After looking at simple metrics like new customers and performance by segment (evaluating performance at a 10 foot level), you need to step back, and evaluate performance at a 10,000 foot level.
I always start with what I call a "comp segment analysis". You've heard me say this several times, but I am surprised that I've yet to see one person perform this analysis in my travels over the past five years ... not one single person mentioning it on Twitter, not one person in the blogosphere, or at any conference I've been to ... not one.
I like to look at customers who purchased exactly two times last year ... in some cases, I'll add a 0-3 month recency filter to the query, but overall, I like to look at customers who purchased exactly 2 times last year.
Say we're looking at the month of February. I will freeze the file as of 1/31, and identify all customers with exactly two purchases in the year prior to 1/31. Then, I simply calculate the average amount each customer spent from 2/1 - 2/28.
It's not a difficult analysis.
It is a revealing analysis.
Here's an example. Tell me what you see going on here:
In this case, comp segment performance is down by about 6%, so that's not good. However, look at the "Existing Comp" and "New Comp" columns. Existing items are performing reasonably well, heck, they're even outperforming last year.
In this example, new items are the problem ... performance is bad, very, very bad, and has gotten worse each of the past six years.
Have you done this analysis?
Like I said, I've yet to run across anybody who does this. In this case, the marketer pinpoints the problem with performance. It isn't landing pages. It isn't offers in email campaigns. It isn't long-tail search performance. It isn't channel shift. It is a merchandising issue, one being driven by an inability to either create new items, or one being driven by terrible performance among new items.
Run the analysis. Let us know what you learn. If you don't have the resources to run this analysis, give me a holler, I'll do it for you.
Please click on the image to enlarge it.
We recently discussed how business leaders can improve business performance by focusing on key metrics like Final Fulfillment, Return Rate, Gross Margin, and Pick/Pack/Ship expense.
The catalog/e-commerce CEO sets objectives designed to drive improvements in these metrics.
Next, the business leader focuses on understanding if customers are truly spending more, or have curtailed spend over the past several years.
"Comp Segment Performance", something I learned about at Eddie Bauer back in 1996, is one of the better ways to analyze this issue. And there are an infinite number of ways to look at comp segment performance.
The process generally involves finding a segment of good customers, those in the top 25% to 35% of your customer file. Once you identify the segment, compare metrics like repurchase rate, spend per repurchaser, total revenue, and total profit on an annual basis, over the past five years.
Conversely, look at campaign-based catalog metrics like response rate, average order size, dollar per book, and demand per thousand pages circulated across a comp catalog over the past five years. In e-mail marketing, review open rates, click-through rates and conversion rates in comparable campaigns over the past five years.
In our example, management chose to look at annual metrics. Here is what total revenue looked like (indexed so that 1.00 is average):
- Five Years Ago = 1.00
- Four Years Ago = 0.90
- Three Years Ago = 0.97
- Two Years Ago = 1.05
- One Year Ago = 1.00
Notice that comp segment performance was roughly "average" last year. In other words, even though the brand experienced a terrible year, actual customer productivity is "average".
This suggests that the CEO does not have a serious merchandise issue to address. The CEO needs to focus on key operational issues, or needs to carefully review the marketing/advertising investment strategy.
Comp Segment Performance is an important component in the catalog/e-commerce CEO toolkit. All business leaders should have comp segment performance metrics readily available, produced on a monthly basis.
Homework Assignment: Review the following series of metrics. Which metric seems to have a disproportionate influence on the profitability of our brand?
| Demand to | Comp | Marketing | Profit / |
| Profit | Segment | Expense | EBT |
| 5 Years Ago | 0.269 | 1.000 | $3,000,000 | $660,529 |
| 4 Years Ago | 0.235 | 0.900 | $3,150,000 | ($315,375) |
| 3 Years Ago | 0.219 | 0.970 | $2,235,797 | $63,008 |
| 2 Years Ago | 0.235 | 1.050 | $2,013,020 | $550,175 |
| 1 Year Ago | 0.244 | 1.000 | $3,780,004 | ($258,027) |
