The Catalog Analytics Challenge

You think you know a little something about catalog marketing and analytics?  Take this quiz, and find out for yourself.  You may just find out that you're the best qualified candidate for a job at a major retail brand!


Question #1:  You mailed a catalog to 1,000,000 households, and generated $4,000,000 in sales.  Your CFO wants to "grow the brand".  She asks you what would have happened if you had mailed 1,333,333 households.  If you mailed 1,333,333 households, what is the total amount of net sales you would have generated?

1. $4,618,744.
2. $5,333,333.
3. $6,000,000.

Question #2:  Your catalog was 96 pages, and generated $4,000,000 in sales.  Your CFO wants to "grow the brand".  Next year, she wants your catalog to total 128 pages.  If you hold circulation constant, what is your forecast for total sales generated by a 128 page catalog?

1. $4,618,744.
2. $5,333,333.
3. $6,000,000.

Question #3:  Online, your average order value is about $100.  When a customer orders from a 124 page catalog over the phone, the customer generates a $110 average order value.  If you offered a new, 180 page catalog, what is the average order value you would forecast?

1. $115.
2. $160.
3. $165.

Question #4:  If you want to learn the true amount of sales generated by a catalog, you should ...

1. Measure total sales generated at your call center.
2. Match back all online orders generated by customers mailed the catalog over a three week period of time to the catalog you mailed, sum those orders to call center orders attributed to the keycode on the back of the catalog.
3. Execute a mail/holdout test, subtracting the difference between the mailed group and the holdout group.

Question #5:  You mail 1,000,000 catalogs, generating $4,000,000 in sales.  40% of sales flow-through to profit, prior to subtracting catalog marketing costs.  The catalog costs $1,000,000 to send to customers.  How much profit did you generate by mailing the catalog?

1. $250,000.
2. $600,000.
3. $3,000,000.

Question #6:  Assume you mail a monthly catalog, three catalogs total per quarter.  In the quarter, a customer generates $12.00 demand from catalog marketing, and $12.00 independent of catalog marketing.  You decide to add one catalog to the catalog stream.  How much total demand (catalog + online) will a customer generate in the quarter with one four catalogs mailed instead of three catalog mailed?

1. $16.00.
2. $25.86.
3. $28.00.

Question #7:  Your CFO demands that a newly acquired customer pay you back within twelve months.  A newly acquired customer generates $15.00 profit in the first twelve months.  40% of the demand generated by a newly acquired customer flows-through to profit, prior to catalog marketing costs.  An individual catalog costs $1.00 to mail.  Assuming that the response rate is 2%, and assuming that the average order value is $100, can you generate enough profit in the first twelve months to offset the profit lost in the initial order?

1. Yes.
2. No.

Question #8:  In Question #7, how much profit did you lose, per respondent, on the initial order?

1. $6.00.
2. $9.00.
3. $10.00.

Question #9:  Your annual repurchase rate is just 28%, meaning that a measly 28% of last year's customers will purchase again this year.  Still, you generate EBITDA of 15%, meaning that 15% of all sales convert to profit, after subtracting all expenses.  Is your business a failure?

1. Yes.
2. No.

Question #10:  When you do not offer 20% off of your order, you generate a response rate of 5%, an average order value of $100, a cost to mail the catalog of $1.00, and 40% of demand flows through to profit.  When you do offer 20% off of your order, you generate a response rate of 6% and an average order value of $110.  Which strategy is more profitable?

1. A non-promotional strategy.
2. A promotional strategy.

Question #11:  You possess 2,000,000 twelve month buyers.  40% of your twelve month buyer file will repurchase last year.  How many new+reactivated customers do you need to satisfy your CFO's request to grow the twelve month buyer file by 10% next year?

1. 800,000.
2. 1,200,000.
3. 1,400,000.

Question #12:  Using the statistics in Question #11, how many new+reactivated customers do you need to satisfy your CFO's request to grow the twelve month buyer file by 10% next year, assuming you are able to increase your annual repurchase rate from 40% to 45%?

1. 1,300,000.
2. 1,400,000.
3. 1,500,000.
4. 1,600,000.

