May 15, 2011

Dear Catalog CEOs: 10 Problems

Dear Catalog CEOs:

Let's review ten problems that are slowly burying the catalog industry.  How many of these problems plague your business?

Problem #10 = Brain Drain:  You see it across the board.  The best and brightest are determining the sentiment of a user on Twitter.  Clearly, that's important, but it isn't as important as measuring the appropriate mix of new and existing product.  Smart, young individuals are not choosing to work at catalog brands.  And the exodus of experienced, seasoned Executives is making matters worse.  Finally, Gen-X is too small a generation to provide a veritable plethora of talent.  All in all, it's not a good situation.  Be honest, when is the last time you heard your twenty-two year old dream about getting a merge/purge job at J. Jill?

Problem #9 = Matchbacks and Attribution:  We butchered this one.  We listened to vendors who have a vested interest in making sure we continue to put as much paper in the mail as possible.  Matchbacks are fundamentally flawed.  Execute mail/holdout tests as soon as possible, and learn your organic percentage.  Most of the folks I speak with learn that between 30% and 70% of online demand is organic, and is not driven by catalogs as believed to be via matchback analytics.

Problem #8 = Paper and Printers:  It's happened twice this week to me ... an Executive tells me that they will not be experimenting with page counts because their printer has pinned them into an efficient boundary.  Since when do you let a third party dictate your strategy?  Printers are not going to save the world by forcing you to mail 64 page catalogs without experimentation, coupled with QR-code coupons for 15% off!  We need to tell our vendors what they are going to do.  For too many years, our vendors sold us solutions that benefited the vendor.  Enough.  Be a leader!

Problem #7 = Social Media:  You're probably expecting me to say that you need to get knee-deep in social media, or you're history.  Wrong.  For most catalogers, it is the opposite.  Social media is a drain on resources that threatens to erode profit.  Now, let me be clear here.  I think social media fits perfect in your contact center.  Let the real customer relationship experts, your call center staff, find the right path to social media success.  Every minute that a marketer spends trying to develop deep, emotional relationships with customers is a minute that is taken away from optimizing e-mail campaigns, understanding what motivates a customer to buy merchandise off of a catalog spread, or takes away from calculating the profitability of search marketing activities.  Finally, social media is not a sales generator among customers age 55 and up.  Ironically, catalog customers are, by and large, age 55 and up.  Do not listen to the social media mudheads who want social media to succeed so that they generate page views and followers that validate their perceived popularity.  Do what is right for your business.

Problem #6 = Inflation:  You analyze profit and loss statements, and you see that catalogers survived the past decade by optimizing margins and minimizing variable costs.  Well, margins are about to be gutted, and variable costs are headed north.  Our industry does not have an answer to this problem.  We rely on paper, on fuel, on coal (website), and on cheap outsourcing of resources (China, Indonesia).  The cost of all those things will increase.

Problem #5 = Free Shipping:  We will be forced to offer free shipping, or cheap shipping.  With inflation gutting our profit and loss statement, we'll have no choice but to mail far fewer catalogs in order to fund free shipping.  And once most of us are offering some form of free shipping, we'll see the lift associated with free shipping disappear.  Oh boy.

Problem #4 = Algorithms:  We simply have no control over anything anymore.  Abacus decides which 64 year old rural prospect receives your catalogs.  Obtuse retargeting software determines which 46 year old discount-based shopper buys online.  Heck, I use geeky math to determine the optimal number of catalogs to mail to a customer.  Tell me exactly what it is that you truly control anymore?

Problem #3 = Relevance:  How relevant is a catalog brand in the era of social shopping, group discount websites, Target, Wal-Mart, Home Depot, eBay generating billions via mobile, you name it?  You want to have some fun at lunch?  Go recruit twenty of your brightest analyst and manager level staffers, treat them to sandwiches, then go around the table and ask them where they shop and why they shop there.  At the end of your discussion, count on one hand the number of catalog brands they mention.  Ask your staff how they learn about brands ... I doubt it is through a rented name from Abacus!  Relevance is a big issue ... nobody wants to talk about it because there aren't any easy answers.  I'm to a point now where I advocate creating a separate brand to address the under-40 audience, you're simply not going to woo them with ninety-six pages of home-spun stories delivered seventeen times a year via the USPS.

