March 14, 2022

Product Preference vs. Gross Margin Dollars

I shared a business that has 22 merchandise categories. I created a regression model to measure whether customers buying from each merchandise category have higher/lower future value.

High Value Categories:  5, 7, 9, 12, 18, 19.

Positive Categories:  0, 2, 3, 4, 8, 10, 11, 13, 15, 16, 17, 20.

No Value or Negative Value: 1, 6, 14, 21.

First of all, if you had to tell your merchants that four categories out of 22 delivered no increase in future value, you'd be run out of your meeting quickly, don't you think?

But second of all, you should also look at future gross margin dollars ... not future sales. Future gross margin dollars.

High Value Categories: 12, 19 (remember, these two categories are loved by all customers).

Positive Categories:  7, 8, 11,18, 20.

No Value or Negative Value: 0, 1, 2, 4, 6, 9, 10, 13, 14, 15, 16, 21.

Oh oh.

12 of the 22 categories do not deliver future positive gross margin dollars, based on a regression analysis.

As a marketer, you have a responsibility to share categories (particularly on your home page and in your email marketing campaigns) that deliver customers likely to generate positive gross margin dollars in the future. That's you job. If you aren't performing this style of analysis, you are hurting future profit ... that's on you, not your merchandising team.

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