April 06, 2022

Dominant, Complimentary, Auxiliary: Impact on Margin

I added summary data to the bottom of the table.

Rebuy Rates:  Dominant Categories possess customers who have a 45.5% chance of buying again from the category. Remaining Categories possess customers who have a 20.4% chance of buying again from the category. That's a big difference.

Other Category Rebuy Rates:  Complementary Categories have customers who have an approximate 69% chance of buying from other categories ... Auxiliary Categories have an approximate 58% chance of buying from other categories. You increase loyalty by showing customers Complementary Categories, all things being equal.

Margin: On average, "Plus" Categories possess a 55% gross margin while "Minus" categories possess a 44% gross margin. Think that's not a big deal? For every $100 you sell in "Minus" categories you generate $11 less profit. As a marketer you can't let that happen. And if somebody demands that you feature those items/categories, ask them what they are going to do about the $11 of profit per $100 they're giving up.

If you think this stuff doesn't matter, well, here, try this one on for size. Say you manage paid search programs at your company. You generate 100 clicks at a cost per click of $0.50. Your conversion rate is 1.2%. Your AOV is $100. Pick/Pack/Ship expenses are 10% of sales. Using these metrics, it's easy to calculate profit.

  • 55% Gross Margin = $4.00 Profit.
  • 44% Gross Margin = Loss of $9.20.
Do you like generating $4.00 profit, or do you like losing $9.20 and having your Leadership Team criticize you for harming company profit?

Complimentary-Minus and Auxiliary-Minus categories harm company profit. You, as a Marketer, are on the front lines for this fight. Push back when you are asked to promote low-margin categories/items.

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