May 18, 2008

The Long Term Impact Of Sluggish Sales In 2008

Many folks are telling me that business in the multichannel direct-to-consumer world is down an aggregate 15% to 25% compared to 2007.

Poor performance manifests itself in the short term, and in the long term. Worse, it manifests itself in a harsh manner across brands/channels in Retention Mode.

Take a look at the table below:

Long-Term Impact Of Bad Performance In 2008

Retention Retention Acquisition Acquisition

Mode Mode Mode Mode

No Cuts And Cuts No Cuts And Cuts

2008 -20.2% -23.9% -19.4% -23.3%
2009 -9.6% -16.8% -6.6% -7.4%
2010 -7.0% -11.9% -2.8% -3.5%
2011 -4.3% -8.7% -1.9% -1.9%
2012 -2.8% -6.1% -1.1% -1.1%

A business in retention mode (annual repurchase rate > 60%) feels the pain much longer than a business in acquisition mode (annual repurchase rate < 40%).

In the table above, we compare what happens when 2008 is down about 20% to 2007, but the business immediately rebounds to normal levels for 2009 - 2012.

The retention mode business is down almost ten percent in 2009 because of a bad 2008, down seven percent in 2010 because of a bad 2008. And then factor in our natural reaction to cut marketing expense --- which accelerates the downturn in 2009 - 2012. This is where many of our retention mode businesses are heading, especially those trimming marketing expense to "get through 2008".

Notice that the acquisition mode business is not hurt nearly as bad. Because this business depends upon new customers, it rebounds quickly.

In an economic downturn, knowing the mode your business is in (Retention, Hybrid, Acquisition) means everything to making marketing expenditure decisions. Run the metrics, and understand what current day decisions mean to the long-term health of your business.

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