Circulation: Use Regression Analysis to Optimize Catalog Circ and Sales Data
The Internet certainly has changed since 1993 when I posted my first businesses, which were catalog-based, on the Web. I sold industrial liners for corrosion and environmental protection, and I had a mail-order pond and landscape supply catalog. Each targeted a different clientele, and I learned that marketing strategies have to be directed specifically at target markets.
You must determine the effectiveness of any promotional sales program, because it will add to your overhead allocations. Statistical analysis is one such powerful tool. And regression analysis in particular is at the top of my list. Any tool that allows you to determine if your catalogs are being sent to the optimal locations and the best prospect base is something that shouldn’t be ignored.
Regression analysis has become much simpler to do since it first appeared a few years ago.
Although it sounds intimidating, regression analysis simply allows you to quantify the relationship between two variables, such as the comparison between discounts offered and a sales increase. It enables you to predict what a sales increase would be with a given discount offer and be statistically correct more than 95 percent of the time. If the correlation is too small or even non-existent, you then can look for other factors that may be affecting your bottom line.
Say you have customers on both the U.S. East and West coasts, but you’ve come to suspect that discount coupons offered in one area don’t generate the same sales boost found in the other. However, in our example the average sales increases in the two areas were very close, 8.84 percent and 9.17 percent, and we want to determine if it actually was the discount offer that was the driver.
To discern how purchases fluctuate with discounts, the amounts of the actual discounts in both areas will vary, and this becomes the independent variable. We’ll offer discounts from 5 percent to 10 percent in monthly catalog mailings inserted as discount coupons for a year. The dependent variable is the percent increase in sales, as this variable is entirely dependent on the discount offered (or it should be; if it’s not, then something else is affecting sales).