May 09, 2017

Classic Analytics Blunder in Catalog Marketing

The e-commerce leader says the following:
  • "We sent a catalog to our loyal customer base, and the catalog worked wonders! Those who received the catalog spent an average of $11.88 per customer. Do you have any idea how profitable that is?"
I do have an idea how profitable that is.
  • "It's not very profitable."
Did the e-commerce leader execute a mail / holdout test to understand the incremental impact of the catalog on her customer base?
  • "No."
This is a common narrative in the past three years.

Here is what mail / holdout results tell us.
  • Mailed = $11.88 spent on average, eight week results.
  • Not Mailed = $9.01 spent on average, eight week results.
  • Incremental Value = $11.88 - $9.01 = $2.87 on average, eight week results.
On the surface, the catalog looks wonderful.
  • Profit = $11.88 * 0.40 - $1.00 = $4.75.
In the real world, the catalog looks ... ok.
  • Profit = $2.87 * 0.40 - $1.00 = $0.15.
Now, we can't expect e-commerce leaders to measure things properly when 80% of catalogers purposely overstate catalog results so that they can continue to mail catalogs.

But in a "data-driven" world, we need to do a better job of analyzing the "incremental value" of marketing efforts. So let's start doing that today ... it's not hard ... and it's FUN ... and you'll generate a lot of profit for your company.

Mail / Holdout results.

Demand simple excellence, ok?