December 02, 2013

Measuring The Wrong Stuff: Cyber Monday Demand vs Incremental Cyber Monday Profit

Instead of measuring sales and cheering the results, why not measure profit?

How many of you #measure profit? Be honest!

Here's an example:
  • 2009 = $1,000,000 demand, 60% gross margin, average discount = 10%.
  • 2010 = $1,300,000 demand, 60% gross margin, average discount = 12%.
  • 2011 = $1,700,000 demand, 60% gross margin, average discount = 16%.
  • 2012 = $2,300,000 demand, 60% gross margin, average discount = 22%.
  • 2013 = $3,000,000 demand, 60% gross margin, average discount = 29%.
Now, your favorite trade journalist will cheerlead the fact that you generated a 30% increase in demand on Cyber Monday (IT WAS A RECORD DAY, AND BRANDS REAPED THE REWARDS).

Variable Operating Profit (after subtracting 10% pick/pack/ship expense from demand):
  • 2009 = $400,000.
  • 2010 = $494,000.
  • 2011 = $578,000.
  • 2012 = $644,000.
  • 2013 = $630,000.
Oh oh.

I'll bet the CFO stops by the office of the CMO and swats him/her over the head with a rolled-up newspaper.

Worse, pretend that the sales were cannibalized from full-price sales that would have happened earlier in the month. Let's say that the cannibalization rate is 50% (which is probably close to accurate). Now look at your profit and loss statement:
  • 2009 = $150,000.
  • 2010 = $169,000.
  • 2011 = $153,000.
  • 2012 = $69,000.
  • 2013 = ($120,000).
This is the real story of Cyber Monday. It happens all the time, all across the country. 

Just ask your CFO.

If you need help evaluating your Cyber Monday effectiveness, contact me now (kevinh@minethatdata.com).

4 comments:

  1. Math FTW! I do not know why more marketers do not do the profit math. After reading your blog all these years, I am glad that the mentors in the first years of my employment in the direct marketing industry taught me the value of measuring profit. Some of the companies I worked required P&L level analysis all the way down to the individual list segments used in direct mail acquisition programs. I still use my profit measuring skills today and the value of being able to measure the incremental profit of marketing promotions is invaluable.

    You mentioned the Mobile Monday (formerly Cyber Monday) cannibalization effect. All of my purchases made as part of the Black Friday and Cyber Monday promotional period were 100% cannibalized. Every purchase I made was delayed to take advantage of the this promotional period. In two cases, I bought higher quality products at a vendor I was not considering and at a savings compared to what I would have originally purchased. The two purchases were from the same company, Zagg. Hopefully they will track all new to Zagg customers acquired during the Black Friday / Cyber Monday promotional period to measure the effectiveness of this promotional period as an acquisition cost for these customers. I define an acquired customer as one who makes a purchase and not one who ends up on an email list.

    Kevin, have you seen evidence that the Black Friday and Cyber Monday promotional period can be used effectively as a customer acquisition / reactivation program?

    @dmgerbino

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  2. Here's what I've observed ... you get what you ask for. If you ask customers to purchase on Black Friday / Cyber Monday, then you can certainly acquire customers ... customers that purchase when they get discounts / promotions. If that's the kind of business you want to manage, then you'll have success.

    ReplyDelete
    Replies
    1. Kevin,

      thank you for answering my question.

      In August 2012 I purchased a years supply of Widget X (Pease note that I am not disclosing the company or product as it is not germane to my point). I received at least one email a month from this company to buy more of the product I just bought a years supply of. Each month there was a different discount. When it was time to reorder I waited and got another years worth for a 20% discount. My order size was also large enough to earn free shipping. This company trained me to not pay full price. I liked the product and would have paid full price for another years worth of their product. Maybe their pricing model is such that I am paying what they want me to pay. They only sell a few products (it is a niche product).

      Another thing. Almost all the emails were sales related. After each order they sent one inviting me to review the product. This is the type of product they should have waited 2 to 4 weeks before asking me to review. Also, I felt like they were not employing any segmentation. For this company, they treat every monthly email as a Black Friday / Cyber Monday promotion. I do not know why a company would choose to earn less money.

      @dmgerbino

      Delete
    2. When you have a political corporate environment, and the email marketer is at the top of the political ladder, you get a lot of discounts and promotions!

      Delete