Folks contact me about this issue all the time. I field a lot of questions that sound like this:
"Hey, what are you seeing out there in terms of customer acquisition performance? Our performance continues to get worse, and we don't know how we'll acquire enough customers, long-term, to grow, or to simply stay in business. Where can I find a scalable source of new customers if catalog customer acquisition no longer works?"
Catalog customer acquisition, as we know it, is dying a slow and painful death ... especially if you are an established catalog brand.
Best practices (a term I despise, as you know) used to require you to rent and exchange names with competing companies. In the early 1990s, this was the primary way to grow a brand, especially for smaller companies, folks who could obtain productive names from larger brands. Larger brands benefited by having deep enough pockets to rent/exchange names with numerous small companies. Customers, not having access to companies they didn't know existed, didn't protest against the sale of their name and address the way a few million customers protest today.
Then Abacus changed the world. By having companies pool names in a database, companies could essentially take advantage of cross-company buying habits. Abacus modeled the names, harvesting those that are most productive across brands. Catalogers initially resisted the co-op model, but eventually learned that these names performed better, and were half as expensive as renting the same name from a competitor.
Abacus did so well that a handful of competitors arrived on the scene. The competition resulted in lower prices. The combination of competition, lower prices, and declining performance severely damaged the list rental/exchange industry. Now, the established best practice is to use co-ops for maybe a third to two-thirds of customer acquisition circulation, a major deferral of business responsibility from the catalog CEO to the co-op statistician.
Over the past three years, the world changed. Social Media and third-party catalog opt-out pundits will tell you that "the customer is in charge". And they are right, to some extent (would you suggest that the customer is in charge of financial products ... nope, the taxpayer will foot the bill), though the issue is far greater in scope that the pap-like structure of that sentence, so great, in fact, that we don't have time to discuss it here today. Maybe we'll address that topic tomorrow.
Make no mistake, maybe a third of the customers who used to shop via catalogs now look elsewhere when deciding to make a purchase decision for the first time. Oh, they may still purchase from our brands, but are now much less likely to do so because we sent them a catalog when they hadn't purchased previously. The customer uses other tools, and doesn't always welcome the intrusion in their mailbox.
The economics are clear. As performance degrades, the cost to mail so many prospect catalogs becomes prohibitive in comparison with the long-term value generated by a new customer.
The big brands are observing this, and are inventing new best practices. Some companies are aggressively building their own internal co-op style of database. Based on what some of you tell me, some big brands import data from their competitors, use the information to augment their own customer information, then make names/addresses available to the competitor submitting the information.
All of this is semi-futile, as name/address paper-based marketing slowly dies.
At this time, there are several paths companies are going down to address the death of catalog customer acquisition.
- Partner heavily with co-ops, leveraging their matchback algorithms and results programs to manage both retention and acquisition circulation. This boosts results in the short-term, helping companies make the p&l for this quarter, or this year.
- Big companies are building their own in-house prospect databases, looking to bypass the co-ops altogether, holding more information.
- Small companies are being gobbled up by private equity firms, allowing the companies to leverage names/addresses from sister brands.
- Folks are greatly expanding the use of paid search, and are finding that they cannot recoup the losses observed in catalog customer acquisition, and cannot scale paid search to replace paper-based customer acquisition.
- Others are trying numerous social media strategies, finding that these micro-channels do not scale at the level that catalog customer acquisition scales, even when executed exceptionally well.
So what? What do we do about this?
Well, I'm not a fan of building an internal prospect database, adding data from other companies to complement my marketing strategies. Put yourself in the seat of the customer. Do you want Big Brand "X" combining your purchase from Little Brand "Y" to their database, then use that information to market to you differently? You don't like the thought of Google knowing everything about your online habits, so I doubt you like the idea of big brands knowing everything about your offline habits.
Over the next three years, we have no choice but to dramatically expand our testing opportunities in every possible micro-channel that exists. We are losing a sure-fire source of most of our new customers. Now we begin the hard work of exploring a hundred or five hundred or a thousand micro-channels that will eventually replace the one big macro-channel we've used for a hundred years.
This won't be easy. It could be fun. If we don't do it, we face a significant downsizing.