March 30, 2008

Part 2: What If Catalog Prospecting Stopped Because Of Do Not Mail Legislation?

We explored what happens in year one when catalog prospecting (and reactivation) is discontinued due to do not mail legislation. Now let's take a peek at years two and three in our simulation.



Please click on the image to enlarge it.

Recall that we were managing a $32 million dollar business that was generating $3 million in profit. This business would have still been growing in sales and profit, in all likelihood.

However, without a steady diet of new customers, this business is starving. The business is now half the size it used to be, generating about $16 million in sales, and around a half million in profit. Take a look at the catalog-driven component of this business. Catalog used to drive $13 million to the call center, and $12 million to the internet. Without catalog prospecting, only loyal customers are left, and these customers drop off at a rate of about fifty percent a year. By year three, catalogs are only driving $4 million a year. A few million dollars are made up via the online/organic channel, as a few catalog customers decide to buy online in spite of the fact that they no longer are advertised to.


Key Issues, After Three Years:

Seventy five percent of the remaining call center staff must be laid off, as there isn't enough volume to provide jobs for these individuals.

Twenty five percent of the remaining distribution center staff must be laid off, as there isn't enough volume to provide jobs for these individuals. Management must also consider what to do with a distribution center that is half empty, compared with three years ago.

Given the severe decrease in profitability, management would have to seriously consider mass layoffs among salaried staff.

The reduction in profitability severely limits the ability of the catalog brand to invest in anything.


Light At The End Of The Tunnel

In part three of this series, we'll show how the cataloger becomes an online brand, and begins to grow once again. Hope isn't lost. As leaders, we'll need to consider what we can do today to grow the business in a way that insulates us from the headaches associated with discontinuity in catalog marketing.

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