But you can't run and hide from Comp Segment Performance.
We've talked about Comp Segment Performance on numerous occasions. I like to analyze customers who purchased exactly two times (three times for businesses with annual repurchase rates above 60%) in the past year. I freeze the customer file as of, say, September 15, I pull out all customers who purchased exactly twice in the past year, and then I analyze how much these customers spent from September 16 to October 15. This query is replicated for each of the past, say, five years.
When a business is in a death spiral, Comp Segment Performance declines.
Let's look at this example, for performance from 9/16 to 10/15:
First of all, you notice that the number of buyers who qualify for our definition of a "Comp Segment" is in decline. This is a classic sign of a business in a death spiral ... the number of "good" customers are in decline.
Second, notice that customer spend is largely in decline. Businesses in a death spiral tend to have infrequent, small productivity improvements that are followed by more frequent, larger productivity declines. In this case, the decline brought on by the recession in 2008 is offset by an increase in 2009 that doesn't fully replace what was lost.
Now, crafty folks take this a step further. They look at the promotions offered during this timeframe, and they strip out the impact of the promotion.
- 2011 = 20% off plus free shipping (+35% to baseline).
- 2010 = Free shipping (+25% to baseline).
- 2009 = Free shipping on orders of $100+ (+10% to baseline).
- 2008 = No Promotion.
- 2007 = No Promotion.
Now we can see what has happened to merchandise productivity over time. When we strip out the impact of promotions, we have a business in clear decline.
This is one of the first analytics projects that are run by folks trying to understand whether a business is truly mired in a death spiral. We want to understand what is truly happening to merchandise productivity over time. In this case, merchandise productivity is down 37% over a four year period of time, and has been masked by an ever-increasing rate of promotions that erode overall profitability.