May 03, 2009

The Most Important Catalog And E-Mail KPI: The Organic Percentage

Last week, I received an e-mail from a loyal blog subscriber. This person did the mail/holdout testing that many catalog brands execute. This person learned that more than 70% of the business that you see in best-practice based catalog results analysis happened regardless whether a catalog was mailed or not.

This phenomenon is known as the "Organic Percentage". You execute a mail group and a holdout group, very simple testing.

Organic Percentage: Mail & Holdout Test Groups






This Other Website Total

Catalog Catalogs Demand Demand
Mail Group $3.00 $4.00 $8.00 $15.00
Holdout Group $0.00 $5.00 $9.50 $14.50
Increment $3.00 ($1.00) ($1.50) $0.50
Organic %, Catalog = (3.00 - 0.50) / 3.00 83.3%
Organic %, Total = 14.50 / 15.00
96.7%

This outcome is seldom if ever mentioned by e-mail vendors or catalog marketing vendors. The opposite outcome is mentioned all of the time --- we hear that catalogs and e-mails drive sales across all channels. This outcome is more common than the oft-publicized "catalogs drive sales to all channels" outcome we read about.

Almost nobody talks about reducing marketing expense and increasing profit because we are mis-attributing orders to customers who would have ordered anyway. The vendor ecosystem would be hurt if this outcome were published on a frequent basis.

In this case, 96.7% of customer demand happens anyway .. only 3.3% of the $15.00 is because of catalog marketing.

Quantifying the organic percentage is the single most important thing that catalog and e-mail marketers will do in 2009.

Acting upon the organic percentage is the single most important thing that catalog and e-mail marketers will do in 2010.

At this time, the majority of my Multichannel Forensics projects require me to greatly reduce marketing expense while keeping demand coming in at a high rate. It is likely that you'll be spending a ton of time on this issue in 2010 as well.

3 comments:

  1. Hi Kevin,

    Fascinating stuff - I notice there aren't many email marketers commenting...

    Broad question for you: what do you believe are the main determinants/drivers of this organic percentage?

    It seems to me that organic percentage is tied to branding and that for a large, established brand with broad exposure to their target market, the organic percentage is likely to be much higher than say, for a smaller or newer brand. (I doubt this is the only factor, but it's the first that comes to mind.)

    In your view, is it simply a question of branding? If not, how else might a company move along a continuum from low organic percentage to a higher one? (And is this a good thing? I'm taking it as though it is a good thing.)

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  2. I consult with a small business that still gets 70% of the business without mailing catalogs.

    So I guess what matter is if you acquire the customer and please the customer, then you probably don't have to advertise to the customer as heavily as you might think you need to. Some would call that branding. I'd just call it pleasing the customer!

    Yes, this is a good thing. Think Zappos.

    ReplyDelete
  3. Thanks for confirming my impression of the organic percentage - and for the 70% example.

    Of course, I'm sure the catalog dept. at that company is quick to point out that by mailing catalogs they increase business by 43% over the no-catalog approach ;)

    Zappos definitely builds loyalty well. I'd like to see more companies try using email to increase value (to the customer) and build loyalty, rather than just as a push-button sales maker... but that requires a serious long-term approach that's rare anyway, and doubly so in a recession.

    Thanks again for the food for thought!

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