What Is Organic Percentage, and Why Is It the Most Important Metric in Catalog Marketing?
Over the past decade, catalogers were forced to adapt to the e-commerce channel. The biggest change they were forced to deal with was a perceived decrease in the effectiveness of catalog marketing. Specifically, reporting metrics indicated telephone sales were plummeting while e-commerce sales were rapidly increasing. On the surface, this didn’t make sense. E-commerce sales increased faster when catalogs were in-home, then decreased rapidly at the end of a catalog life cycle.
The vendor community supported catalogers by developing matchback algorithms — computer programs that allocated e-commerce sales to the catalog that may have caused the order to happen. Suddenly, all was well! It was proven that catalogs were responsible for many Web-placed sales, maybe 70 percent to 80 percent of them.
When I was vice president of database marketing at Nordstrom, we used matchback algorithms to better understand our business. That is, until our mail/holdout tests told us we were incorrectly matching orders back to housefile segments.
We executed mail/holdout tests over a three-month period, sometimes even a six-month period. Customers who didn’t receive catalogs continued to spend money, though not at the rate they spent when receiving catalogs. But they spent something. And by reducing mailings and reallocating advertising dollars into online marketing, we were able to grow our direct channel more profitably.
Still Spending — but Less
Today, I help clients design and analyze similar tests. Consistently, customers who don’t receive catalogs spend money. This constant finding across all clients indicates that matchback algorithms overstate the effectiveness of catalog mailings.
The most important metric in catalog marketing is the organic percentage. This is defined as the percentage of sales that would occur if no catalogs were mailed. Say a customer segment spends $25 if six catalogs are mailed during a three-month period of time. If no catalogs are mailed, the customer segment might spend $8. This is a significant reduction in spend, but spend doesn’t drop to zero, as suggested by many of the popular matchback algorithms. The organic percentage is calculated as follows: $8 / $25 = 32 percent. Thirty-two percent of demand is organic and would occur regardless of catalog marketing, in this example.