March 31, 2022

Marketers Impact Gross Margin Dollars

Sometimes you just look at the marketing folks and ask yourself, "why"?

Obviously there are valid reasons why marketers like to discount.

But when the discounting is applied in a targeted manner, well, what is going on?

Here's an example from our Category Analysis Tables. Let's look at our dominant category, category 09. Here are gross margin percentages by customer audience.
  • 59% for Prior Category Buyers.
  • 60% for Prior Buyers, No Category Experience.
  • 60% for New/Reactivated Buyers.
Everything looks reasonable there.

Here's what the results look like for Category 19:
  • 38% for Prior Category Buyers.
  • 44% for Prior Buyers, No Category Experience.
  • 46% for New/Reactivated Buyers.
First of all, margins for Category 19 are significantly worse than they are for Category 09. For every $100 you sell in Category 19 you make $17 less profit than you make in Category 09. Not a brilliant way to operate a category (and yes, I get it, there are many reasons why this happens).

But look at Prior Category Buyers.

In Category 09 margins are equal across segments.

In Category 19 margins are between six points and eight points worse for Prior Category Buyers.

In other words, the brand is discounting to prior category buyers. 

It's bad enough this company gives up $17 of gross margin within this category for every $100 spent ... but among Prior Category Buyers this brand goes the extra step to give up another $6 ... giving up $23 for every $100 spent.

It's not like these customers are loyal to this category ... in our Category Analysis Table the customers have a 15% chance of buying from the category again in the next year. That's low. So in the unlikely event that the customer does decide to buy again, you give up $6 of additional profit per $100 spent just to obtain the 15% chance of buying again.

This brand mismanages this category. Somewhere a marketer thinks s/he is doing the right thing by increasing "engagement" but by increasing "engagement" the marketer gives up "profit".

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