You optimized the business (click here for the spreadsheet) by entering the following parameters.
- D6 = 0.700.
- D7 = 0.250.
- D8 = 0.100.
- D9 = 0.100.
- D10 = 0.100.
- D11 = 0.450.
- D12 = 0.300.
- D13 = 0.300.
- D14 = 0.200.
- D15 = 0.100.
- D17 = 2.000.
Now, I want you to do one more homework assignment for me. Here's what we are going to do. Please change cells G19 - P19 from 1.00 to 1.10. This simulates a 10% increase in merchandise productivity. Look at what happens to top-line demand, marketing dollars, and profit.
Optimized Case (Year 10) = $124,495 demand (in thousands) ... $22,708 marketing spend ... $27,090 variable operating profit.
10% Merch Productivity Gain (Year 10) = $156,466 demand ... $25,805 marketing spend ... $36,782 variable operating profit.
This is why I CONTINUALLY HARP ON MERCHANDISE PRODUCTIVITY!!!!!!1
The 10% increase, over time, compounds ... yielding a 25% increase in demand, increased marketing spend (because there are more customers to market to), and another 33% increase in profitability.
Your merchandising team means everything to your business.
Here's the fun part.
We're not done, yet. Now, as a marketer, it is your job to optimize spend once again. Better merchandise productivity yields increased marketing spend.
Your homework assignment: Go back to cells D6-D15, and D17, and enter new spending estimates until you optimize the business.