March 26, 2012

What Happens When We Stop Mailing Jasmine?

You probably have five year forecasts for your business, down to an Earnings Before Taxes level, right?

And you are able to run scenarios that allow you to see what happens if you change your business strategy, right?

If not, give me a holler, and I'll set something up for you ... click here please!

Let's run through an example.  Here's where our current business is headed.

Clearly, this business is stuck, highly profitable no less, but stuck.

Assume you have test results, and you know that Jasmine generates 70% of her demand without the aid of catalog marketing.  What would happen if you stopped mailing Jasmine altogether?

Well, this is interesting, isn't it?  The simulation (contact me for your own, customized simulation tool) actually suggests that, in the short term, profit increases ... but over time, there is housefile weakness associated with not having as many customers like Jasmine, resulting in an overall sales decline and slightly less profit in the fourth and fifth year.  Overall, the best decision, from a profit standpoint, is to not mail Jasmine.

Of course, some will say that this strategy is extreme.  Let's try a compromise, then.  Let's mail this customer 30% of the annual diet of catalogs.  Here's the outcome of the simulation:

Oh my!

After the first year, you lose, on average, 10% of top-line demand.

You are, however, more profitable every single year, to the tune of 13% more profitable over a five year time frame.

Go take the ad cost you save, and reinvest it somewhere, reinvest it in a way that grows the business.  Heck, you're better off finding another Judy from a co-op at a loss than mailing Jasmine a relentless stream of media she's not interested in.

In this simulation, we learn that we should mail Jasmine 30% of the annual diet of catalogs she's currently getting.  This advertising plan results in optimal profit for the company.

You probably have somebody in your company already running five year sales forecasts, simulating different outcomes.  Plug this level of business intelligence into your forecasting strategy, and see what happens!

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