August 24, 2021

Evaluating The Segment

In the catalog world we are seeing a "paper panic".

Let's pretend that we have a segment of 10,000 customers.

  • The organic percentage (you actively measure this, right?) is 50%. In other words, 50% of what a customer will spend in October has nothing to do with catalog marketing.
  • The customer has a 3% chance of buying in October, and will spend $100 if the customer purchases.
  • A mailed catalog costs $0.70.
  • 35% of sales flow through to profit.
We now know what the segment looks like with/without paper.
  • With paper = 0.03 * $100 = $3.00. Profit = $3.00*0.35 - $0.70 = $0.35 profit.
  • Without paper = 0.50 * 0.03 * $100 = $1.50. Profit = $1.50*0.35 = $0.53 profit.
  • Total profit gain = 10,000 * 0.18 = $1,800.
You will generate MORE profit by NOT mailing this customer a catalog.

Now, in theory you'll also look at what you lose long-term by not converting 150 customers. If you lost $8.00 future profit (i.e. next 12 months) because you didn't convert 150 customers, then you lose 150*8 = $1,200 of future profit.
  • Gain $1,800 today.
  • Lose $1,200 in the future.
  • Net Relationship = Positive.
  • Result = Don't mail the segment.
Don't let a crisis go to waste, folks. Wean yourselves off of print where appropriate, invest your advertising dollars elsewhere.

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