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Multichannel Buyers Are Multibuyers

Assessing the correct value of your marketing channels -- web, phone, catalog -- takes some care. Ditto for assessing the correct value of your multi-channel buyers. Naive approaches can lead to wrong conclusions. One oft-repeated mantra is multichannel buyers are worth more than single channel buyers. Perhaps yes, perhaps no -- you need to determine this yourself for your own business. Too often, folks reach the "multichannel buyers are good" conclusion by mishandling their data. By definition, multi-channel buyers have bought more than once. Multi-channel buyers are, by, definition, multibuyers, and thus more valuable. Here's an example. Consider a multi-channel retailer who has 1000 new buyers each month, with an average order of $100 for all orders (phone, web, 1st order, 2nd order), where customers are equally likely to buy by phone or web (50% web, 50% callcenter, regardless of 1st or 2nd order), and a 10% 12-month repeat purchase rate. In this scenario, web and phone orders (and buyers) are equally valuable in all respects. Here's the spreadsheet, looking at a given one month cohort over their first year on file:

The 50 multichannel customers have average 12-month sales of $200 per customer, whereas the overall average customer has 12-month sales of $110. Voilà -- multichannel folks are 81% more valuable than average! (But they're not, of course. In this toy model, they're truly just as valuable as any two time buyer.) Basic math? Yep. Such an obvious mistake that no retailers make this incorrect calculation? Nope. Kevin Hillstrom over at MineThatData has an interesting whitepaper about doing these calculations correctly and introducing his new consulting business -- worth a read.
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