November 01, 2009

Dear Catalog CEOs: Demographics

Dear Catalog CEOs:

Unless you are Miles Kimball, there are significant demographic challenges awaiting the industry.

Most commerce happens among customers age 25 - 60. Clearly, customers older than 60 purchase lots of goodies, and the 24 and under crowd have a whole different set of purchase priorities.

But the big, meaty portion of the bell curve is between 25 and 60.

And with each passing year, we transition through a new portion of the bell curve.

A 60 year old customer with catalog preferences leaves the meaty portion of the curve, replaced by somebody who just turned twenty-five.

Think about the products you sell, and the channel you choose to sell those products in. Which customer, the customer who just turned 61, or the customer who just turned 25, is more likely to buy your merchandise?

Which customer, the customer who just turned 61, or the customer who just turned 25, is more likely to be appreciative of receiving a catalog in the mail?

And then we have additional inflection points.
  • Age 50 - 60 = Orders via catalogs over the telephone.
  • Age 40 - 50 = Orders via catalogs online.
  • Age 25 - 40 = Orders online.

The problem here is that a customer doesn't move from the 25-40 online cohort to the 40-50 cohort that orders from catalogs via your website. The advertising habits do not change as the customer ages, meaning that the 40 year old won't become more likely to become a telephone shopper in ten years.

All of this means that the audience that is receptive to catalogs is shrinking, almost unnoticeably on an annual basis, shockingly fast when viewed over the course of a decade.

I have cause for concern when I hear statements like "80% of our e-commerce orders came from customers who received a catalog in the past month." This suggests that management has a disproportionate focus on catalog marketing.

Modern cataloging is a lot like managing a 401k account. You remember the days when a financial advisor would show up at work, and strongly recommend "diversification", right? You weren't supposed to invest all of your retirement money in just one fund. You were supposed to spread your money out across numerous funds, so that if one or two of your funds collapsed, you didn't lose everything.

The exact same logic holds in modern cataloging.

We must diversify. We must cultivate an e-commerce audience that is completely independent of our loyal catalog customer following. We simply have no choice.

I recommend a target of at least 50% or more of e-commerce demand that comes from non-catalog sources.

Let me say that again: At least 50% or more of your e-commerce demand should come from non-catalog sources, or your "portfolio", if you will, is not diversified enough, leaving your business model at serious risk.

I can hear the complaints already.

  • "Online customers are price sensitive, I cannot give away the store with cheapest price and free shipping, or I'll go broke."
  • "Paid Search customers have poor long-term value, they only care about finding the best deal today, they are loyal to Google, not to my business."
  • "E-mail marketing is awful, I only get $0.07 per e-mail message, while I get $2.77 per catalog mailed."
  • "Affiliate marketing stinks, why do I have to pay those folks a commission when the customer would have purchased anyway?"
  • "Social Media is completely unproven. I don't have time to tweet about my order entry system task force meetings!"
  • "Mobile marketing is a fad, nobody cares about an iPhone app when they can browse the entire assortment on my website on a 23" monitor via a broadband internet connection."
  • "You don't understand my customer. My customers are unique, they love catalogs."
  • "You don't understand my business model, we sell widgets/gifts/apparel/books/tools, and you cannot sell those things online without paper supporting them."
  • "My daughter is 27, and she loves receiving Pottery Barn catalogs in the mail. So there. I think the younger generation just needs to be trained to love print."
  • "Nobody wants to read things off of a computer screen, print is a far more effective vehicle for communicating a merchandising story."
  • "Our matchback vendor tells us things are just fine."

You know what? Every one of those quotes could be accurate.

But looking at the financials of catalog brands all across our great country, it doesn't seem likely that every one of those comments will align in a way that is beneficial to catalog brands. Heck, a well respected industry expert recently told me via e-mail that 1/3 of catalog brands will not exist in their current form on January 1, 2011.

Yes, this is a person that you trust, folks, a person who does not boast, and does not write content online. This is an Executive who is in the trenches with us.

Given that information, it is time to diversify. It doesn't matter that the e-commerce side of the business is less profitable or less loyal or less fun or more fickle.

We simply have no choice. It is time to diversify. Now.

As always, I am here to help you through this transition. We will get through it!

Thanks,
Kevin