### Case Study, Part Three

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This week, we spent two days talking about an online-only business selling Golf Clubs, Golf Accessories and Golf Apparel (First Article, Second Article).

Recall that management wants to grow the Accessories division, hiring a new merchant to lead the charge. This merchant believes that Accessories-only customers will see increased corporate repurchase rates, from 30% to 36%, because the merchandise will be a lot more appealing than it has been.

What impact would this have on the total business?

If the corporate repurchase rate holds at 30% for Accessories-only customers, sales next year will be \$9.1 million in Clubs, \$5.1 million in Accessories, and \$10.5 million in Apparel. Projecting these rates ahead for four additional years, sales in year five will be \$11.0 million in Clubs, \$6.1 million in Accessories, and \$12.6 million in Apparel.

If the corporate repurchase rate increases to 36% for Accessories-only customers, sales next year will be \$9.3 million in Clubs, \$5.2 million in Accessories, and \$10.5 million in Apparel. Projecting these rates ahead for four additional years, sales in year five will be \$11.6 million in Clubs, \$6.4 million in Accessories, and \$12.7 million in Apparel.

Because Accessories buyers will purchase Clubs, both merchandise divisions benefit by improvements made in Accessories merchandise. Accessories buyers, in this example, are not likely to cross-over and purchase Apparel. As a result, Apparel does not grow if Accessories are improved.

This leads us to an interesting question: Which type of customer is most valuable to this online-only brand?

Three simulations were run. The first simulation looked at sales for 1,000 Customers who only purchased Golf Clubs last year. The second simulation looked at sales for 1,000 Customers who only purchased Golf Accessories last year. The third simulation looked at 1,000 Customers who only purchased Golf Apparel. Each simulation sums total demand over five years, by merchandise division.

Here are the results.

• \$214,518 on Golf Clubs over five years.
• \$126,380 on Golf Accessories over five years.
• \$26,607 on Golf Apparel over five years.
• \$367,505 total brand spend.
• \$265,810 on Golf Clubs over five years.
• \$129,904 on Golf Accessories over five years.
• \$40,045 on Golf Apparel over five years.
• \$435,759 total brand spend.
• \$109,409 on Golf Clubs over five years.
• \$44,643 on Golf Accessories over five years.
• \$338,217 on Golf Apparel over five years.
• \$492,269 total brand spend.
These are interesting findings, when simulated over five years.

Notice how dependent Golf Clubs and Golf Accessories are upon each other. Increased sales in one merchandise division result in increased sales in the other merchandise division, over time.

Also notice that Golf Apparel buyers represent the division that has the best long-term sales value. However, these customers are not likely to buy Golf Accessories.

This phenomenon accounts for the reason why Golf Accessories have not had the sales volume that Golf Clubs and Golf Apparel enjoyed.
• Golf Clubs get sales from Golf Accessories and Golf Apparel buyers.
• Golf Accessories get sales from Golf Club buyers.
• Golf Apparel does not get sales from other merchandise division buyers. However, Golf Apparel has the most customers, because it has the highest overall repurchase rate for customers only buying from one division. This drives the success of this division.
When we focus on conversion rates, landing pages, average order size, PPC, and all the other components of online merchandising, we focus on what happens during only one visit.

What we need to spend more time doing is analyzing customer behavior over time.

By analyzing customer behavior over time, using Multichannel Forensics, we notice that it will be very hard for the new Accessories executive to grow the business to similar rates seen in Golf Clubs and Golf Apparel.

In the final installment of this series, we'll investigate what it would take for Accessories to have the sales that Apparel enjoys.