January 08, 2008

What Happened? What Will Happen?

This is the final post in a recent series of discussions about customer frustration with catalogers.

What Happened?

A portion of the population are using a combination of social networking tools, internet technology and external funding to express dissatisfaction with a perceived abundance of unsolicited catalogs.

Are Consumers Really Upset With Catalogers?

It has become obvious that some consumers, and maybe a signification minority of the population, are dissatisfied with catalogers. The internet makes it very easy for folks to express their frustration. For example, read about folks who are frustrated about unwanted catalogs and junk mail.

Did Consumer Behavior Change?

Consumer behavior in 2008 is different than in 1995, the final year that catalogers owned the field of Direct Marketing. In 2008, consumers (by and large) want control over the shopping experience. Today, the consumer wants to "opt-in" to the brands she wants to have a relationship with. She wants to determine if she has a relationship with Williams Sonoma, The Territory Ahead, or Bloomingdales, not the other way around.

The consumer has been trained to anticipate this type of relationship. In e-mail marketing, the consumer (for the most part) opts-in to the marketing programs she wants to be part of. In search marketing, the consumer decides which paid ad to click on, which natural search result to follow. In retail, the consumer has always had control --- nobody forces her to shop at The Limited unless she wants to shop at The Limited.

Elsewhere, consumer control is increasing. The consumer uses a DVR or a VCR to avoid television advertising. She opts-in to the blogs and media she wants to participate in. She can opt-out at any time.

Isn't Cataloging An Opt-In Form Of Marketing?

For the most part, the consumer does not have control over catalog marketing. Catalog businesses do not survive without a fresh supply of new customers. Therefore, catalogers must "prospect", or send catalogs to customers who have not previously purchased from a brand.

A customer checks her mailbox, and finds a J. Jill and an Eddie Bauer catalog. She never purchased from J. Jill or Eddie Bauer. These catalogs are, by definition, "unsolicited", meaning the customer did not request or "opt-in" to receive these catalogs.

When you read about consumer dissatisfaction with catalogers, the "unsolicited" catalogs are a large source of the frustration.

Are Catalogers Doing Anything Different, Causing Frustration?

Catalogers made numerous (but subtle) strategic changes that cause a consumer to believe she is receiving more unsolicited mail than in the past.
  • Industry Consolidation. During the past decade, firms purchased numerous catalog brands that were struggling financially. When multiple catalog brands are being managed by one firm, it is common practice to merge the customer files of each brand. The firm may elect to "cross-market" catalog brands, resulting in customers receiving catalogs the customer may not have previously received. The customer perceives this "cross-marketing" as "unsolicited mail".
  • Co-Op Databases. The biggest change in cataloging is the use of co-op databases. Catalogers give the name and address of catalog purchasers to companies like Abacus. The co-op combines information about the merchandise a customer purchased, across all participating catalog brands. For a small fee (less than a dime per name/address), the cataloger benefits by being able to mail "similar" customers, those who have yet to purchase from the catalog brand but possess similar behavior. The cataloger, however, does not determine who receives the catalog --- the co-op statistician identifies "like" customers, the cataloger trusts the co-op statistician to make this decision. By and large, this has been a good relationship for the catalog brand, as co-op statisticians are able to find prospects with acceptable response rates at a low cost. The consumer, however, might lose in this situation. The co-op statistician might over-mail some consumers, causing those consumers to perceive an excess in "unsolicited catalogs". The co-op does not share profits with catalogers or customers. It would be interesting to see what happened if the consumer demanded a share of the profits generated by the co-op.
  • Online Customer Behavior: When a customer purchases from the website of a catalog brand like Orvis, Garnet Hill or Norm Thompson, she may or may not perceive she is buying from a catalog company. We can never know how the consumer truly perceives the brand. If the consumer perceives her relationship as an "online" relationship, catalogs are perceived to be unsolicited. However, much of the catalog vendor ecosystem depends upon catalogers for financial well-being. The co-op collects money each time prospecting occurs. The printer collects money each time a catalog is mailed. The paper industry thrives off of a strong catalog marketing program. The post office relies upon catalogers for revenue. Trade journals live off of the advertising of vendors who depend upon catalogers. The catalog ecosystem thrives if the online customer is mailed a catalog. Over time, catalogers were re-branded as "multichannel merchants", to signal the perceived importance of mailed catalogs in the growth of the e-commerce industry. The disconnect between customers (who may not want catalogs after an online purchase) and the catalog ecosystem (an ecosystem that thrives on mailing online customers catalogs) cause problems.

What Does This Mean For Consumers?

