August 24, 2011

New Rules of Catalog Marketing

Every one of these rules are made to be broken, these are not best practices, these are trends that some of the best companies follow, while others blatantly disregard on the way to unfettered profits.  Think about each one.  Please think.

Make A Demographic Decision:  A decade of co-op infused customer acquisition nets most of us a customer file that is heavily skewed to a 55+ rural audience.  This was not the intended outcome of the "multi-channel" era, it's one of the unintended consequences of doing what everybody else is doing.  It's time to make a decision ... do we follow this demographic into retirement, do we sell, or do we chart a path to the future?

Frequency vs Pages:  Twenty sixty-four page catalogs are generally better than ten one-hundred-and-twenty-eight page catalogs.  The vendor community often skews us away from this solution, as do our creative teams.  Do what is right for the customer, not what is right for our vendors or our creative team.  By the way, your mileage will vary ... smaller catalogs must be merchandised differently than larger catalogs.

T-Commerce vs E-Commerce:  Simplicity and organization made cataloging great.  E-commerce is largely an algorithmic, IT-based drill-down shopping experience that lacks warmth.  Tablets could change this.  Apps like Catalog Spree represent the embryonic stages of a warmer shopping experience.  The cataloger has a distinct advantage over the e-commerce brand in tablet commerce, in that it knows how to stimulate a warm shopping experience.  The cataloger has a distinct disadvantage in that the demographic it is used to speaking to is much older than a tablet-embracing audience.  Regardless, there is long-term profit to be had creating a shopping experience on tablets.  And, unfortunately, the catalog shopping audience has yet to embrace tablets at the rate that younger audiences have, so there's an audience disconnect at play here.

Social = A Feature:  I think we can put the concept of social media as a sales engine to bed.  Catalogers will use social media as a feature, and won't bother to measure "ROI".  You'll have a product, coupled with creative presentation and audience and social and whatever else ... the blend of those tactics yields profit, or it doesn't.  Separating the return on each component will be a useless, feckless exercise, going forward.

Scorching The Earth:  I can't tell you how often I meet with people, and we talk about different strategies, and I hear the following phrase ... "our vendor will charge us $5 per thousand to do that, so we aren't going to go down that path".  Oh boy!  The last decade was all about Scorching The Earth for profit ... both catalogers and vendors alike.  One might fancy a day where both sides are more collaborative.  Again and again, I see how vendors stop catalogers from moving forward and making progress by charging for anything innovative.  Do the opposite!  Vendors, leave a little profit on the table and try to move a client into their future, not into your prescribed future.

Fragmentation:  We have at least three audiences.  We have an old-school 55+ rural customer that must be mailed catalogs.  We have a 40-54 audience that is in a state of transition.  We have an 18-39 audience that shops in unique ways.  Most of us spent the past decade asking all customers to shop like 55+ rural customers.  If we want a diverse portfolio of customers in the future, we're going to have to fragment our marketing efforts in many different directions.

Pennies Count:  I cannot believe how many people I meet who are perfectly happy letting $0.03 profit per customer evaporate.  If you have 500,000 twelve-month buyers, and you're willing to let $0.03 profit per customer evaporate each month, well, then you're willing to let $180,000 disappear.  Heck, that's salary for one or two employees plus benefits plus 401k plus a little profit to boot.  Instead of lamenting the fact that we can't hire people, why not stop over-circulating, then re-invest the pennies in employees?

Optimize Annually:  We spent the past decade doing everything possible to "maximize conversion rates" or to "boost response".  How did that work for us?  Most companies have the same annual customer metrics, regardless of channels or strategy ... the same 32% of customers repurchase in 2011 that repurchased in 2001, in spite of discounts and promotions and website redesigns and email campaigns and search and social and mobile and gamification and tablets and personalization and CRM and co-op optimized inactive names.  I continually notice that the most successful companies I work with optimize over a quarterly, seasonal, or annual timeframe.  These companies have a disproportionate focus on new customer acquisition.

