Forecasting Offer

Incoming messages from Professionals on Twitter are centered around interrelated issues (and it is interesting that this is happening on Twitter - it means this is something younger professionals in e-commerce are running into):

• We have too much inventory.
• We may have forecasted sales improperly.
• We increased prices, significantly, and customer response is declining.
• New customer counts are in free-fall, is this due to the COVID bump or inflation or something else?
• What does Christmas look like, as a consequence?

So, let's create a mini-project, as we've done so often in the past. Send me five years of purchase transactions and for $7,000 I'll forecast the rest of the year and next year as well. We'll see where you are headed and see what kind of "downside" there is if things get worse.

Contact me now (kevinh@minethatdata.com) ... I'll take four (4) projects at this price. Get in line now. Project work will begin on July 1.

Where Do You Fit?

Increasingly, it is obvious that we all fit into one quadrant here:

If we're good at New Customer Acquisition (and awareness programs) and we're good at New Products/Merchandise, our business thrives.

If we're good at New Customer Acquisition but fail at generating New Products/Merchandise, business will slow down and accountability for sluggish business sits at the feet of the Merchant.

If we're good at New Products/Merchandise but fail at New Customer Acquisition, business will slow down and accountability for sluggish business sits at the feet of the Marketer.

Mess up both? That's the fault of the CEO and the Executive Team she hired/inherited.

We simply cannot mess up both aspects of business. Can. Not.

Get 'em both right and we manage a thriving business.

Where does your company fit, which quadrant does your business occupy?

We Will Just Improve Marketing And Reduce The Organic Percentage, That Solves The Problem, Right?

I received an email from a non-client ... this individual was grumbling about his organic percentage.

• "It's only 20%. That's awful. That means we don't know how to generate sales from print. Can't we improve the percentage? We have to improve the percentage. We need to change how we creatively present merchandise, that'll fix our problem, right?"

It's a good question, obviously.

But it's not a problem that is solved by changing how you present merchandise. It's a problem created by demographics and digital tactics. Having a low organic percentage is generally a blessing, because it means you are doing something else right. Either your merchandise appeals to a younger audience, or your audience is responsive to your digital marketing tactics. 

Or, your customers love your merchandise and they don't need you to market to them to buy it ... this is the biggest blessing you can have and almost nobody likes it when I mention this fact. The best businesses don't have to ask the customer to buy something ... customers buy something because they want to buy something independent of marketing tactics.

Can you improve the productivity of a specific marketing tactic? Oftentimes the answer is yes. Email is a classic example. Just dipping your toes in personalization tactics improves the productivity of email marketing by +/- 20%. However ... and this is a big "however" ... if you cannibalize sales from other marketing efforts or from sales generated organically ... then you haven't accomplished anything.

What's the point of this argument?

The point is that it is hard to just "change the organic percentage". It's a game of whack-a-mole. Your efforts may fail, your efforts may succeed but sales won't increase, your efforts may succeed but the organic percentage stays the same and sales increase (because you generate more buyers who then behave organically in the future), you may end up cannibalizing other marketing activities. You may not change anything because your organic percentage is demographically driven. You may not change anything because your organic percentage is fueled by brilliant digital marketing tactics.

Does that make sense?

Correction - Organic Percentage Trends

The amazing thing was how few of you noticed the mistake(s). Of course, I didn't notice it and I proofed the darn thing.

Here's the update:

There are all sorts of trends and developments regarding the organic percentage and incremental rate. Let's discuss them a bit.

There are boutique agencies who gush about how "Millennials" love print. There are A/B tests that are broken down by age ... those tests tell us something different.

A customer 65 years old and older loves print. Still does. It's not uncommon to see organic percentages around 35%, with incremental rates around 65%.

A customer 45-64 years old is in a transition stage. Organic percentages might be 50% to 70%, with incremental rates under fifty percent depending upon the vendor performing matchback analytics.

A customer < 45 years old has moved beyond print. Organic percentages range from 70% to 95%, with incremental rates usually < 20%.

In a retail environment, print is largely ineffective. Oh, the boutique agencies are going to come after me about this - they'll swear they are seeing "breakthrough results" via matchback analytics. Execute A/B tests and you will likely see organic percentages even among 65+ year old customers above 80% with very, very low incremental rates.

Over time, organic percentages continue to increase ... what used to be a 40% rate in 2008 became a 55% rate in 2015 and is now a 70% rate in 2022. Digital marketing will do this to the incumbent channel. It's the way the world works ... no different than the 124 page catalogs that ran 600 page "big books" out of business 30 years ago.

It would be a lot better for my career if these trends were not happening.

The trends are happening.

So we adjust and change in response, same as it always has been.

Organic Percentage and Incremental Rate Trends

There are all sorts of trends and developments regarding the organic percentage and incremental rate. Let's discuss them a bit.

There are boutique agencies who gush about how "Millennials" love print. There are A/B tests that are broken down by age ... those tests tell us something different.

A customer 65 years old and older loves print. Still does. It's not uncommon to see organic percentages around 65%, with incremental rates that are comparable.

A customer 45-64 years old is in a transition stage. Organic percentages might be 25% to 50%, with incremental rates comparable depending upon the vendor performing matchback analytics.

A customer < 45 years old has moved beyond print. Organic percentages range from 5% to 30%, with incremental rates usually < 20%.

In a retail environment, print is largely ineffective. Oh, the boutique agencies are going to come after me about this - they'll swear they are seeing "breakthrough results" via matchback analytics. Execute A/B tests and you will likely see organic percentages even among 65+ year old customers under 20% with very, very low incremental rates.

Over time, organic percentages continue to increase ... what used to be a 40% rate in 2008 became a 55% rate in 2015 and is now a 70% rate in 2022. Digital marketing will do this to the incumbent channel. It's the way the world works ... no different than the 124 page catalogs that ran 600 page "big books" out of business 30 years ago.

It would be a lot better for my career if these trends were not happening.

The trends are happening.

So we adjust and change in response, same as it always has been.

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.

Show Me: An A/B Test and the Organic Percentage

Some of the email I receive outlines concerns about the Organic Percentage. The emails look like this:

• "We just executed a month-long email A/B test. 50,000 customers received the normal stream of email campaigns (5 per week), the other 50,000 customers received no email campaigns. We did this for a month. At the end of the month the group receiving campaigns spent $10.00 per average. The group not receiving email campaigns spent $8.50 per average. Our email service provider says we generated $0.12 per campaign during this time, netting $0.12*20 = $2.40. What is our organic percentage?

Technically you have two different "organic percentages" to think about. The first one is the $8.50 / $10.00 = 85% metric. If you don't send email marketing campaigns, the customer will spend 85% of what they'd normally spend.

Then you have your "incremental rate" ... not a true organic percentage but it is a cousin of the organic percentage. Your email service provider says you generated $2.40 from email marketing. Your A/B test shows that you generated $10.00 - $8.50 = $1.50 from email marketing. Your "incremental rate" is $1.50 / $2.40 = 62.5%. For every dollar your email service provider says you are generating from email marketing, you are actually generating $0.625 of true incremental value with $0.375 being cannibalized from other activities.

In other words, you have to measure two different things to get a picture of what is happening. Measure your organic percentage to understand how much the customer spends independent of a marketing channel. Measure your incremental rate to understand how much your marketing vendor is overstating your results.