November 20, 2018

Merchandise Lifetime Value - MLV - Depends On First-Year Performance

Let's say that a new item performs in the bottom 45% of the assortment.
  • Five-Year Cumulative Demand = $348.
Let's say that a new item performs between the 46th percentile and the 70th percentile.
  • Five-Year Cumulative Demand = $1,569.
Let's say that a new item performs between the 71th percentile and the 85th percentile.
  • Five-Year Cumulative Demand = $4,328.
Let's say that a new item performs between the 86th percentile and the 95th percentile.
  • Five-Year Cumulative Demand = $11,380.
Let's say that a new item performs between the 96th percentile and the 100th percentile.
  • Five-Year Cumulative Demand = $35,714.
Yes, this is based on actual data I recently analyzed.

This is why it is SO IMPORTANT for the marketer to play a key role in promoting new merchandise to the customer base. Just migrating a lousy new item to the 46th - 75th percentiles results in a nearly 5x improvement in MLV.

Bumping the item up another level increases MLV by nearly 3x.

Bumping the item up another level increases MLV by nearly 2.5x.

Bumping the item up to peak winning status increases MLV by another 3x.

Now, are you ever going to get a crappy new item to become a peak winner? Absolutely not. But can you move an item up one segment, and achieve a 3x-ish MLV improvement for the item?? YES!!!! And if you do that consistently, you'll have great merchandise productivity, and that causes your marketing productivity to greatly improve - allowing you to spend more on marketing at a better ROI.

Are you against achieving better marketing ROI via giving new merchandise appropriate exposure?

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