Problem #2 = Customer Productivity:  Demand that your marketing staff overlay age information on your buyer file.  Then get ready to cringe.  Look at demand per customer by age ... demand per customer usually peaks somewhere in the early 40s.  After age 50, customers spend less and less per year, until the customer hits age 65, where annual spend sinks into oblivion.  In many cases, your productivity isn't declining, but instead, you are dealing with Problem #1 ...

Problem #1 = Age:  Fifteen years ago, you managed a vibrant, 45 year old customer.  Today, you manage a 55-60 year old customer.  In other words, customers are aging about 0.7 years for every year that passes.  This is a huge problem.  First of all, customer productivity declines after a customer passes her early 40s, so your customer base is capable of spending less and less as time goes by.  Secondly, when a customer base ages, it means that your brand lacks relevance among younger customers.  In large part, we caused this ... we listened to the pundits who told us that print was required to drive traffic to a website?  The pundits didn't go a step further ... they should have analyzed the age of the customer who used print to shop online.  Had the pundits done their due diligence, they would have realized that they were inadvertently asking you to target an older, rural audience.  We listened to the pundits.  Now we have a problem.  I do not see any way that catalogers fix this problem ... we will ride the Baby Boomer generation into retirement, struggling to manage expenses and maintain productivity as we ask this generation for yet another incremental dollar of demand.

Time for your thoughts ... what do you believe are the biggest problems that catalog marketers face?

11 comments:

  1. Excellent post, Kevin. But a couple of rejoinders. I know a very active direct buyer who is buying more in her early 60s than ever before, some of it via catalog, but also online (and she's not particularly tech savvy). And she would buy more online if some of the Websites she shops at weren't so cranky. Yes, some of it is gifts for grandchildren, but still, it's purchases.

    And I have a client who sells to young women 18-24, with a very successful catalog, doing things the old school way, but with a very profitable Website as well. Price points are fantastic, which is really the key here. But the point is, the catalog is very much alive and well.

    Finally, ages ago I posed the question (late 80s, I believe), if you're selling to a 38-year old married mother of three, do you continue to sell to the same demographic down the decades (always the 38 etc.), or do you follow those customers at that time as they mature/age? Never got a firm answer on that, but I think it's more the former than the latter. Of course, here's the rub - most true-blue catalogers were merchandisers first and foremost, and those who grew nicely also sold out by the late 90s. So guess what -- it wasn't the aging of the market that mattered, it was the aging of the marketers!

    Thanks for your provocative insights.

    ReplyDelete
  2. I won't argue that any person can point to one or two brands, or a dozen individuals bucking the trends I mention. There are certainly exceptions to what I mention.

    What is frustrating to me is that we work in an industry that won't face the fact that, if we addressed 100 catalog brands, that 85 of the 100 are easily generalized by what I mentioned above. Our industry won't talk about the 85, we always want to aspire to the 15 that do it different! I guess there's nothing wrong with that. We still, at some point, have to deal with the reality of the 85.

    Agree on selling out in the late 1990s, some folks possessed keen intuition, given the change in channels that was on the horizon.

    Always good to get your feedback, it's reasonable and well thought out, much appreciated.

