November 18, 2015

Now Imagine If Your Merchandising Team Kicked-In Some Assistance

You optimized the business (click here for the spreadsheet) by entering the following parameters.
  • D6 = 0.700.
  • D7 = 0.250.
  • D8 = 0.100.
  • D9 = 0.100.
  • D10 = 0.100.
  • D11 = 0.450.
  • D12 = 0.300.
  • D13 = 0.300.
  • D14 = 0.200.
  • D15 = 0.100.
  • D17 = 2.000.
Now, I want you to do one more homework assignment for me. Here's what we are going to do. Please change cells G19 - P19 from 1.00 to 1.10. This simulates a 10% increase in merchandise productivity. Look at what happens to top-line demand, marketing dollars, and profit.

Optimized Case (Year 10) = $124,495 demand (in thousands) ... $22,708 marketing spend ... $27,090 variable operating profit.

10% Merch Productivity Gain (Year 10) = $156,466 demand ... $25,805 marketing spend ... $36,782 variable operating profit.

#OhMyGoodness!

This is why I CONTINUALLY HARP ON MERCHANDISE PRODUCTIVITY!!!!!!1

The 10% increase, over time, compounds ... yielding a 25% increase in demand, increased marketing spend (because there are more customers to market to), and another 33% increase in profitability.

Your merchandising team means everything to your business.

Here's the fun part.

We're not done, yet. Now, as a marketer, it is your job to optimize spend once again. Better merchandise productivity yields increased marketing spend.

Your homework assignment:  Go back to cells D6-D15, and D17, and enter new spending estimates until you optimize the business.

We'll go over the results tomorrow.