Question #13:  A customer generates a $130 average order value, purchasing 3 items per order.  What is the average price per item purchased?

1. $36.27.
2. $40.18.
3. $43.33.

Answers:

• Question #1 = 1.  You use the square root rule to approximate sales.
• Question #2 = 1.  You can also use the square root rule to approximate sales here!
• Question #3 = 1.  AOV is unlikely to increase significantly with more pages, given the online AOV.
• Question #4 = 3.  Mail/Holdout tests consistently deliver better results than those generated by matchback algorithms.
• Question #5 = $600,000:  $4,000,000 * 0.40 - $1,000,000.
• Question #6 = 2.  There will be cannibalization, meaning that you can't assume that the fourth catalog will generate what the first three catalogs generate.  That rules out answer three.  Answer one makes no sense whatsoever, leaving only answer two as a reasonable answer.
• Question #7 = 1, Yes.  (0.02*100*0.4 - $1.00)/(0.02) = Lose $10 up-front, generate $15 profit in the next year, net = +$5.00.
• Question #8 = 3 ... You lose $10.00 up-front (see Question #7 above).
• Question #9 = 2 ... No, your business is not a failure.  The repurchase rate is irrelevant.  Customer loyalty is irrelevant, it's your management of customer loyalty that matters most.  If your catalog business is generating 15% EBITDA, you are a highly successful business leader.
• Question #10 = 1 ... the non-promotional strategy is far more profitable ... non-promotional = (0.05*100*0.4 - 1.00 = 1.00 profit) ... promotional strategy = (0.06*110*0.4 - 1.00 - 0.06*110*0.20 = 0.32 profit).
• Question #11 = 3 ... you need 1,400,000 new+reactivated buyers.  Work backwards.  You need 2,200,000 to satisfy your CFO.  You have 2,000,000 twelve-month buyers who repurchase at a 40% rate, meaning that 800,000 will purchase again.  2,200,000 - 800,000 = 1,400,000.
• Question #12 = 1 ... you need 1,300,000 new+reactivated buyers.  Work backwards.  You need 2,200,000 to satisfy your CFO.  You have 2,000,000 twelve-month buyers who repurchase at a 45% rate, meaning that 900,000 will repurchase again.  2,200,000 - 900,000 = 1,300,000.
• Question #13 = 3 ... 130 / 3 = 43.33.

A 15 Year Old Analyst Running Circles Around The Rest Of Us

Those of us in the Database Marketing field are on the verge of losing our deathgrip on customer information.

As an example, take the blog Yuvisense, hosted by Yuvi, a fifteen year old in India. Recently, Yuvi decided to analyze information about uber-blogger Robert Scoble's blog. This link is the second of his posts about Scoble's blog.

Two topics come to mind.

First, who are you going to hire, the twenty-six year old who mails you a resume, touting the three years of experience at a great company, or Yuvi, the person who had the initiative at age fifteen to unabashedly share his analytical insights about a uber-blogger with the entire world, illustrating a clarity of presentation that most forty year olds cannot aspire to?

Second, pretend you are the Vice President of Database Marketing at a company like Talbots, J. Jill, Williams Sonoma, J.C. Penney, J. Crew, or any other company that starts with a J. In time, which option makes more sense?

Option #1 = Hire bright analytical minds, competing against companies like Google or Yahoo! on the basis of salary, benefits, stock options and prestige.

Option #2 = Farm out Database Marketing to Abacus or any number of competitors.

Option #3 = Make your analyses available to a throng of eager analytical bloggers, offering prize money to the individual who develops an acceptable answer, and a stipend to other individuals who invest time in the solution.

In time, I can see a world where folks like Yuvi access corporate datasets with anonymous information, creating brilliant insights and analyses that cannot possibly be matched by in-house talent. And what an interesting opportunity this presents for both businesses and individuals.

I subscribed to Yuvi's RSS feed. Let's see where Yuvi, and thousands of other bright, enterprising analytical minds take the field of Database Marketing.

Please Help Our Industry Measure Advertising Effectiveness!

