October 03, 2010

Dear Catalog CEOs: The Right Number of Contacts

Dear Catalog CEOs:

There are companies out there that you can pay a quarter million or half million dollars to, and they'll create a complex mathematical algorithm that allows you to determine the right number of contacts to send to a customer.

Or you can work with me, and we'll "keep it simple"!

Say you have a customer segment that receives twelve catalog mailings a year. The average cost of a catalog is $0.60. 37% of your demand "flows-through" to profit. The segment spends, on average, $30.00 a year. Your organic percentage (you actively track your organic percentage, right? RIGHT?!) is 40%.

With this information, I use a proprietary curve that estimates the "optimal" number of catalogs to send to a customer. Here we go:


Catalog Organic Total Total Total
Catalogs Demand Demand Demand Cost Profit
0 $0.00 $12.00 $12.00 $0.00 $4.56
1 $5.20 $12.00 $17.20 $0.60 $5.93
2 $7.35 $12.00 $19.35 $1.20 $6.15
3 $9.00 $12.00 $21.00 $1.80 $6.18
4 $10.39 $12.00 $22.39 $2.40 $6.11
5 $11.62 $12.00 $23.62 $3.00 $5.98
6 $12.73 $12.00 $24.73 $3.60 $5.80
7 $13.75 $12.00 $25.75 $4.20 $5.58
8 $14.70 $12.00 $26.70 $4.80 $5.34
9 $15.59 $12.00 $27.59 $5.40 $5.08
10 $16.43 $12.00 $28.43 $6.00 $4.80
11 $17.23 $12.00 $29.23 $6.60 $4.51
12 $18.00 $12.00 $30.00 $7.20 $4.20
13 $18.73 $12.00 $30.73 $7.80 $3.88
14 $19.44 $12.00 $31.44 $8.40 $3.55
15 $20.12 $12.00 $32.12 $9.00 $3.21

Wow, take a look at that! Now, at twelve mailings a year, the customer generates $4.20 profit, so naturally, you think you're getting profit in each of the twelve mailings.

My proprietary curves, created largely from data during my time at Lands' End, Eddie Bauer, and Nordstrom, tell us otherwise. Optimal profit is generated at just three catalog mailings.

Our measurement systems are simply not capable of truly measuring incremental profit. We break all of our activities down to individual marketing campaigns, we "attribute" or "matchback" orders to all marketing activities, and as a result, we completely ignore "organic demand", demand that is generated without marketing activities.

Yes, your customer will spend money, even if you don't market to the customer.

So we over-market to customers, given our poor marketing attribution/matchback systems, we spend way too much money advertising, money that actually delivers a loss.

Remember, the vendor ecosystem greatly benefits when you over-market to a customer.

And there are vendors that greatly benefit when you pay them $250,000 or $500,000 to solve this problem, when you could pay me eight percent of that total, and I'll solve the problem for.

Three questions for you, Dear Catalog CEO:
  1. Do you know your "organic percentage", the percentage of demand that will happen if you do not do any marketing?
  2. Do you know the optimal number of catalogs to mail to each segment of your housefile?
  3. Do you need to contact me to answer questions (1) and (2) for you? If so, click here!