Wilsons Leather, a specialty retailer of leather apparel and accessories, has a challenge: To identify its most profitable online customers, something that is made more difficult because the reporting tools it uses focus on revenue and not profitability.
Specifically, the Brooklyn Park, MN, company wants to understand where the most profitable customers are going on wilsonsleather.com and the paths they are taking versus, say, someone who strictly is a clearance shopper, even though they may look similar on a revenue basis.
“It’s very critical for a retailer to be able to see this, and we’re able to understand profitability through other reporting tools, but not through online click-stream information,” said Rose Hamilton, manager of e-commerce new business at Wilsons.
The answer may lie in an enhancement by online marketing analytics firm Coremetrics Inc., Burlingame, CA, to its Marketforce technology, which is used by Wilsons and other retailers including AnnTaylor, Columbia House Co., CompUSA, Wal-Mart Stores, ShopNBC, Victoria’s Secret and Motorola.
The existing Marketforce analytics platform captures and stores all customer and visitor click-stream activity to create lifetime profiles of such online users.
However, Coremetrics Marketforce now will encrypt, capture and integrate product cost information with final sale price. This will deliver gross profit reporting. The company is presenting this option to Wilsons, which has yet to employ the new profitability reporting.
For example, Wilsons currently can measure revenue from the sale of 100 three-button blazers. It can understand conversion rates based on revenue, traffic, marketing programs, click-stream analysis, shopping cart activity and segmentation. But with the new Coremetrics profitability reporting, the retailer can integrate what it paid for the blazers into a single profitability report.
So if Wilsons sold the 100 blazers at a clearance price of $150 apiece, the resulting revenue is $15,000. But Wilsons may have paid only $50 per blazer. The profit margin, therefore, is $100 per blazer.
“What you have is an aggregate example, but the key is the product’s cost information is integrated into every individual profile,” said Chi-Hua Chien, director of marketing at Coremetrics.
“So what that means is that the marketer can determine the profitability of individual customers, specific promotional discount programs and product categories over time, taking into account the various prices that the same product may have been sold at.”
Chien claims that “not even companies like WebSideStory and WebTrends Live can securely capture product cost information to deliver this capability.”
Wilsons already can integrate product cost information with the final purchase price to gauge profitability for its 756 mall, outlet and airport stores nationwide and in Canada.
“We look at profitability across all of our stores, including the online,” Hamilton said. “We just don’t have the ability to understand profitability in our click-stream reporting.”
In this particular case, the profit report could cause Wilsons to take a number of actions. It could discontinue selling the product or curtail the clearance sale. It could sell the remaining blazers at a clearance sale to offload inventory. Alternatively, Wilsons might target clearance items at its highest-profit customers to improve goodwill with this key segment.
In essence, Wilsons can determine the gross margin profits per item sold online in a single report. This way, it will know how much it is making. It also will influence numerous marketing decisions.
“In the earliest days, people were just excited to get hits on the site and increasingly started to be able to actually measure a purchase and repeat purchases,” said Scott Kauffman, president/CEO of Coremetrics.
