Are Your Multichannel Customers the Most Profitable or Simply Overvalued?

Cross channel shoppers have the reputation for being the most profitable customers. The facts seem to support this. After all, they shop more often and spend more money than their single channel counterparts do. Using RFM (recency, frequency, monetary) metrics, multichannel buyers are always the best.

This may be an illusion created by outdated analytics and traditional views of customer value. Multichannel customers are very sophisticated shoppers. They search the Internet for the best prices and coupons before making a purchase. This means that the margins on their orders are less. They are also less likely to be loyal, long-term buyers because their primary motivation is price.

You used to be able to estimate a customer’s value base on the total purchase amount. Extensive promotional pricing makes that impossible now. A single channel customer purchasing $500 of product at full price with a 50% margin contributes $250 to the gross profit. Compare that to a multichannel customer purchasing $1,000 of product at a 25% discount. The contribution to gross profit is also $250. The customers are of equal profitability value, but the multichannel customer ranks higher using traditional analytics.

When we audit analytics for our clients, we find that multichannel customers are overvalued almost every time. In some cases, they were more profitable than single channel ones, but not as much as originally thought. We also found that coupon promotion metrics are misrepresented due to Internet code sharing.

The argument that any sales trump none is valid, especially in tough economic times. Any coupon or customer that is generating income is valuable. But, if you are using inflated numbers to make marketing and operational decisions, your strategy is flawed. A better approach is to audit your reporting system, correct the inaccuracies, and then use the information.

During the process, you might find that posting coupons online is a great tool for customer acquisition. Or, certain customer segments only respond to sale promotions so you can reduce marketing costs without affecting sales. Whatever your discoveries, your company will be better when you base your decision on correct information.

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