May 01, 2019

Hillstrom's Targeting: Consequences of Targeting

You analyze hundreds of companies and you see recurring themes. One of the themes is the impact of digital messaging on a retail audience.

Here's how this works ... you have a previously retail customer who you bombard with digital messages (frequently via email or social) ... and guess what? The customer buys online.

When a former retail customer buys online, customer behavior changes. I've run countless simulations that demonstrate what happens ... but you don't need the simulations, you've got real data to prove the point.

Here's an example ... a group of equalized customers (weighted historical spend of $450 - $499, 0-12 month buyers). There are four segments. Then, I measure next-twelve-month spend based on the segment the customer belongs to. Here's the data.

The details tell a fascinating story.

If you have a retail-only buyer, that customer will spend $184 in the next year (in this dataset, your mileage will vary).

Now you convert the customer to a digital buyer instead of getting the store purchase you normally would have obtained. Look at future retail/online spend.
  • Retail spend drops from $149 a year to $126 a year ... -15%.
  • Online spend jumps from $36 a year to $87 a year ... +142%.
  • Total spend increases from $184 a year to $213 a year ... +16%.
In this case, we find the beloved "omnichannel gain" that vendors constantly scream at us about ... the "multi-channel" buyer spends 16% more.

But ... BUT ... spend in retail is -15% to what it would have been.

If the customer eventually converts preference online (a minority currently do this, the dynamic will change over time), then look at what happens to retail spend ... it drops from $149 to $126 all the way down to $54.

In other words, if your targeting strategy constantly screams benefits of online buying, you'll get prior retail-only customers to embrace your digital messaging ... and then what?
  • You close stores.
What happens when stores close?  Well, the retail history will disappear ... and then look at the future value of the online-only buyer ... it's $175 ... in our case, it's the lowest of the four segments. You close the store and the customer spends less (Macy's has gone on the record publicly that this dynamic happens) and you might be more profitable but customers are less loyal.

This is the consequence of targeting in a retail environment. Your targeting strategy shifts customers in/out (usually out) of stores. When that happens, the store dies, and when the store dies, customers who used to shop in that trade area become less valuable.

#Omnichannel!!!!!

You might have a great targeting environment ... and you might do a spectacular job of targeting. But short-term ROI measurement is feckless if you don't understand the consequences of targeting. Run simulations and understand what the long-term impact of targeting strategies are. You HAVE to do this, right? RIGHT??

Run the simulations.

Understand what the consequences of targeting are.

Then make better decisions.

Contact me (kevinh@minethatdata.com) if you need help. Pricing information is outlined here.





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