August 30, 2007

Catalog Profitability

Click on the image to enlarge it.

One of the challenges catalogers have to manage is determining the right circulation depth, and the right page count in a catalog.

Circulation depth is pretty easy to determine, once the number of pages are assigned. A straight forward calculation of sales and profit determine the right number of households to circulate to.

Page count presents more challenges. Merchants like to add pages, offering the customer more merchandise to purchase. Creative folks occasionally want to reduce density, adding pages that are less dense, easier to read.

More pages = more cost.

Are more pages better?

In the example at the top of this page, last year's catalog had 80 pages, and was mailed to 1.5 million households. The catalog drove $7,000,000 demand through the telephone and online channels.

When planning this year's catalog, the analyst builds a relationship between pages and demand. As pages increase, demand increases, but at an ever decreasing rate. Therefore, demand is maximized by sending as many pages as possible to as many households as possible.

Using a straight forward profit calculation, notice where profit is maximized. Based on last year's results, profit is maximized by sending a smaller catalog to as many households as is possible.

Here's a fundamental truth in catalog marketing:
  • Increased Circulation Depth > Increased Pages
In other words, given the choice between adding pages to a catalog, or mailing a smaller catalog to as many households as possible, try to mail a smaller catalog to as many households as possible.

You can clearly see this when evaluating circulation plans. Businesses that like to mail catalogs with many pages tend to have shallow circulation, tend to be unable to do a lot of prospecting.

Businesses that are parsimonious with pages tend to circulate to many households, have robust prospecting programs, and a healthier housefile.

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