How to Optimize eCommerce Gross Profits Per Market Using MMM?
September 28, 2023 | Juha Nuutinen, Carmen Bozga
In today's competitive eCommerce landscape, optimizing profits has become a significant challenge for many brands. By employing Media Mix Modeling (MMM), businesses can effectively enhance their gross profits across different markets. Let's explore the steps to do this efficiently:
Data Collection: Building a Comprehensive Database
Optimizing your eCommerce profits through MMM begins with a robust and holistic data collection approach. Here's how you can build an effective database that caters to the intricacies of the eCommerce ecosystem:
Every CRM houses vast amounts of data, but the trick lies in using this data optimally. Start by accounting for revenue components. Deduct VAT, Returns, and COGS from your total revenue. This step is non-negotiable. It provides clarity by stripping away the excess layers and presenting a clear picture of your real profits. Without this, your analysis may be clouded, and any derived strategies might miss the mark.
- Action: Deduct VAT, Returns, and COGS from your Revenue.
- Rationale: Before diving deep into analysis, it's paramount to have an unobstructed view of your genuine profit streams. By eliminating these components, you ensure your focus remains on the net profits, thereby allowing for more accurate strategic decisions.
More info on Profitability KPIs here here.
Integrating cohort data, while optional, can offer a profound understanding of consumer behavior. This data serves as a repository of invaluable insights, highlighting trends in customer behavior over distinct periods. By tapping into these patterns, businesses can anticipate future purchasing habits, facilitating strategic planning that's both proactive and precise.
- Action: Although optional, it's highly beneficial to integrate cohort data.
- Rationale: Cohort data can be a goldmine of information, revealing trends in customer behavior over specific timeframes. This can help in predicting future behavior patterns and strategizing accordingly.
Moreover, the real power of cohort data comes out when analyzed regionally. Every country, with its unique cultural and economic nuances, presents a different set of purchasing habits and preferences. By segmenting cohort data based on countries, businesses can craft tailored strategies, ensuring they approach each market with the specificity it warrants, thus maximizing efficiency and impact.
- Action: Dissect your cohort data based on countries.
- Rationale: Different regions have varied purchasing habits and preferences. A country-wise breakdown ensures you're not painting every market with the same brush, leading to more targeted and efficient strategies.
New vs. Returning customer segmentation:
All customers are not created equal. This truth is evident when we observe the behavioral and profitability differences between new and returning customers. It's prudent to model these two segments separately. An example that stands out is a client who noticed stark variations in the purchasing behaviors of these groups. Ignoring such disparities can lead to missed opportunities or misallocated resources.
- Action: Conduct separate modeling for New vs. Returning customers.
- Rationale: Each customer type has distinct behavior patterns and profitability metrics. For instance, one of our clients discovered significant variances in purchasing behaviors between these groups, reinforcing the need for segmentation.
Enriching CRM Data:
The richness of CRM data plays a pivotal role in shaping effective strategies. To ensure decisions are based on a holistic view, it's crucial to incorporate unconventional data fields, such as Shipping cost. Expanding the scope of CRM data in this manner offers businesses a comprehensive, 360-degree perspective, eliminating potential analytical blind spots and enhancing the precision of insights derived.
- Action: Augment your CRM data with fields that aren't conventionally included, like Shipping cost.
- Rationale: By broadening your CRM data scope, you get a 360-degree view of all costs involved, ensuring there are no blind spots in your analysis.
Furthermore, the true essence of profitability analysis lies in understanding all cost facets. By introducing a cost-per-order metric and allocating it to each item—perhaps based on its revenue or gross profit contribution—businesses can achieve a granular insight into expenses. This depth ensures that the full spectrum of order-related costs is considered, paving the way for accurate and actionable profitability analyses.
- Action: Incorporate an additional cost-per-order metric. This should be distributed for each item in an order, possibly based on revenue or gross profit.
- Rationale: Such a comprehensive approach ensures you capture the entirety of expenses related to an order, allowing for a thorough understanding and analysis of profitability.
Employing Media Mix Modeling on Country-level Data
At its core, MMM specializes in discerning the incrementality of each marketing channel. Instead of being lost in a sea of data and getting overwhelmed by numerous channels, MMM offers clarity. It provides insights into how every channel contributes to the overall profits, ensuring that marketing investments are appropriately justified and efficiently allocated.
To bring this concept to life, visualize media investment and incremental sales data per country. Although our illustrations feature a multitude of countries, remember that the model's scope can be tailored. Depending on the business's operational geography and strategic focus, MMM can be applied to a few select countries or a broader global scale. These visualizations not only offer a bird's-eye view of where the investments are funneled but also highlight the tangible incremental sales achieved from such allocations. This nuanced understanding aids in refining strategies, ensuring that every marketing dollar is effectively deployed.
Optimizing by Country and Advertising Channel
The Power of MMM in Channel Optimization:
At its core, MMM is about understanding response curves. By pinpointing how different advertising channels react to varied investment levels, MMM shines a light on their individual and collective efficacies. Equipped with these insights, businesses can make strategic decisions: allocating higher budgets to channels that promise superior returns and tempering investments in less productive avenues. This ensures that every marketing dollar is funneled towards maximizing ROI. To get a tangible grasp of this concept, one can visualize it through tools such as the Media Optimizer. A snapshot from this tool can illustrate how channel optimization looks in real-time, guiding businesses in their allocation strategies.
Understanding Market Maturity:
Market maturity isn't just a buzzword; it's a critical factor that can make or break profitability. Entering a new market can be likened to venturing into uncharted waters. Initially, the economics might not be in favor, especially with challenges like high shipment costs that overshadow the gross margins of orders. That's not even factoring in the complexities of returns. However, it's crucial to see this phase in perspective. Early struggles in a new market are often temporary roadblocks. As businesses establish themselves and scale operations, they ride the growth curve. This growth, coupled with a robust strategy, leads to economies of scale. Over time, costs, whether they're related to customer acquisition (CAC) or shipment, tend to normalize, paving the path to enhanced profitability. Recognizing the phase and maturity of a market, therefore, becomes central to forecasting, strategizing, and ultimately, optimizing profits.
In eCommerce, profitability doesn't come by mere chance—it's the result of deliberate, well-informed, and strategic maneuvers. At the heart of this strategic outlook lies the prowess of MMM. By diligently mapping out the interaction and incrementality of different marketing channels, MMM offers businesses a microscopic view into the mechanics of their operations. However, merely harnessing the insights from MMM isn't the solution to profitability issues. It's the amalgamation of these insights with a deep comprehension of market maturity, associated costs, and underlying dynamics that truly propels a business towards optimal profitability.
As businesses navigate the global marketplace, every region, whether new or familiar, presents its own set of challenges and opportunities. Venturing into a new market might be fraught with initial hurdles, but with persistence, scale, and data-backed strategies, these challenges can transform into growth levers. On the other hand, even in established markets, there's always room to further enhance profits and efficiency. In both scenarios, data emerges as the North Star. It's not just about accumulating vast amounts of data but distilling it into actionable insights that can guide decision-making.
In summary, achieving maximum eCommerce gross profits in both new and established markets requires not only effort but also careful planning, anticipation of future trends, and the ability to adapt to changing circumstances. Using MMM provides a structured approach to this, and accurately analyzed data is crucial for making informed decisions, ultimately helping businesses reach their profitability goals.
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