March 06, 2007

Multichannel Forensics And Postage Increases

There's been a lot of buzz the past few days about what appear to be an impending and significant postage increase for multichannel marketers, and in particular, small multichannel marketers.

Our industry is not likely to support other issues that place cost pressures on small, multichannel marketers. We don't rally around our partners when the cost of keywords or portal advertising increases. But postage increases, especially significant ones, can be easily quantified, and impact the entire multichannel marketing food chain. The food chain rallies around the cause.

Multichannel marketers can use Multichannel Forensics to understand the long-term impact of postage increases. If we assume that multichannel marketers reduce circulation to marginal customers and prospect lists, in an effort to offset cost pressure (this impacts list brokers, list managers, and compiled list folks, who depend upon a healthy prospecting business), the multichannel marketer will get fewer new/reactivated customers.

When fewer customers are acquired, the business fails to grow at a robust rate. Businesses must grow, or they die.

For instance, assume that a small multichannel retailer cannot mail 400,000 catalogs a year, due to the increase in postage. Assume that these catalog drive 7,500 new telephone-channel buyers, and 1,500 new online-channel buyers.

The cost increases cause the marketer to have to reduce circulation each year. This causes an ever-increasing impact on the business, over time, as is evidenced in the table at the bottom of this post.

Because the impact is cumulative, the multichannel marketer loses an equal number of customers each year. These customers cannot contribute to future sales.

In this example, $1.5 million in sales is lost in year one, $3.4 million in year two, $4.6 million in year three, $5.3 million in year four, and $5.7 million in year five.

Also notice that, in this example, the online channel is impacted by problems in the catalog channel. Our integrated, multichannel businesses suffer from price pressures in the catalog postage arena. Simple two-channel simulations can be used to illustrate the real long-term impact of short-term decisions.

These are frustrating times for catalog-based multichannel marketers, who are being pushed online by our customers, and ultimately, those who deliver our catalogs to our customers.


Five Year Business Simulation



Customers Not Acquired Due To Increased Postage Costs

















Year 1Year 2Year 3Year 4Year 5







12mo. BuyersTelephone7,500 9,803 10,709 11,117 11,315

Online1,500 2,693 3,704 4,389 4,802

Phone + Web0 1,305 2,104 2,523 2,738







NewbiesTelephone7,500 7,500 7,500 7,500 7,500

Online1,500 1,500 1,500 1,500 1,500

Phone + Web0 0 0 0 0







Net SalesTelephone$1,312,500 $2,506,688 $3,065,062 $3,331,457 $3,462,622

Online$225,000 $890,438 $1,561,570 $1,971,198 $2,199,150

Phone + Web$1,537,500 $3,397,125 $4,626,632 $5,302,654 $5,661,772

4 comments:

  1. Anonymous8:10 PM

    Kevin,
    Do you believe that these companies will automatically cut the number of catalogs they mail due to the cost increase, or instead will they cut costs elsewhere(or raise prices) in order to meet the postal increases and still mail same number?
    In fact which is worse effect on business--item price increase or decrease in mailings?
    I would think gas prices have more of an effect on catalog(or online) business as it effects the costs of shipping which is the disadvantage for a consumer used to buying from a brick and mortar store. In fact fuel costs are a factor in USPS raising the prices.
    In another vein, doesn't the inevitable rise in cost of mailings lead to the same paradox that newspapers are feeling? Google and yahoo have to make a deal with the dying newspaper industry because without quality newspaper journalism, yahoo and google have no news on their sites.
    K

    ReplyDelete
  2. This is just my opinion. Leaders can be spiteful. If the marketing budget is fixed, the spiteful leader will make the USPS pay, by either reducing pages, or by reducing circulation.

    I've always been a proponent of reducing pages first, reducing circulation last. To me, the extra contact to a customer is more important than the 148th page of similar merchandise.

    Personally, I don't think businesses will pass along price increases to customers. I believe we will trim circulation and pages. There is too much competition right now (always) to raise prices, unless you are in the upper tier of your market, marketing to an exceptionally affluent customer.

    We are all stuck in a paradox right now, be it magazines, newspapers, or catalogers. In some ways (see Don Libey's article in DMNews online), those of us in newspaper, magazines, catalog, have to band TOGETHER, and not COMPETE, in order to survive.

    ReplyDelete
  3. Anonymous10:36 AM

    Kevin,
    Great point about reducing pages--I forgot to add that. Actually reducing pages and including only the best items will drive customers to the website where they will see other offerings. Trick is how to entice web visitor to view the other pages.
    Regarding the part you ended with, "band together not compete", I tend to disagree. Competition leads to innovation. To relate to main topic, instead of cursing USPS raising costs(or the rising gas prices), how do you make catalog matter in order to compete?
    1. Reduce pages as you pointed out--but---
    2. Make catalogs more eye-catching or package it with something for preferred customers, like an inexpensive usb thumb drive with the full catalog, etc. Different, innovative.
    3. Personalize catalogs much like a webpage is personalized. Balance must be key--too much personalization and you miss out on the consumer's impulse to go outside that box we painted them in, either purchasing for themselves or for a relative/friend.
    4. Increase use of promotion codes.
    5. Recoup money on lower prices/promotions by offering extra services(personalized labeling on item, etc).

    Your thoughts?

    K

    ReplyDelete
  4. We can agree to disagree on the topic of banding together. Those who sell via paper need to cooperate to help save their industry.

    Regarding your five points --- those can be answered by testing. The cataloger can test the ideas, and implement the ones that work.

    Thanks for the feedback!

    ReplyDelete