Showing posts with label DMPC. Show all posts
Showing posts with label DMPC. Show all posts

## May 02, 2009

### Catalog Page Counts And The Square Root Rule

Many of you are looking to trim expense, while maintaining demand. For some, this means reducing the number of pages in a catalog.

Remember, there is a quick formula for estimating the demand impact of fewer pages in your catalog --- just use the Square Root Rule.

Example:
• You have a catalog with 124 pages.
• You expect the catalog to generate \$5,000,000 in demand.
• Your CFO wants you to cut 8 pages, leaving you with 116 pages.
• Demand = (116/124)^0.5 * \$5,000,000 = \$4,836,021.
You run a profit and loss statement on 116 pages generating \$4,836,021 ... is that more profitable than 124 pages generating \$5,000,000. Your printer can help you with printing efficiencies at different page counts, efficiencies that point to optimal page counts.

Also, your "DMPC", demand per thousand pages circulated, improves as pages are reduced ... this means that you can actually circulate deeper into your file as pages are reduced.

## April 27, 2009

### A Modern Catalog Square Inch Analysis (Squinch)

A Modern catalog square inch analysis (called squinch by some) is a different proposition than it was fifteen years ago.

For most of us, we don't have a housefile big enough to truly detect what a catalog drove to the online channel, at an item, department, or division level. So we have to make some assumptions.

Here's one way to approach a modern catalog square inch analysis.

Step 1: Conduct your standard mail/holdout test. If you're under fifty million in annual sales, you'll probably need at least 7,500 folks in your holdout group to get a halfway decent read of online results.

Step 2: At the conclusion of your test (say eight weeks after the in-home date), you'll measure your results as follows:

 Catalog Square Inch Analysis Test Results Current Other Online Catalog Catalogs Sales Totals Mail \$3.00 \$8.00 \$6.00 \$17.00 Holdout \$0.00 \$9.00 \$4.50 \$13.50 Increment \$3.00 (\$1.00) \$1.50 \$3.50

Ok, things are going to start getting interesting.

Step 3: Tally the total sales for your catalog, based on your telephone results. Let's assume that number is \$2,000,000.

Step 4: Ok, we have to adjust for cannibalization. This catalog, based on the test results, cannibalized other sales by 33% (the dollar lost in the table above divided by the three dollars of incremental sales per customer. So, the \$2,000,000 in sales is multiplied by 0.333, yielding \$666,667 that will be taken away in Step 6.

Step 5: Now, we have to adjust for the sales we drove online. Based on the test results, we drove an additional \$1.50 online, a 50% increase (the \$1.50 driven online divided by the \$3.00 recorded by the catalog). So, the original \$2,000,000 in sales is multiplied by 0.500, yielding \$1,000,000 that will be added in Step 6.

Step 6: Let's come up with a final demand number. We take the \$2,000,000 telephone sales number, we subtract \$666,667 for cannibalization across other catalog phone demand, then we add \$1,000,000 of incremental online volume. In total, the catalog drove \$2,000,000 - \$666,667 + \$1,000,000 = \$2,333,333.

Step 7: Take \$2,333,333 and divide it by the \$2,000,000 your systems recorded, yielding a "lift factor" of 1.167.

Now we can calculate a semi-accurate DMPC (demand per thousand pages circulated) for each item. DMPC is a very good measure when doing a square inch analysis.

Step 8: Record the phone sales for an item. Say that amount is \$10,000.

Step 9: Multiply that number by the lift factor in Step 7 of 1.167, yielding \$11,670.

Step 10: Record the percentage of a page that the item occupied in the catalog. Let's assume an item took up 0.25 of a page.

Step 11: Record the total circulation of the page in the catalog. Let's pretend the number is 750,000.

Step 12: DMPC (Demand per Thousand Pages Circulated) is calculated as:
• ((Lifted Demand) / (Fraction Of Page * Circulation)) * 1,000.
• Or ... ((Step 9) / (Step 10 * Step 11)) * 1,000.
• (\$11,670 / (0.25 * 750,000)) * 1,000.
• = \$62.24.
And that's it. Just twelve easy steps. You compare the DMPC of this item against other items. You calculate a "break-even", and compare items against the break-even level.

Big companies have an advantage, in that they can calculate lift at a merchandise division or department level --- there are enough customers in a holdout group to do this. At Nordstrom, we learned that we didn't have to offer Mens merchandise in a catalog ... the very presence of Womens merchandise drove customers online (and into stores) to buy Mens product.

Anyway, that's how we conduct a modern catalog square inch analysis.