Instead of figuring out how to have a relationship with Transitionals and Transformationals, we simply try to find more Traditionals.  And the co-ops are really good at optimizing performance around this audience!

2 comments:

  1. Maybe I'm not getting your subtlety, but it looks like you made the most total profit from the Transformationals. Why would you optimize for sending catalogs if more total money is made when no catalog is sent?

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  2. The most total profit, $1.88, happened when you mailed catalogs to Traditionals. In addition, the most incremental profit happened mailing catalogs to Traditionals. In this audience, catalog mailings make the most sense. The metric that most catalogers are reviewing is the $1.88 figure in the table.

    The optimal strategy, of course, is to mail Traditionals and not mail Transformationals. That's been the focus of this blog for the past six years, so I believe the two of us are in agreement.

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