May 27, 2008

Great Moments In Database Marketing #8: The Rolling 12 Month File

The rolling twelve month file is one of the most under-utilized metrics in all of Database Marketing.

I was exposed to the metric in the early 1990s at Lands' End, after a few folks from Fingerhut made their way onto the Dodgeville campus.

The metric was put into use at Eddie Bauer in the mid 1990s. At the time, Eddie Bauer was a highly profitable brand, a brand going through an amazingly brisk retail transformation.

The rolling twelve month file is the "Dow Jones Industrial Index" of the Database Marketing world. It is a trailing indicator, telling you how many customers purchased from a product, brand, channel or store in the past twelve months. During times of change, the metric tells you what happened. It cannot tell you why something happened --- it is your job to figure out why!

We'd pick a market, say Omaha. Omaha did not have a retail store until the mid 1990s. We would measure how many customers purchased via the catalog, online, and retail channels in Omaha on a rolling twelve month basis.

When a store opened in a new market, the market was transformed. Catalog buyers decreased, online buyers flattened out, and retail buyer grew at a rapid rate. In other words, the new retail store was cannibalizing direct-to-consumer customers. And this is the way it generally works at brands that have a strong direct channel, then choose to add stores to the mix. Sure, you're now a multichannel brand, but the transformation comes with a cost.

In a new market, the rolling twelve month file for the retail store would stabilize within fifteen to eighteen month after a new store opened. After eighteen months, the market maintained a new balance between the channels, with each channel able to once again grow or thrive at the rate previous to the opening of the new store.

When you open a bunch of new stores, it is a good thing to conduct rolling twelve month file analysis for each market. The charts are also telling in saturated markets ... open a new store in a market that already has five stores, and watch what happens!

Any metric can be tabulated on a rolling twelve month basis. The key is to look for changes in the metric over time, then, dig into the data to understand why the metric is changing.

At Eddie Bauer, market saturation became obvious when viewing channels and stores through the rolling twelve month metric.

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