Prime the AOV Pump
By Lois Boyle
The size of an average order is a metric of which every catalog company should be intimately aware. Consider these facts:
Fact 1: The cost to receive and fulfill a $20 order typically is the same as to fulfill a $200 order.
Fact 2: Unless a catalog's margins are incredible, it's tough to maintain profits with an average order of less than $50.
Fact 3: The average order value (AOV) is the most overlooked key driver of catalog profitability. Other key drivers include margins, response rates and advertising costs.
Fact 4: The average order for a first-time buyer almost always is less than that of your repeat customers—sometimes as much as 25 percent less!
The size of an average order is so important that with every campaign a process should be included that reviews how it has shifted from the previous mailing or season. Even more important is having a plan to maintain or increase AOV.
AOV is hit from all sides. Consumer choice and all of the core competencies that build a catalog program including merchandising, creative, marketing—even operations—affect the AOV. It all begins with catalog analysis and knowing how to interpret the results of your efforts.
Read Your Results
Catalogers should first read the AOV of each campaign (total demand $ / total # of orders). By tracking the AOV of each campaign, it is possible to identify and analyze why a shift occurred. Always analyze what has been done differently in the overall mix to affect a shift. It may be difficult to pinpoint a contributing factor, but in time a pattern will emerge.
Look at the AOV by customer segment. You will see a distinct change relevant to how loyal your customers are—the better the customers, the greater the AOV.
Another metric to measure is your average price offered against average price sold. In every campaign your customers are telling you what price point they're comfortable with—a price point that has a better opportunity for attracting attention and sales. A 20-percent discrepancy between the average price offered and average price sold signals trouble and affects both your response and your AOV. So, what can catalogers do to increase, or at least maintain, AOV? Here are some strategies.