June 05, 2022

What Is My Catalog Organic Percentage and Incremental Rate?

In catalog marketing, the industry best practice (promoted by paper folks, boutique agencies, and vendors/consultants who make money if you mail catalogs) for measuring catalog success is the "matchback". You mail a catalog, you match back all orders generated by the customer in 30 days (or whatever), and the catalog gets credit ... for everything. Yup, everything. It's lunacy. And it is an industry best practice. If you are still doing this in 2022, well, ponder the next few paragraphs.

A business executes a matchback on a segment of customers, and finds that the segment spent $4.50 per catalog mailed based on matchback results. The catalog costs $1.00, and 40% of sales flow-through to profit.
  • Profit = $4.50*0.40 - $1.00 = $0.80.
The catalog is a moneymaker and the industry clinks champagne glasses once again, sneering at the digital folks who don't understand how to have a relationship with the customer.

Is the industry right?

Execute an A/B test.

After thirty days, your A/B test shows you the following.
  • Mailed Segment (A) = $5.00.
  • Holdout Segment (B) = $3.00.
We now have enough data to calculate your "organic percentage" and your "incremental rate".
  • Organic Percentage = 3.00/5.00 = 60%.
  • Incremental Rate = ($5.00 - $3.00) / ($4.50) = 44%.
Ok, if you don't mail a catalog, the customer still spends 60% of what they would have spent otherwise. That's a big number, but that is also a number that defends catalog marketing as a generator of top-line sales. You can't really walk away from something that is responsible for 40% of what a customer spends.

Let's focus on profit next. Was the mailing of the catalog profitable to this segment?
  • Profit = ($5.00 - $3.00)*0.40 - $1.00 = ($0.20).
In this example, you lost money.

And this is the point of all of this nonsense. Did you make money doing something, or did you lose money. In this case, you lost money.

The great paper shortage of 2021-2022 sent the smart catalogers who remain down one path ... these folks executed mail/holdout tests, they measured their organic percentage and their incremental rates, they completely recalibrated their marketing plans, and they emerged with more profit than prior to the great paper shortage.

Then there are the folks who do not know their organic percentage and do not know their incremental rate. These folks are at the mercy of matchback vendors, paper reps, printers, boutique agencies, consultants, and catalog pundits. Yeah, they're in trouble.

Yeah. 

They're in trouble.

Contact me (kevinh@minethatdata.com) if you don't want to be in trouble - I'll get you heading down a reasonable path.

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