May 10, 2020

Driving Sales to Retail

Here's a question from a reader:
  • Is there a magic formula that establishes the lowest threshold beyond which a retailer should consider catalogs in their marketing mix? For instance, a B-C retailer with a minimum of $50 million annual sales, and an average order size of $100? 

I don't believe there is a magic formula.

But there are things to consider. Mail / Holdout Tests are the best way to determine the effectiveness of retail catalog efforts. There are popular agencies out there who use matchbacks, and the matchbacks always overstate the effectiveness of catalogs ... but they grossly overstate the effectiveness in a retail setting, because retail typical represents the majority of sales at a customer level.

Here's the results of a Mail / Holdout Test for a retail brand.

The secret to whether catalogs "can" work in a retail setting is two-part.

First ... do the "low organic percentage" channels deliver high volume? Look at the Call Center. Here, the organic percentage is zero, meaning all of the sales are driven by print. Notice that sales are only $0.40 per customer. With a low amount of volume, the catalog has less chance to be successful. If this number were $1.60, you'd have something because all of the $1.60 would be incremental and hence, would fully contribute to catalog profitability.

Second ... does the "high organic percentage" channel deliver high volume? Look at Stores. 98% of store sales are organic, meaning that the catalog only delivered a 2% lift in store volume. In order for catalog marketing to work for this store brand, store volume has to be high (i.e. $60.00 per customer during this time-frame instead of $20.00).

In the example above, the catalog (at a customer level) actually "worked". It only delivered a dime of profit, and one would wonder why the brand should go through so much effort and cash just to deliver a dime of profit per customer ... I'd tell my team to invest elsewhere. But technically, the catalog worked. And it "worked" because the Call Center delivered enough incremental volume at a 0% organic rate (and the online channel didn't disappoint) to push the effort into profitability.

If a retail brand wants to consider mailing catalogs (once we emerge from the plague and things return to normal), this is the math that is required to evaluate catalog marketing efforts.

P.S.: If your favorite agency tells you that you do not need to execute Mail / Holdout Tests in a retail setting, find another agency. Your favorite agency is lying to you if they tell you to use matchbacks and then matchback retail purchases to the catalog during a 2-4 week window after the mailing.

No comments:

Post a Comment

Note: Only a member of this blog may post a comment.

Well, You Got Me Fired

I'd run what I now call a "Merchandise Dynamics" project for a brand. This brand was struggling, badly. When I looked at the d...