December 26, 2007

Extreme Makeover: Catalog Edition

The love (customers/press/bloggers) / hate (some catalogers) relationship with Catalog Choice dominated my in-box and comments over the past week.

We Americans love to assign blame. We love to hold people accountable. We also love to forgive people, and where possible, we love to rescue people from dire situations (i.e. Extreme Makeover, Home Edition on ABC).

It's probably time we, as Catalog industry leaders, conducted a post-mortem on our own business practices, asked for forgiveness, and then rescued ourselves from what may someday become a dire situation.


The Problem: Some Folks Don't Like Us

You're probably not knee-deep in complex business issues the week between Christmas and New Year's Day, so why not take a lap around the internet and learn a little about all the ways various folks hate catalogers.

Read the comments that come after the articles. You'll notice that folks use phrases like "unwanted catalogs". You won't see somebody write something like "I've been a lifelong L.L. Bean customer, but I hate the fact that they send so many catalogs."

So folks don't like our industry when we "send unwanted catalogs".


Why Does Our Industry Send Unwanted Catalogs?

There are many instances when we send catalogs to customers who may not want them.
  1. Customers who exclusively purchase via the online channel.
  2. Prior catalog customers who have not purchased in a long time.
  3. New catalog customers who weren't expecting an onslaught of mailings from a brand.
  4. Customers who have never purchased from our brand (i.e. customer acquisition).
Catalogers directly control issues one, two and three. Circulation teams create profit and loss statements for customers in groups one, two and three. If catalogers lost money mailing those groups, the flow of catalog mailings stop.

The fourth group is an intriguing one. Historically, a catalog brand could not survive without a massive customer acquisition effort. As a result, catalogers might mail half of their circulation to customers who never purchased from the brand previously --- with start-up catalogers and low-retention-rate brands mailing maybe eighty percent of catalogs to customers who have never purchased from the brand previously.

Prior to 1995, catalogers rented the lists of similar catalog brands, and exchanged lists with other companies. In the past five years, however, there has been a dramatic shift in circulation away from rented/exchanged lists, to cheaper and better performing co-op lists.


Co-Ops And Dissatisfied Consumers?

While the numbers vary, many catalogers allocate about half of customer acquisition circulation to co-ops (Abacus, Z-24, NextAction, I-Behavior, Circ Base, Prefer Network, Wiland Direct).

So if the cataloger allocates half of circulation to customer acquisition activities (customers who have never purchased from the brand), and half of the customer acquisition circulation is allocated to co-ops, then that means that co-op statisticians decide who receives one out of every four catalog mailings.

To be fair, this isn't dramatically different than cataloger practices in the early 1990s, when the Garnet Hill list might be rented by Newport News. In either case, customers received unsolicited mailings.

There is a subtle difference, however. Customers might have been tolerant of receiving catalogs from a "similar brand" ... the fundamental difference between Eddie Bauer and L.L. Bean isn't enough for the Eddie Bauer customer to get ticked-off when an L.L. Bean catalog arrives. However, the co-op statistician uses equations to decide who receives catalogs. And equations, while more precise and profitable than list rental/exchange models, will frequently target customers incorrectly.

If the co-op statistician notices that apparel customers have an "affinity" with another merchandise line, the statistician builds that information into the model. This might result in an increase in response rate, from 1.5% to 1.65%, a wonderful result for a cataloger. But it could also mean that twenty or thirty percent of the names mailed are "different".

It is in this twenty or thirty percent that problems occur. If the statistician gets creative, there will be better response, but more "risks" are taken with the customers who are mailed. Co-ops may substitute "brand affinity", which customers might be tolerant of, with "product affinity", which customers might not be tolerant of (this is simply a hypothesis of mine --- co-ops, feel free to jump in and comment about this).

Is this the fault of the co-op? Does the co-op provide enough information for you to know who the co-op is mailing on your behalf? Do you provide enough oversight of the co-ops to know who they are mailing on your behalf? Did you pre-think how your customers might respond to knowing that you dumped their purchase information into multiple co-ops, so that they could be mailed complimentary offers by competing brands?


Forgiveness

It might be time to consider asking customers, bloggers, and the press to forgive us. Especially if co-ops determine the names/addresses of individuals who receives a quarter or more of your total circulation.


Extreme Makeover: Catalog Edition

Here are nine ways for us to begin to repair our reputation, and be good stewards.

