What Do Channel-Centric Models Look Like?

Here's an example of very simple models predicting how much a customer will spend next year in each channel, based on weighted historical spend. More on model development in a moment.

The models are built (in this case) just for twelve-month buyers.

Historical spend is weighted as follows (based on another modeling process):
• 0-12 Month Spend = 100%.
• 13-24 Month Spend = 60%.
• 25-36 Month Spend = 36%.
• 37-48 Month Spend = 22%.
Let's evaluate a handful of customers. We'll start with a \$200 weighted retail customer.
• NY Call Center Spend = \$6.00
• NY Online Spend = \$5.83
• NY Email Marketing Spend = \$2.89
• NY Search Marketing Spend = \$6.45
• NY Retail Spend = \$77.64
We easily see that this customer is going to spend money in stores next year, end of story. That's where the marketing effort needs to be. Still - customers are spending \$21 in the direct channel ... that's a lot. We'll compare that with the pure online customer later.

Ok - how about a customer with \$100 online and \$100 in store?
• NY Call Center Spend = \$5.20
• NY Online Spend = \$33.33
• NY Email Marketing Spend = \$4.59
• NY Search Marketing Spend = \$8.15
• NY Retail Spend = \$45.24
The customer mixes dollars across channels - but notice that more money is spent in the future in the direct channel (call center + online + email + search) than in retail. This is a dynamic that is slowly imploding the retail industry.

How about a customer with \$200 online and \$0 in store?
• NY Call Center Spend = \$4.40
• NY Online Spend = \$60.83
• NY Email Marketing Spend = \$6.29
• NY Search Marketing Spend = \$9.85
• NY Retail Spend = \$12.84
The direct channel gets \$81 of volume to just \$13 in stores.

We have a unique shift happening, don't we?
• Retail Only buyer spends \$21 in direct channel next year.
• Online Only buyer spends \$13 in stores next year.
These shifts are helping drive the implosion in traditional retail. When customers have reasonably equal historical spend, future spend shifts online ... the only way stores overcome this is to increase customer acquisition activities ... and that's hard to do when stores are closing.

More on the topic after the weekend.