February 05, 2008

E-Commerce And Catalog Management Case Study: Comp Segment Performance

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)

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