Y'all have heard of Customer Lifetime Value (called CLV or LTV), right? Another 10% of you calculate the metric and know what the right level of customer acquisition spend truly is.
Of course, marketers focus on the metric from the perspective of the customer, and for good reason.
But what about merchandise? Is there a version of lifetime value associated with merchandise?
Of course there is!
Call it "MLV" or "Merchandise Lifetime Value". It's the amount of demand and/or gross margin dollars that can be generated by a new item over time.
It's a critically important metric, because by knowing the metric the marketer can do two things.
- The marketer can tell the merchandising team how many new items have to be released annually to achieve important company goals.
- The marketer can feature new items that are about to become winners, thereby increasing MLV ... and when MLV increases, all marketing performance increases, which means that the marketer can spend more on all of the tactics the marketer loves to execute.
Look at the image above - an average new item generates $273,000 in year one, then $511,000 in year two, then $415,000 in year three, then $342,000 in year four, and $283,000 in year five.
Of course, by year five, we don't have the same quantity of items that we started with. Items are discontinued, while a small fraction of items become winning items and those items generate a fortune.
The graph above demonstrates what a difficult year the first year is - this is when the marketer needs to step in and make sure that new items are given ample exposure so that the potential winners actually become potential winners. Too often marketers squelch new merchandise (I've done it) by not giving new merchandise enough exposure.
More on the topic tomorrow.