August 08, 2010

Dear Catalog CEOs: Pages and Contacts

Dear Catalog CEOs:

These days, many of you contact me, hoping that there is a secret to generating more demand with catalog marketing. Can you find better names in our housefile? Can you encourage the co-ops to create better models for us? Is there a list out there that we are missing that would cause our business to grow by 30%?

Sometimes, the answer is right under our nose.

Pretend that you mail a 124 page catalog every month.

Pretend that this catalog, when mailed to an above-average performing customer, generates $5.00 of demand per mailing.

What would happen if you mailed two contacts a month, each contact at 64 pages?

I can already hear folks howling at me. "We don't have the creative resources to mail two catalogs instead of one." "You have to show the entire merchandise assortment or the customer won't buy across the entire merchandise assortment!" "Our customers don't want increased frequency."

Math, believe it or not, can suggest that the strategy might be more productive.

I start with the 124 page catalog at $5.00 per customer. I'll use the friendly "square root function" to estimate what might happen at 64 pages ... (64/124)^0.5 * $5.00 = $3.59.

So, each 64 page catalog will generate $3.59. Now, let's assume that the second contact cannibalizes the first contact by 30%. Therefore, the two contacts will generate $3.59 + $3.59*0.70 = $6.10.

Now, we're getting somewhere! Let's assume that it costs 15% more, per page to mail two 64 page catalogs than it costs to mail one 124 page catalog. Instead of costing, say, $0.60 to mail 124 pages, it will cost (64+64)*1.15*(0.60/124) = $0.71.

Time to run the profit and loss statement. Assume that 35% of demand flows-through to profit:
  • 124 Pages = $5.00 * $0.35 - $0.60 = $1.15.
  • 64 Pages + 64 Pages= $6.10 * 0.35 - $0.71 = $1.43.
You tell me, which strategy would you rather employ?

Catalog marketing is evolving in very interesting directions. Your best catalog customers, the rural 65 year old woman, for instance, can support more contacts, contacts that are smaller. You marginal customers require fewer contacts --- they are going to shop online now, so a smaller catalog can be used to save expense, increase circulation depth, and still drive customers online.

Contact me now
for a contact strategy evaluation. Let's put modern page count changes and contact strategies into practice!!

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