March 13, 2011

Dear Catalog CEOs: Next Order Matters

Dear Catalog CEOs:

I've probably mentioned this fact two hundred times across 2,000 blog posts in five years.
  • "It's more important to look at what a customer does next than it is to match back or attribute past orders to the advertising that caused the order."
The traditional approach is to take all February online orders, then match them against customers mailed a catalog.  If the customer was mailed a catalog, the order is credited to the catalog.  A profit and loss statement is run against the catalog, determining page count and circulation depth for next year.

By now, we know this method is patently wrong.  When we run mail/holdout tests, we immediately learn that many orders "happen anyway", without the aid of advertising.

Just as important is the concept of the "next order".  I'll give you an example of what folks are doing.  They take customers who ordered via Search in January, and they measure what these customers do if they order again in February ... in other words, where are the orders distributed in February?
  • Catalog Marketing = 35%
  • E-Mail Marketing = 28%
  • Search Marketing = 22%
  • Organic Online Orders = 9%
  • All Other Channels = 6%
It turns out that this "next order", "forward looking" metric is very helpful ... it clearly helps you understand which channels the customer interacts with.

You could use these percentages in their matchback algorithm ... they credit 35% of a search order back to a catalog, 28% back to e-mail, 22% to search, 9% to e-commerce brand affinity, and 6% to other channels.  You could average channel percentages from the past "x" months and next "x" months as well.

Most important, my projects clearly indicate that history "fades quickly" ... I weight historical dollars by recency, and continually observe that historical dollars have very little weight in determining what will happen in the future.  This is a change from fifteen years ago, when historical dollars carried considerable weight.

So look forward.  We obsess with history, with "matching back", with "attribution".  Look forward, the next order matters.

Hillstrom's Catalog PhD

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