How to Track Incremental Demand

In order to maximize your marketing effort by channel, it’s important that you understand the incremental demand being driven by your marketing initiatives. Customers shop at a natural rate, and your goal should be to create additional demand.

Here’s an example: Let’s say you received an order through the Internet a month ago from a new customer. You send the person a catalog that reaches them two months after the purchase.

This shopper then comes back online and places another order. The obvious conclusion is that the catalog drove the second order and that it was a successful marketing contact, right?

But this may not be true. Did the catalog drive the order or was the customer going to go online and buy again anyway?

The same example can be used for any channel (Internet, call center, retail) and for any contact type (catalog, e-mail, postcard, outbound call).

An easy and accurate way to incremental demand is to create hold-out panels for the marketing initiative that you employ. The first step is to determine what size hold-out group you will need in order to gain statistical significance. A good method is to use a t-test to determine the sample size that you will need in order to measure the difference between groups (mailed vs. non-mailed, e-mailed vs. non-e-mailed).

Then during your marketing preparation, you will create completely random hold-out groups that will not receive the marketing contact. When the marketing campaign is complete, conduct a matchback to the hold-out group or groups to determine the natural rate of shopping.

The difference will determine the incremental demand driven by the initiative. You can then incorporate the cost of that initiative to determine whether it was profitable or not.

By understanding incremental demand, you can focus your marketing efforts on those methods that are giving you the biggest bang for your buck and can weed out those that aren’t driving additional demand.

Travis Seaton is director of circulation, specialty groups, for San Rafael, CA-based consultancy Lenser.