May 23, 2021

Every Unit Matters

I once worked with a Vice President who always said ... "units = customers". He said this because he strongly believed that a brand must have low price point items in the assortment to appeal to shoppers. If you had low price point items that a lot of customers purchased, you had a good Customer Development situation.

I wondered whether his comment made sense or not, so I ran a logistic regression equation to validate if the statement had merit. The equation predicted rebuy (yes/no) in the next year based on four variables.
  • Units sold in the past year on low price point items.
  • Units sold in the past year on medium price point items.
  • Units sold in the past year on high price point items.
  • Dollars spent 13-48 months ago (divided by 1,000).
Units fell into three categories, with breaks at $6.50 and $13.50. After averaging the dollars in each category, low price point items averaged $5.00 each, medium price point items averaged $10.00 each, and high price point items averaged $18.00 each.

What were the results of the logistic regression analysis?

What do the coefficients mean?

The results are fascinating!

If a customer bought a high price point item (average = $18), the customer had about the same chance of repurchasing as if the customer bought a low price point item (average = $5). And if a customer bought a mid price point item (average = $10), the customer had the best chance of repurchasing again next year.

In other words, how much a customer spent was irrelevant among twelve-month buyers. What mattered is that the customer bought units ... not dollars.

Units. Not dollars.

Maybe that Vice President was on to something back in the day. Maybe every unit does matter.

P.S.: Yes, I realize that your mileage will vary. And yes, I realize that if you can't make money on low price point items then you can't sell those items. Put those thoughts aside for just a moment today and take a moment to think, ok?

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