December 12, 2022

Category Development: Product Offering

In the next four(ish) weeks, I will launch a new product called "Hillstrom's Category Development". The product will build upon Customer Development work from 2021, looking at your merchandise/product categories as mini-businesses within your brand ecosystem.

Each "mini-business" has different pricing levels (and price increases or decreases) that help us understand what role pricing has had on customer response.

In the example above a 10% price increase results in an 8% drop in rebuy rates. A Category Development project helps us see the impact on rebuy rates, spend per repurchaser, new/reactivated buyers, and gross margin dollars.

Customers buy merchandise, and merchandise belongs to categories. Given equal attributes, we commonly see that buying from more categories leads to more future value.'

The table shows many cases where you'd rather have a customer buy fewer items from more categories than many items from one category. This trend happens often across my client base, and can be accelerated via email personalization (for instance).

Each category delivers new customers at varying levels ... some categories are good at this, some are not. Subsequent, some categories deliver high-value customers, while other categories deliver duds.

A Category Development project focuses on discounting/promotions. For some clients, discounts/promotions yield more profit in the long-term via development of "more" customers who generate "less" profit in the future ... if the "more" more-than-offsets the "less", you're good. In a recent project, I measured future gross margin dollars.

  • Each dollar spent on full-priced merchandise last year = $0.19 gross margin this year.
  • Each dollar spent on discounted merchandise last year = $0.16 gross margin this year.

That's a case where discounting hurts the future. There are cases where discounting helps the future. A Category Development project looks into this issue and provides answers.

A Category Development project illustrates changes over time. One category is the same size today as it was in Summer 2020, contracting after the COVID-bump. However, the category is fundamentally changed.
  • Annual Items Sold Today = 104,193.
  • Annual Items Sold 6/30/2020 = 124,568.
  • Price per Item Purchased Today = $57.44.
  • Price per Item Purchased 6/30/2022 = $47.70.

Yeah, units equal customers, and for this category they are trading customers to generate margin dollars at a higher price per item purchased.
  • % of Sales Sold Below Historical Average Price Point, Today = 29%.
  • % of Sales Sold Below Historical Average Price Point, 6/30/2022 = 32%.
  • % of Sales from New Items, Today = 6.8%.
  • % of Sales from New Items, 6/30/2022 = 7.6%.
  • Gross Margin % Today = 44%.
  • Gross Margin % 6/30/2022 = 39%.

We see minimal changes in discounting and new item development. We see a big jump in gross margin percent. How about gross margin dollars?
  • Gross Margin Dollars Today = $2,642,656.
  • Gross Margin Dollars 6/30/2022 = $2,340,423.

We see the tradeoffs ... customer response (via units sold) is dampened at higher prices. However, gross margin dollars increased. The company is more profitable, with fewer customers, which will impact future sales.

These are the kind of tradeoffs analyzed in a Category Development project.

As you know, when I am introducing a new product, I introduce it at a lower price for my clients and for blog subscribers. I test the code, to make sure that everything is working properly. You get comparable results to a full project, but at a significantly lower rate.

Pricing for Category Development:
  • $30,000 will be the full project cost when the product is launched.
  • $14,000 will be your price for participating in this test.
  • If you pre-pay to spend your budget prior to year-end, I'll do the work for $11,500.

Take advantage of this opportunity, given that I don't discount my prices ... I only offer opportunities like this when testing the code of a new product.

Contact me now ...!!

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