June 10, 2012

Dear Catalog CEOs: Average Order Value

Dear Catalog CEOs:


When is the last time you studied how to get customers to spend more per order?


No, not spending time studying with your marketing department.  Those folks want to offer free shipping or 20% off or they want to cross-sell some meaningless items in the call center.  Those are all gimmicks.


I'm talking about real merchandise productivity.  You know what I mean.  It happens when a customer can't help herself, and has to purchase a third item because she absolutely loves the merchandise.


There are four metrics that determine how much a customer loves your business.
  1. Annual Repurchase Rate.
  2. Orders per Buyer per Year.
  3. Items per Order.
  4. Price per Item Purchased.
Average order value is a function of (3) and (4), so it is pretty important.

I'm in my local grocery store last week.  At the deli, one of the employees asks how my dog is doing?  Then she prepares a sample of a Vietnamese wrap she prepared.  Then she told me that the wrap was fresh (prepared an hour earlier), so it will taste great.

I walked out of the grocery store with a Vietnamese wrap.  My $174 purchase became a $179 purchase.

I didn't spend $5 more because of a silly coupon or marketing gimmick.  I spent $5 because the merchandise was tasty.

I keep seeing a split in the marketplace.
  1. Businesses racing to the bottom ... lowering prices, offering freebies, offering 20% off, trying to achieve "scale" or some other marketing theory that satisfies a fraction of the punditocracy.
  2. Businesses focusing on getting customers to love merchandise.
Increasingly, I am seeing businesses that are thriving by bulking up average order value ... not by manipulating it via discounts/promos/gimmicks, but by getting customers to spend more, per order.

Run a rolling twelve month file analysis, and evaluate your average order size over the past seven years.  What drove AOV when it peaked (items per order or price per item purchased)?  What caused AOV to sink?  How do you get your merchandising team, your online team, and your marketing team to focus on getting the best merchandise in front of each and every customer?

Spend some time on this topic, folks.

2 comments:

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