March 20, 2013

Each Channel Has A Unique Merchandise Profile

Hopefully, your analytics team run merchandise reports that illustrate best selling items by marketing channel.

Your analytics team run these reports, don't they?  If they don't, click here and have me do it for you.  

I create an index for each marketing channel.

  • Index = (Item Demand Within Channel / Total Demand Within Channel) / (Item Demand Overall / Total Demand Overall).
This merchandise index tells me the items that sell best within a channel, after standardizing for overall merchandise performance.  For example, an index of 2.0 tells me that the item sells twice as well within a channel as it sells overall.  An index of 0.5 tells me that the item sells half as well within a channel as it sells overall.

Why perform this analysis?

Simple.  Each marketing channel attracts a somewhat different mix of customers, and those customers have unique preferences that are different than the overall merchandise preference of your average customer.

In the image above, we clearly see that the items that sold best over the telephone to catalog customers performed worst among customers buying from email marketing campaigns.  In other words, the customer who buys over the telephone is looking for fundamentally different merchandise than the customer who buys from an email marketing campaign.

Now, I can already hear the critics screaming from all corners of the Twitter world ... "yeah, but you offered different merchandise in email campaigns, and that drove the result."

Ok.

Let's look at another graph ... this one compares phone/catalog demand with online/search demand, at an item level.



Notice that the outcome is similar?  For the most part, the items that sold best in search are different than the items that sold best in catalogs over the telephone.  Search is driven by catalogs and by customer questions (for many of my clients, half of search volume is catalog driven, a quarter is email driven, and a quarter is customer driven).

We simply have to measure the performance of merchandise by channel, especially now that some businesses are generating 25% to 40% of demand via mobile devices.  The merchandise customers by within channels are different - yes, go analyze your own business and you'll learn the same thing - go create the index I outlined above!

Furthermore, the customers who use different channels are in different demographic cohorts.  Judy buying from a catalog over the phone is fundamentally different than Jasmine buying from a mobile device.

This is important.

  1. The merchandise purchased in each channel is fundamentally different.
  2. The demographics of customers buying in each channel are fundamentally different.
Therefore, if you are a cataloger and you want to see what the future of your business looks like, analyze the merchandise purchased by Jennifer in email and search.

If you are an e-commerce brand or retailer, and you want to see what the future of your business looks like, analyze the merchandise purchased by Jasmine on mobile devices.

In fact, analyze the top 200 best selling items, creating an index by channel.  On the wall of a conference room, post the items ... on the left side of the room, post the items preferred by Judy ... on the back of the room, post the items preferred by Jennifer ... on the right side of the room, post the items preferred by Jasmine.  Bring your creative team into the room, bring your merchandising team into the room.  Ask each team what they see.

Then it's time to make a decision.  Who do you want your customer to be in the future ... Judy, Jennifer, or Jasmine?  Once you pick your customer, look at the merchandise that your customer prefers, and look at the creative presentation of the merchandise your chosen customer prefers.  You now have a merchandise/creative road map into the future.

I recently performed this analysis for a business.
  • Judy = "Feel younger".
  • Jennifer = "Hard to find merchandise".
  • Jasmine = "Popular favorites at a low cost".
Same business, mind you ... but the themes in the creative were different.  Pick your creative, pick your merchandise, and you end up picking the customer you want.