April 30, 2019

Hillstrom's Targeting: Calculating The Organic Percentage

I recall analyzing this test at Eddie Bauer ... in 1996.

1996. Twenty-three years ago.

Of course, we didn't have mobile in the mix, so we just removed that column and analyzed the rest.

You have your mailed segment, you have your holdout segment, and you run the test for three months or six months or preferably a year. Then, by channel, you compare what you sold in the mailed group vs. what you sold in the holdout group. Look at the results (bottom arrow).
  • Mailed-In Checks = 10% Organic (90% catalog driven).
  • Call Center / Phone = 30% Organic (70% catalog driven).
  • Desktop / Laptop = 60% Organic (40% catalog driven).
  • Mobile = 80% Organic (20% catalog driven).
The overall average was 49% Organic (51% catalog driven).

Now, you go into your database and you use weighted demand and weighted organic percentages and you calculate the historical organic percentage for each customer. Here's an example:
  • 1 Purchase for $100 0-12 Months Ago, via Desktop / Laptop.
  • 1 Purchase for $100 13-24 Months Ago, via Mobile.
  • 1 Purchase for $100 25-36 Months Ago, via Phone.
  • 1 Purchase for $100 37-48 Months Ago, via Mail.
In this project, weighting is as follows:
  • 0-12 Months Ago = 100%.
  • 13-24 Months Ago = 60%.
  • 25-36 Months Ago = 35%.
  • 37-48 Months Ago = 20%.
Therefore, I have the following amount of weighted dollars:
  • 100*1.00 + 100*0.60 + 100*0.35 + 100*0.20 = $215 weighted dollars.
And each channel has an associated organic percentage, yielding weighted organic dollars.
  • 100*1.00*0.60 + 100*0.60*0.80 + 100*0.35*0.30 + 100*0.20*0.10 = $120.50 weighted dollars.
The calculation for historical organic percentage is straightforward:
  • $120.50 / $215.00 = 56%.
In other words, 56% of weighted historical spend is "organic", and 44% is driven by catalog marketing.

This percentage (56%) is stored in your database ... it's calculated in real-time or weekly or whatever works best for you. But it is scored for every single customer in the database, regardless.

It's a good idea to create another variable .. .an "organic percentage segment" that has Low / Medium / High designations for the organic percentage.
  • 0% to 33% Organic = Low.
  • 33% to 67% Organic = Medium.
  • 67% to 100% Organic = High.
The designation allows you to appropriate target customers at a simple level. It also allows you to store the segment in post-campaign analytics, allowing you to measure if high-organic-percentage customers generate incremental profit when you mail catalogs.

Use the template above, and combine the template with your mail/holdout test results and you've got something interesting, don't you?!!

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