Here's what happens. Based on considerable customer analysis, we have a customer who like to buy full-price merchandise. Here's what this customer is expected to do, next year:
|Normal Scenario||Full-Price||Discounts||Grand Totals|
|Less Mkt. Exp.||$7.00||$2.50||$9.50|
|Profit % of Net Sales||21.0%||7.3%||18.7%|
Notice that this customer has a reasonable chance of taking advantage of one of our many discount schemes (lower prices, free shipping, %-off offers). If the customer takes advantage of an offer of this nature, here's what next year's activity looks like:
|Transition To Discounts||Full-Price||Discounts||Grand Totals|
|Less Mkt. Exp.||$5.00||$11.25||$16.25|
|Profit % of Net Sales||13.5%||7.3%||9.5%|
The customer is fundamentally different now. She actually spends more, $70 per year instead of $60 per year, but she's going to shop when you tickle her buying bone. And it costs money to tickle the buying bone of a loyal customer.
This style of analysis is essential in 2009. We need to see whether our thirst for clearning merchandise and "maintaining market share" in Fall 2008 have a detrimental impact on customer profitability in 2009.
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