October 25, 2009

Dear Catalog CEOs: Much Smaller Catalogs

Dear Catalog CEOs,

Some of you ask me to do a unique analysis, one I call a "filtering" analysis.

Others might refer to this analysis "segmentation" or "persona development". The objective, honestly, is the same.

And for catalogers, it has never been more important.

I'm not talking about traditional RFM segmentation. Instead, I am talking about creating a series of "strategic segments", segments with unique characteristics.

In the example I have here (click to enlarge the image), there are three merchandise divisions. This catalog company sends a 144 page catalog to each customer, with equal page counts attributed to each merchandise division. In this case, about 60% of the customer file only buys from one merchandise division.

So instead of sending a 144 page general merchandise catalog, let's create four small versions. Each version has 48 pages instead of 144. Version #1 only has merchandise from division #1. Version #2 only has merchandise from division #2. Version #3 only has merchandise from division #3. Version #4 is small, and has a sampling of each merchandise division for customers who buy from multiple merchandise divisions.

We target each smaller version to the audience that enjoys it. Your job is to create each 48 page version just like you normally would.

Take a look at the profit and loss statement in the image above. Clearly, customers spend less because they are receiving fewer pages. But even if the smaller catalogs cost $0.60 each (vs. $1.30 each for a large catalog in the example), it is more profitable to send the four smaller versions, one version per customer, than to send the general catalog to each customer.

Honestly, it is easier to send the general catalog to each customer. It will always be easier. The inertia within your organization will demand the easier solution.

But we're in a position where profit dollars are what are needed, right?

So when you're looking for new strategies for the second half of 2010, give this strategy a try, as a test, and see what happens!

Thanks,
Kevin