January 12, 2011

Analytics Thursday: Channel Shift to Mobile

Old School Issue:  In the Fall of 2001, the internet was in the early stages of obliterating traditional shopping habits.  The shift in customer behavior was not well understood.  Too often, the "best" customers were ones making the shift from offline to online, clouding the issue, making it look like channels add up to increased customer value.  I was working at Nordstrom at the time, as Vice President of Direct Marketing, suggesting to folks that the internet was about to fundamentally change our lives.  Our Divisional President liked to see data presented in a specific, calculated manner, before accepting the hypothesis that the internet would dramatically change customer behavior.

He asked my team to prepare the following query.
  • Identify customers who, as of 12/1/2000, were identical in customer quality ... having spent $450 - $550 in the past five years, having purchased one time in 2000, and having spent all of their previous money in the telephone/catalog channel.
  • During December 2000, require that this audience purchased exactly one time.
  • Split the audience by those who purchased in December 2000 via telephone/catalog, and those who purchased online after receiving a catalog.
  • Measure spend from 1/1/2001 to 11/30/2001 by physical channel (telephone, online).
The theory was that customers had identical historical behavior, so the only thing that was different was the choice of one segment of customers to buy online vs. the choice of another segment of customers to buy via the telephone.  Here's the results of the query.
  • Telephone/Catalog Buyers Future Spend, Telephone Channel = $100.
  • Telephone/Catalog Buyers Future Spend, Online Channel = $10.
  • Telephone/Catalog Buyers Future Spend, Total = $110.
  • Telephone/Catalog Buyers Future Profit = $18.
  • Online/Catalog Buyers Future Spend, Telephone Channel = $45.
  • Online/Catalog Buyers Future Spend, Online Channel = $55.
  • Online/Catalog Buyers Future Spend, Total = $100.
  • Online/Catalog Buyers Future Profit = $15.
What Did We Learn?
  • Channel Shift was a real phenomenon.  Once the customer shifted to a new channel, subsequent behavior was permanently altered, with existing channels losing share to new channels.
  • Channel Shift resulted in a reduction in future profit.
  • The results of the query weren't popular, but they were real.  Channel shift was going to require a fundamental shift in how to manage customer behavior.  Folks didn't like the results, folks didn't believe the results.  It didn't matter ... the customer clearly illustrated a change in behavior.
Modern Application:  The same methodology applies in the shift from the browser to a mobile app.  The online generation is going to suggest that the online experience fuels the mobile experience.  A new generation of business leaders are suggesting that the mobile experience is fundamentally different, altering customer behavior forever.  Use the methodology outlined in this article to accurately measure channel shift from the online browser to the mobile app.  I'm guessing that the results will be similar to the shift from offline to online a decade earlier.

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