    ReplyDelete
  3. Kevin

    Along with my old and dear friend, Ernie Schell, my perspective is fairly long, going back to the 70s, in cataloging. It is the sum of the issues you raise that somewhat concern me. All together, they are an overwhelming indication of change, and change on a speed basis that we have not encountered as catalogers before. There was also a time when our vendors (printers, list rental agencies, etc.) were our partners. The advent of mega-printers (Donnelley, Quad, etc.) changed that, and print economics favored only the very large catalogers, while Abacus--unfortunately-- completely reversed prospecting control (even knowledge) and effectively made "dumb circulation" seem to be sliced bread with cinnamon and suger. Only a few Trusted Advisors like MeritDirect continue to subscribe to the philosophy that "When our Client Makes Money, We Make Money" and that has created a very small perch up on Higher Ground that few B2C catalogers are able to reach. The healthy catalog world still exists in B2B cataloging. With long perspective, I would say it is as large and profitable as it ever was, albeit consolidated. Overall B2B cataloging shows excellent catalog performance with e-commerce around 35-40% of sales, but the bulk still catalog-driven. There are many GREAT catalog businesses in the U.S., and--in Europe and particularly, the U.K.--there are SUPERB catalog businesses with very healthy profitability and great futures. And many of these catalog companies are mailing HUGE catalogs and a plethora of smaller versions.

    Yes, these are critical problems--particularly for B2C catalog companies. Yes, it is not a glamour industry any longer. Yes. it is manipulated by self-serving vendors, especially the new Social Media medicine shows. Yes, it has its challenges, as any old industry has. But, it keeps getting bigger in total sales. It is growing. Yes, the margins are thinner, but the growth is alive and well in an era of economic and legislative pressure. And, we ALWAYS have the side shows and "The Next Shiny Thing" but somehow most of us come back to reality and proven strategies ultimately and continue to mail more and make more profits.

    Were I young again and in my 30s with a little start-up money, I would have no reservations whatsoever about starting a catalog business; however, it would be B2B and in an under-served niche. And that strategy is how I bought and grew my first catalog successfully in the 1980s after a ten-year career of managing them. These "things" -- these catalogs are filled with opportunity, but they require a simple, proven, straightforward, common-sense approach to prospect and customer mailing and to product development and merchandising, tempered with good financial skills. Forget all of the fluff on the sidelines . . forget the pundits . . . forget the "You HAVE tos" . . just go about creating a range of good, desired products that are needed by a niche of good customers, both of which don't go away. Do that and the catalog will make you a very successful person.

    We are all wrapped up in our underwear with social media, QR codes, Facebook, Twitter, and all the other static and noise. Try a little solid cataloging for a while and be amazed at what tried and true catalog management will create in profits.

    Don Libey
    Libey LLC
    www.libey.com

    ReplyDelete
  4. I like Don's comment about "medicine shows." As always, he has hit the nail on the head.

    As I was reading his references to the good old days, it prompted to me to wonder (quite off the original topic) whether list brokers still serve the roll of "unpaid consultants" that they did in the 1970s and 1980s. To be sure, they made plenty of money...but they also spent quality time with their clients to evaluate not only the client's own catalog but those from the lists they recommended (or wouldn't recommend). And along the way they passed on what amounted to a graduate education in the rules of the road for the catalog business (as did many of the printers Don mentioned), which amounted to "unpaid" consulting worth tens of thousands of dollars. At the trade shows their booths were always hubs of gossip and bustling activity, while some of the most successful brokers themselves sat up in their suites "holding court" for a ready audience of those whom they had helped to prosper. As Don points out, their motto was "When our Client Makes Money, We Make Money" - and boy, did they!

    So Kevin, a question: do database analysts play that same kind of role today? Back in the period I was referring to, they were usually relegated to a less central role in the galaxy of advisors.

    ReplyDelete
  5. I don't think database analysts play the same role today, or in the past. Database analysts, by and large, never had the overall business experience required to play this role.

    That was the past.

    Today, the same can be said for SEO experts, e-mail marketing experts, modern catalog marketing experts, social media experts, mobile experts, affiliate marketing experts, and every other conceivable marketing expert. Everybody today is relegated to a less central role, because in my opinion, everybody is an expert at a niche. Very few people know enough about how everything fits together to provide the role you mention in your comment.

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