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We think retailers, whether brick and mortar, catalog, or pure e-commerce, will find this article by Bill Lapierre very interesting and useful.
|Catalog response rates and performance have been erratic this spring. The national press blames the weather for soft retail sales, although I don’t support that conclusion as being the sole reason. There was an ice storm in Atlanta, and it got cold in Minnesota – so what, that happens every year.
Response rates vary for many reasons, and I’m not going to list them here because you already know the list. But one customer behavior that rarely changes is average order value. Unfortunately very few retailers/catalogers understand this, or know how to influence it.
The two basic elements that drive the size of your average order value are: 1.) your merchandise mix and obviously the relative price points of that merchandise, and 2.) your customer’s expectations from you.
Merchandise mix and related price point is easy. In general, the more expensive the items in your catalog, the higher your average order will be. You can manipulate the average order a little by featuring certain products, or putting all the expensive products at the front of the book. But “gaming” the average order using methods like that is short lived. The old Lillian Vernon catalog was a master at offering “two for” deals, which drove their average order up by 10% to 20%. Say what you want about Lillian, but in her prime as a merchant, she knew how to squeeze every dollar from a sale.
The trouble with pushing your pricing too high – especially if there is not a corresponding value to the product to match the price – is that eventually your response rate dives. I shudder every time a client calls and says that their response rate is down, but average order is up, so their sales per book are right on plan. A red flag goes up because this is rarely sustainable. The reason is because of your customer’s expectations of you.
When I worked at Brookstone, one of our new CEOs (we had 3 in my tenure), a long-time retailer who had worked almost exclusively at large department stores, introduced me to the concept of the customer’s expectation of you as a retailer.
For some of you, this concept is pretty basic. But many of you have never learned it.
This CEO had always employed a team of “pollsters” that stood outside the door to their department store, and asked shoppers what they bought as they left the store. If a woman answered that she had bought a party dress, the pollster would ask if she had also bought fancy shoes with the dress. If the woman answered no, there was a list of questions to probe why the customer would not consider buying her shoes at that store. The answers to those questions helped the store determine what they needed to do to get more of the customer’s “spend”.
Stop and think about your own buying patterns and how much you usually spend at certain stores. I go to Wal-Mart once a month to stock up on household staples (paper towels, cat litter) and I always spend about the same amount. I could obviously spend more, but Wal-Mart is not where I think of getting groceries, or clothing. Product choices in those areas are not within my expectations of Wal-Mart.
You can add more and more high priced products to your catalog in an effort to drive average order up, but if they are outside your customer’s expectations of you as a retailer, and outside what they feel comfortable buying from you (somehow buying jewelry from Wal-Mart lacks the same appeal as buying it from Tiffany), the effort will go nowhere.
Said another way, it is really difficult to increase average order and maintain response rate. The more you try to increase your average order, you will alienate your core customer group, even if they have the wherewithal to support those higher prices. They have an expectation of what they were willing to spend with you and it will be tough to budge them. In all my years of consulting, I have rarely seen a catalog successfully increase their average order more than 25%, which in itself is a huge achievement, and requires several years of “nudging” price points and merchandise mix. By “successfully raise their average order” I mean that the company did so without alienating their core customers, and maintained their historic response rates. You can raise your average order overnight – but you’ll lose most of your customers when you do.
Every consumer has an interest or a passion on which they will spend excessive amounts of time and money. For some it is food, for others apparel or books. They may even have a preferred cataloger/retailer for the products that support that passion, and will spend more than that retailers’ average customer. You should be aware of those customers, and play to their interest. But don’t fool yourself into thinking that you can create more of those people, or that you should try to get all your customers to spend at their levels. It does not happen that way. Your average order is consistently average for a reason. That is what your average customer is willing to spend with you.
The better catalog growth strategy is to embrace the average order you have, and use all the tricks in your catalog creative arsenal to drive response around that average order. Employ basic tactics like featuring a product on the front cover which is close to the average order for the catalog. And beware that when you do try to increase your average order, your response rate will suffer.
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by Bill LaPierre
VP – Business Intelligence and Analytics
Datamann – 800-451-4263 x235