Online/Catalog marketers (frequently called Multichannel marketers) have inherent challenges in properly allocating a purchase to the advertising tactic that truly drove the order. If a customer receives a catalog, several e-mail campaigns, and maybe additional direct mail within a short period of time, a purchase may have been caused by a combination of marketing activities, not just any one marketing activity. Posts from the past few days talk about this topic.

So, I am seeking your assistance. Download this spreadsheet with ten thousand simulated customers: MTD_Advertising_Effectiveness.xls

The spreadsheet has one row per customer. Each column in the spreadsheet is described here:

• Customer Number = Uniquely identifies each customer.
• Recency = Months since last purchase, grouped into segments.
• Frequency = Number of lifetime purchases, grouped into segments.
• Monetary = Average Order Size, grouped into segments.
• Receive Catalog = Yes/No indicator telling whether customer received a catalog in the past month.
• Receive Postcard = Yes/No indicator telling whether customer received a direct mail postcard promotion in the past month.
• Receive E-Mail Campaign #1 = Yes/No indicator telling whether customer received the first of two e-mail campaigns in the past month.
• Receive E-Mail Campaign #2 = Yes/No indicator telling whether customer received the second of two e-mail campaigns in the past month.
• Catalog Net Sales = Amount customer spent via the telephone channel in the past month.
• Online Net Sales = Amount customer spent via the online channel in the past month.

Here is what I would like for you to do. Analyze the dataset, and properly allocate the net sales each of the four advertising activities drove to the catalog/telephone channel and to the online channel. I provided the customer segmentation information, should you wish to control for this data. Sales that cannot be attributed to one of the methods of advertising should fall into the "organic" row in the table below.

When you have completed your analysis, submit a document (either MS-Word or PDF format) with your findings. Your analysis must have the following table, with the following information (your need to complete this table to have your results published):

The MineThatData Advertising Effectiveness Challenge
	Catalog	Online	Total
	Net Sales	Net Sales	Net Sales
Catalog Mailing	?	?	?
Postcard Mailing	?	?	?
E-Mail Campaign #1	?	?	?
E-Mail Campaign #2	?	?	?
Organic Sales	?	?	?

The analysis should yield about $59,000 total catalog sales, and about $72,000 total online sales.

The goal of this project is to help marketing individuals in the online/catalog multichannel world understand how they should measure advertising effectiveness. Keep that in mind when you summarize your findings. You are speaking to a marketing executive who may not be well-versed in analytics.

I will accept entries between now and January 31, 2007. I will publish all findings, so long as the table mentioned above is completed and your write-up can be understood by a marketing executive.

This exercise provides strong analytical individuals a good opportunity to showcase their skills. Vendors, in particular, have a great opportunity to illustrate use of their tool-set for marketing individuals who make decisions about which vendor to work with. Online/Catalog marketers have an opportunity to learn how they can improve their advertising measurements.

Please forward this post to your analytically-minded friends, and vendors who may already provide solutions to problems of this nature. Let's see if we can find a way to improve advertising measurement. I will post all completed entries in early February.

Friends of MineThatData

From time to time, I will be sharing commentary from individuals in the Database Marketing, Direct Marketing, and Analytics areas of the blogosphere. If your site falls into one of these three categories, you can become one of the "Friends of MineThatData".

Here is the inaugural "Friends of MineThatData", with associated BlogJuice rankings.

4.2 Occam's Razor
3.1 LunaMetrics
3.0 Juice Analytics
1.9 Rimm Kauffman Group Blog
1.2 Acxiom-Direct Blog
1.1 Enterprise Decision Management
0.9 Marketing Measurement Today
0.8 Marketing Geek
0.8 Chris Baggott's E-mail Marketing Best Practices
0.6 Sports Marketing 2.0
0.5 Digital Solid
0.5 Profitable Marketing
0.5 Rick Whittington
0.5 Power Points
0.5 Customer Experience Matrix
0.5 Sandeep Giri's Blog on Business Intelligence

If you enjoy reading other Database Marketing, Direct Marketing or Analytics websites, or want to be considered for inclusion, give me a holler.