January 26, 2020

How Does 40% Off Impact File Power?

Alright, let's get to the bad news.

Let's assume you have 100 customers who spent $100 12 months ago, via your online channel.
  • Current File Power = 100 * 0.328 = 32.80.
Let's assume that in the next month, 8 customers would purchase again without a discount, spending $100 each online. File Power Changes.
  • 8 Buyers With Recency = 1 and Recency = 13, $100 spent each time.
  • 92 Buyers With Recency = 13 and $100 spend.
  • File Power = 8*100*(0.862+0.317) + 92*100*(0.317) = 972.36.
But the marketer gets credit for moving merchandise, therefore, it's 40% off. And instead of 8 customers purchasing it is 11 customers purchasing, spending $100 ... but at 40% off the customer is only truly spending $60. 
  • 11 Buyers With Recency = 1 spending $60 and Recency = 13 spending $100.
  • 89 Buyers with Recency = 13 spending $100.
  • File Power = 11*60*0.862 + 11*100*0.317 + 89*100*0.317 = 945.83.
Oh oh.

Do you see what happened there?

The customer only spent $60 because of the 40% discount.

And you only got 11 customers to buy instead of 8.

As a result ... you WEAKENED the customer file while at the same time getting more customers to purchase. Well done!!

I know, I know, this runs counter to everything you've been taught.

In order to run a successful discounting/promotional strategy, you have to generate enough customers ... enough purchasers ... or generate a big enough increase in average order value to offset the loss in File Power caused by the discount.

I know, you don't want to hear this. You're going to come up with 14 reasons why this is wrong and why you are right.

Unless you've run your own File Power analysis (and don't tell me that repurchase reporting solves this problem or conversion reporting solves this problem ... Google Analytics and Adobe and IBM simply fail to provide File Power reporting), you don't know if you are hurting your brand. 

I get it, you're going to share this with your favorite guru, and that person is going to tell you not to listen to me. Old-school gurus will tell you that you got 11 customers to repurchase, and you want more recent/frequent customers. Those gurus are not analyzing the data properly. They don't have the tools to analyze the results properly.

Discounts and Promotions are taxes placed upon Brands for being unremarkable.

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