March 24, 2008

Multichannel Customers And Advertising

Please click on the image to enlarge it.

The most popular question asked of me is "When can I stop advertising to or reduce advertising to a segment of customers?"

Often, catalogers and retailers are unwilling to execute tests that will answer this question, opting instead to maximize short-term sales.

If you fall into that camp, try this:
  • Identify any customer who purchased from your brand in the past twelve months, and purchased at least ten times (since the first purchase).
  • Sum how many of the ten most recent purchases occurred, by channel.
  • Graph the frequency of occurrence, using one channel as the x-axis.
In the image at the start of this post, there are three distributions.
  • The U-Shaped Distribution occurs when your customer prefers shopping from one channel. Almost all customers buy from, say, the online channel, or the catalog channel, and tend to purchase in equal rates. When this happens, nearly half of your audience is eligible for a reduction in advertising, as nearly half of the audience buys online, and may be in the habit of shopping online without the need for catalogs.
  • The Bell-Shaped Distribution occurs when customers swap back and forth, between channels, not exhibiting a preference for any one channel. In this case, you probably need to continue catalog advertising.
  • The Skewed-Shape Distribution happens when customers generally shop in just one channel, and show a clear preference for just one channel. This frequently happens in online/retail situations, where customers inevitably shift their preference to the retail channel.
If you want to reduce advertising (catalog advertising in particular), you don't want to see the bell-shaped distribution. When customers switch back and forth between channels, they are likely to be semi-dependent upon catalog advertising. Instead, you want to see a lot of customers who are 100% or nearly 100% loyal to the online channel. This is the audience that could stomach a reduction in advertising, without adversely impacting the top line.

A Great Catalog Customer

Here is my Catalog Optimizer for a "Great" catalog customer. Tell me the story the data tells you: The current strategy o...