May 20, 2015

When One Category Works Against Most Of Your Categories

Sometimes, you have a merchandise category that works against the rest of the business. It happens more often than you'd think.

When I worked at Nordstrom, we had Cosmetics, Mens Footwear, and Womens Footwear. These categories helped all other categories - meaning that when a customer purchased Cosmetics, the customer instantly became more likely to buy from Accessories, for instance. But the opposite wasn't necessarily true. Growing Accessories helped Accessories. Growing Cosmetics helped Cosmetics and helped Accessories.

In my Nordstrom example, which category should be featured in marketing, on landing pages, in email campaigns? Which keywords would you pay more for on Google? Cosmetics, right? Cosmetics helps Cosmetics and Accessories. Accessories only helped Accessories.

Your business is a big, bubbling ecosystem. You've been trained to ignore the ecosystem. You've been trained by vendors to focus on campaigns, to focus on how campaigns convert.

Look at Category 03 in the table above. Are the coefficients positive, or negative? Positive coefficients mean that dollars spent in that category today will help other categories in the future. Negative coefficients meant hat dollars spent in that category today hurt response in other categories next year.

Category 03 hurts nearly every other category in the next year. When a customer buys from Category 03, the customer will spend less next year in the following categories ... 00, 05, 07, 08, 09, 10, 11, and 12.

In other words, the merchant responsible for growing Category 03 is the same merchant who hurts the future performance of the merchants responsible for categories 00, 05, 07, 08, 09, 10, 11, and 12. And the marketer who actively promotes Category 03 is the marketer who hurts his/her efforts to properly market categories 00, 05, 07, 08, 09, 10, 11, and 12.

Read across the row for Category 11. This category doesn't harm the future performance of a single category. The merchant responsible for Category 11 helps the entire business.

These relationships happen in your business too. Absolutely! The best marketers know these relationships. They know that Category 03 is hurting the future potential of the rest of the business. They know that when they have a choice, they give Category 11 marketing priority over Category 03. They protect the future of their business by not promoting one category in a way that harms other categories.

Show of hands ... how many of you thoroughly understand how your merchandising categories interact with each other?