We are likely seeing the early days of consumer dissatisfaction. Consumers will demand control over unsolicited catalogs (i.e. prospecting). Consumers will demand control over the number of catalogs they receive from the brands they purchase from. The noise will get louder, and more widespread, until the consumer perceives control shifted from the brand to her.

What Does This Mean For The Direct Marketing Association?

It is entirely possible that the DMA will be forced to respond to growing customer dissatisfaction, either by adhering to state or federal legislation, or by yielding to the growing popularity of services like Catalog Choice. Telemarketing and e-mail marketing are fundamentally different today than they were five years ago. Catalog marketing is likely to be altered in a similar manner, over time.

What Does This Mean For Catalog Brands?

The catalog business model will be forever changed. Catalogs will become an "opt-in" marketing strategy, maybe within as little as five years. Consumers will decide if they want to receive catalogs, and consumers will dictate how many catalogs they receive per year. Consumers will decide if they want to be part of a "prospect pool", a group of customers willing to receive catalog marketing from brands the customer has yet to purchase from.

The catalog brand will not be able to prospect in the traditional sense. Catalogs will be used to advertise merchandise to existing housefile customers who enjoy this style of advertising.

The best catalog brands will begin, well in advance of these changes, to shift catalog marketing dollars to the online channel. The catalog brand will be forced to accept online shoppers with lower annual repurchase rates, lower average order sizes, lower lifetime value, and marginal loyalty.

Traditional catalog brands will demand the development of advanced targeting techniques, in an effort to entice prior customers who have not purchased in several years to buy again. Traditional catalog brands will focus on building internal lists of opt-in catalog customers and prospects that are mined for various catalog mailing activities.

What Does This Mean For The Catalog Vendor Ecosystem?

There will be winners and losers in the catalog vendor ecosystem.

Co-ops will undergo dramatic transformation with the loss of unsolicited prospecting. Co-ops will reinvent themselves as miners of information about existing housefile customers.

Printers will survive by adapting to the needs of the opt-in catalog customer. Expect printers to execute "micro-catalogs", catalogs that offer targeted merchandise based on past purchase history and website browsing activity. This idea is not a new one, having been bantered around for the past two decades --- but the economics of opt-in cataloging will necessitate dramatic changes in merchandise targeting and personalization. Printers will lead the way on this front.

Printers will have to lead the way, because the volume of catalogs in the mail in an opt-in catalog world will be greatly reduced. This will drive up the cost of postage, which in kind will lower the number of catalogs that a catalog brand can afford to mail. "Micro-catalogs" will have to offer variable merchandise (i.e. different merchandise offered to different customers on the same in-home date) in order to generate enough sales to offset the high cost of postage.

What Does This Mean For The Catalog Employee?

Baby boomers created the explosion in catalog marketing between 1980 and 1995. For the baby boomer, this new catalog reality will be difficult to cope with. I expect a mass transition in the leadership of catalog brands as opt-in cataloging becomes a reality.

For the employee looking to transition a business model, there will be unparalleled business opportunities. Savvy leaders will be financially rewarded after successfully transitioning catalog businesses online while at the same time shepherding the creation of an "opt-in micro-catalog" business model.

For call center and distribution center employees, this will be a time of disruption. Call centers will become "instant response centers", geared to offering online shopper assistance. The instant response center will not be staffed to the levels of today's call centers. The best catalog brands will proactively train employees for the future of our industry, minimizing disruption.

What Does This Mean For The Customer?

Customers will have more control over what appears in their mailbox. This will be heralded as a "good thing". A to-be-determined amount of "impulse purchases" will cease to exist, without advertising to generate the purchase. The consumer will become even more engaged with the online channel, and will depend even more upon Google and consumer recommendations to direct her to the brands she trusts. At some point, consumers will rebel against Google, feeling that the giant search brand "controls everything".

Will There Be Hope?

This transition will not be without pain. Many industries are being transformed by the internet. Cataloging is to e-commerce as the CD is to the MP3 file. Look at what is happening in the television industry, or newspaper industry.

For catalogers, the transition is overdue, and when it is suddenly forced upon the industry, challenges will exist everywhere.

And yet, I feel that hope exists. An industry that has largely done things the same way for decades will be transformed. There will be creativity the likes of which haven't been seen in our industry. Many of us will make it through the transition, enjoying a customer base that trusts us, that pulls information from us (instead of us sending unsolicited marketing to them), that advocates on our behalf, that finds new customers for us. We will celebrate with our best customers, we will find ways to reward our best customers (and I don't mean 20% off coupons or free shipping).

I believe in the future of our industry. I will be there with you, every step of the way, helping us get through the transition that is coming.