February 18, 2024

MRV (Merchandise Residual Value): The Residual Plot

Remember, MRV (Merchandise Residual Value) is the amount of customer spend in the next year caused by each winning item, after controlling for where the customer is in the life stage of the customer when buying the item.

If an item adds value to the customer, you want to feature the item.

If an item causes a customer to purchase less often in the future, you want to de-emphasize the item, right?

Are you calculating this metric?

Here's a residual plot for a brand with more than 70,000 items sold per year and more than 2,000 winners per year.

Items purchased by a customer early in the life stage (i.e. a 2nd or 3rd purchase) don't have a lot of MRV variability ... customer spend in the future is changed by +/- $20, which isn't nothing, but it isn't what we see later.

When an item is purchased by customers buying for the 8th time, on average, future customer spend is impacted by +/- $50. In other words, if a customer is expected to spend $300 in the future and the customer buys an item that harms MRV, the customer trajectory is changed by the item and the customer now spends $250 in the future instead of $300.

The items we sell help dictate how the customer will behave in the future. Why are we repeatedly featuring items that cause customers to spend less in the future?

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