  • It is time for the DMA to do something with the $10,000 to $50,000 each of our organizations pay them each year. And that something is not telling us to "just say no" to Catalog Choice. If one of our customers or one of our prospects doesn't want to receive a catalog, we have to honor that request. Honor the customer, and challenge the DMA for modern solutions and real action.
  • Have you considered joining the American Catalog Mailers Association? It won't cost you the $10,000 to $50,000 it costs to join the DMA. While this organization believes that the response of the press to the folks at Catalog Choice "give them the willies", I perceive this organization wants to "do what is right". Best of all, you could play an active role in doing "what is right".
  • Make it easy for your own customers to opt-out of catalogs. You make it easy for customers to opt-out of e-mail campaigns, don't you? The reality of the marketplace is that you have to do this for catalog mailings as well. Times have changed.
  • Strongly consider the mailing strategy you employ for online-only customers. These customers may consider you as an online brand, not as a cataloger, hence their dissatisfaction of your online mailing strategy.
  • Give customers a say ... give them an option to receive half of your mailings, and brand this choice as being "eco-friendly". Test the living daylights out of this ahead of time, so you know the ramifications this will have on your business.
  • Oversight ... do a "deep dive" with the co-ops. If you allow co-ops to mail a quarter of all your catalogs, you have given a quarter of your brand authority to co-ops. Wow. Do you oversee the vendors you work with in China to ensure that the working conditions are acceptable? If you do, don't you think you should provide the same oversight with co-ops? And if co-ops won't provide transparency, well, then, you need to think about your relationship with them, don't you? The folks who work at co-ops are good people, they will respond to a catalog industry that demands oversight.
  • Would a little "PR" hurt? Catalog Choice gets picked up by major publications all over America, quoting the billions of trees catalogers harvest each year. As a result of our inactivity, Catalog Choice muscled in, and now has a seat at our Executive Table, managing our brands for us. Why can't catalogers go on the offensive? How much would it cost for a catalog to plant "x" trees each year? And how much good will would be done by having the press, bloggers, and TV stations all reporting the fact that two hundred employees spent a random Wednesday in July planting trees? Why aren't we good stewards? Why don't we "toot our own horn" when we do good? Why don't we tell our customers that we're planting four trees for every tree we cut down? And if we don't plant four trees for every tree we cut down, why don't we start doing this?
  • Speaking of PR, why not tell the world that over the past five years, we spent "x" dollars less on catalog mailings, moving that money into online marketing that theoretically reduces our carbon footprint?
  • Launch new initiatives online. Test various new products and brands online, and via e-mail. Use online marketing to test the initiatives before rolling out new products and brands via paper. And then tell the world how many trees you saved by doing this.

I could go on an on. Catalogers, it is time for an Extreme Makeover. It is time for action.

6 comments:

  1. Anonymous5:16 AM

    Kevin,
    Great post as always. Definitely appreciate the ideas to take the offensive rather than passively watch catalog choice become the next "do not call" legislation(not that telemarketers should ever be equated with cataloguers!).
    And you are so right---many of the concerns of those receiving catalogs deal with excessive, unwanted and when green is vogue, very wasteful.
    Neat tie-in with the environmental needs. Loved the PR angle. Don't forget using recycled paper for postcards that allow the customers to OPT-IN as opposed to opting out of catalogs.
    K

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  2. You're talking about what is called the "two-step" process.

    It's challenging to make the economics of this process work in 2007-2008. "Back in the day", it worked really well. The brand would work with a co-op, paying maybe $70 for 1,000 names, paying another $290 to send the postcard.

    For $360, about 100 folks would request a catalog. The brand essentially paid $3.60 per lead.

    The benefit is that the brand gets to keep the name and address, whereas in classic list rental or list exchange, you essentially get one-time use of the name.

    In the 1980s or early 1990s, pre-internet, response rates were maybe 2% to 4% on catalog requesters, and this made the economics of the marketing strategy work.

    Today, future response rates are maybe 1%, so that is why you don't see folks using this strategy ... it is very hard to recoup the initial investment.

    Of course, marketers could use the strategy to market catalogs, e-mail and rss ... but again, the economics make the strategy tough to execute. It's probably worth testing.

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  3. Chuck Teller2:26 PM

    Kevin:

    Great post. I think I will point to it from my blog over at Catalog Choice. One item I would like you and your readers to consider is how you can work with Catalog Choice to drive more sales and communicate with your customers that are using our service. We have some programs that we are developing for merchants. Sign up for your free Merchant Account at http://catalogchoice.org/merchants to start your Extreme Makeover.
    Chuck

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  4. Kevin,

    Great post! I AM a lifelong L.L. Bean customer (and many other catalogs), but I HATE the fact that they send so many catalogs. In most cases, I want ONE catalog per quarter, plus a holiday catalog, from my favorite retailers: five catalogs per year. More than that just makes me mad and fills up my recycling bin.

    One more suggestion for your list: allow consumers to specify "only one catalog per address." I live in a household that includes two different last names -- not an unusual situation in this day. But, we only need ONE of any given catalog.

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  5. Hi Jill, thanks for offering your suggestion.

    One of the hardest things for a cataloger to do is to determine the right number of catalogs to mail to an individual.

    The big catalogers do a lot of testing, testing that customers aren't aware of. They test sending 4 catalogs a year vs. 8 catalogs a year vs. 12 vs. 16 vs. 24 vs. 32 vs. 48 catalogs a year.

    Consumers would be frustrated to learn that, on average, the cataloger makes the most money by mailing a ton of catalogs --- in other words, on average, the brand could send you just five catalogs, but overall, the brand generates more sales and more profit by mailing you 24 catalogs a year.

    For you, as an individual, 24 is too many.

    But the cataloger lumps you in with 10,000 or 100,000 "similar" customers. As a segment of 10,000 or 100,000 customers, it is most profitable to mail 24 catalogs a year.

    And that is why you get so many catalogs. I'm not saying the strategy is right for the individual customer, I'm just explaining the economics of cataloging at a high level.

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  6. One more thing ... most catalogers have the ability to send just one catalog into a household with two people that have different last names.

    I've tested this strategy (one catalog vs. two catalogs into a household). Half the time I tested this strategy, more sales and profit happened by mailing two catalogs.

    I guess it depends upon the conditions of the couple in the household --- if the couple share a catalog, then just one is needed.

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