From the June 2007 issue of our newsletter, Let's Grow. For a FREE subscription, CLICK HERE.
Surprising Results of New MIT Study
Two years ago, we published information on two different marketing studies conducted by MIT researchers.The first, published in the Summer 2005 issue of Let’s Grow, reported on the lingering impact on profitability of being out of stock of a particular item – and how the reason given to the customer significantly impacts future sales.
The second, published in the Fall 2005 issue of Let’s Grow, reported on some surprising long-term impacts of deep discounting.
The same group of MIT researchers has recently studied the long-term impact of traditional mailing plans.When planning mailings, most catalogers start by scoring customers by recency, frequency, monetary and other variables.They’ll then estimate the probability of how well each group of customers will respond.All groups that project a profit are mailed, and the highest ranking ones are mailed repeatedly.
Very few catalogers analyze what happens to each group over a 2-1/2 year period, but the MIT research did.To everyone’s surprise, although repeatedly mailing the best names produced short-term profits, it cannibalized future sales.
A second surprise was that, although mailing marginal customers produced breakeven results in the short term, profits from this group were substantial over the 2-1/2 years of the study.
Between remailing less frequently to prime customers and mailing names that project slightly less than breakeven in the short term, the study suggests that profits are likely to increase by about 40%.