May 31, 2016

Two Brands Within One Ecosystem In A Catalog Holding Company

Take a look at this situation.

Brand #1:

  • LY Customers = 1,000,000.
  • Repurchase Rate = 40% ... Retained Buyers = 1,000,000 * 0.40 = 400,000.
  • New Buyers = 500,000.
  • Crossover Buyers From Brand #2 = 200,000.
  • NY Customers = 400,000 + 500,000 + 200,000 = 1,100,000.
Brand #2:

  • LY Customers = 700,000.
  • Repurchase Rate = 40% ... Retained Buyers = 700,000 * 0.40 = 280,000.
  • New Buyers = 300,000.
  • Crossover Buyers From Brand #1 = 100,000.
  • NY Customers = 280,000 + 300,000 + 100,000 = 680,000.
Clearly, Brand #1 is growing.

Clearly, Brand #2 is shrinking.

200,000 of 700,000 (28%) of Brand #2 buyers switched to Brand #1.

100,000 of 1,000,000 (10%) of Brand #1 buyers switched to Brand #2.

Within catalog holding companies, this is a common theme. There is always a dominant brand, and there is always a brand that plays second-fiddle to the dominant brand.

So the question for those who manage Brand #2 is this:
  • How do we grow Brand #2?
The answer is almost always customer acquisition improvements. Brand #2 becomes a feeder system for Brand #1. Success in Brand #2 is not measured via sales, but instead, via the ability of Brand #2 to help Brand #1 grow in the future.

Of course, nobody wants to hear this kind of news. "We've got to fix the merchandising issues." "We've got to get customers from Brand #1 to switch to Brand #2." These solutions seldom, if ever work. Once one brand establishes itself as the dominant brand, other brands exist to serve the dominant brand. And when the less effective brand is finally shut down, as almost always happens, Brand #1 suffers as well.

Within brand ecosystems, it is critically important to understand the role each brand plays. There's going to be a dominant brand. There are going to be brands that struggle to grow. If you can demonstrate that new customers in Brand #2 become loyal Brand #1 customers, then leverage this relationship to your advantage.