Loyalty Is A Myth:  Unless you are Apple or Amazon or Google or Wal-Mart or McDonalds or Starbucks or a handful of mega-brands, loyalty is a myth.  I measure loyalty as the state where a customer has at least a 60% chance of purchasing from your brand in the next twelve months.  Continually, I notice that 5% of a twelve-month file possesses this level of loyalty.  Think of all of the loyalty initiatives you've employed over the past decade ... how many of them fundamentally changed customer behavior?  Be honest!  The modern cataloger attempts to find customers in a state of need, then meets that need at an acceptable cost ... if downstream purchases happen, all the better, but the modern cataloger doesn't demand loyalty from the customer, the modern cataloger simply demands profitability.

Cashing Out:  I increasingly hear of folks setting up their business to "cash out".  There is a big difference between crafting strategies that optimize profit, and crafting strategies to sell a business.  Expect many catalogers to skew strategies toward the cash-out option, manufacturing short-term health in exchange for an opportunity for a pay day.

The Missing Middle:  Fifteen years ago, it was common to have a twelve-month file with highly responsive customers, responsive customers, and infrequent buyers.  Today, the middle is gone ... we're increasingly left with highly responsive customers and infrequent buyers.  The middle became infrequent, because now the infrequents shop low-cost, free-ship online brands.  Modern catalogers greatly over-spend trying to rebuild the middle, a largely fruitless endeavor.  We need to shift behavior here, allowing infrequents to do what they're going to do, harvesting profit where possible, generating the remainder of our profit from low-cost acquisition and highly-responsive buyers.


Low-Cost Acquisition:  This is the biggest trend I see out there.  Think about my case.  I could take out ads in trade journals, and I could pay to host a big, fancy booth at an industry conference.  Or, I could invest time writing this stuff.  Which strategy seems to be working better?  In the past decade, cataloging became all about paying for low-cost names from co-ops.  In the next decade, the trend is to find much cheaper names outside of the co-op world.  Do you want to rent names for one-time use at $0.06 each, or do you want to do the hard work required to have customers consider your business when they have a purchase need without the requirement of a mailed catalog?


Back To Email:  There will be tremendous optimization strategies around reducing catalogs among email responsive names in 2012 and 2013 ... we'll have to do this to manage expenses.  We've been hearing about this for a decade ... in the past two years, I'm finally seeing the hypothesis bear fruit, and in the next two years, we'll see catalogers finally yield to this unstoppable economic outcome.


First Twenty Pages:  If you're going to go to the effort to send something, you'll at least make the first twenty pages compelling.  This isn't a new rule, as much as it is a new emphasis of an old rule.  The best catalogs have a compelling twenty-page introduction.


End of Remail Catalogs:  Your customer can gain real-time intelligence on any device, at any time.  And yet, we send one main release and two remails of that release once a quarter. Maybe the 55+ rural audience doesn't notice.  Regardless, we'll have to stimulate customer behavior by not being repetitive.  Today, many of you mock me when I bring up this point, you tell me that you don't have the creative resources to manage new creative.  Oh boy!  Honestly, you can't afford to not have the creative resources to re-merchandise your catalogs and website and email campaigns, you are being out-competed!


Fruitless Hype:  We give too much credence to things that don't matter.  Just because your printer thinks that a QR code will be adored by a 62 year old customer doesn't mean that your 62 year old customer will adore QR codes.  Should you try things? Yes!  But ignore the hype.  A cereal company can get 40,000 people to go from a QR code to their website, you can't ... you're 1/1,000 as big as the cereal company, meaning you'll get 40 people to go from a QR code to your website.


65% Gross Margins:  Ok, this is the recycling of a very old rule, but it is even more relevant in the next decade.  The way to be successful is to sell stuff that generates profit, right?  The internet is all about the opposite ... getting funding that allows you to delay profitability, allowing you to create "scale" that drives prices and margins down, wounding the competition, causing scale to increase, causing prices and margins to surge down even further.  Be honest, you can't win that game.  Amazon can win that game.  Wal-Mart can win that game.  But you cannot win that game.  You can win a game with proprietary product and great service and hefty gross margins that customers willingly pay.


Insourcing:  So many of you have outsourced just about everything.  You have an email vendor, a search vendor, a database vendor, a merge-purge vendor, a couple of co-ops, a list vendor, a paper rep, a print vendor.  And as a result, all you have are fragments of insight and knowledge.  If you spent the past decade pushing everything out to low-cost vendors, you'll need to spend the next decade pulling your intellectual property back into your organization ... a process I call "insourcing".  Outsourcing is great for the short-term profit and loss statement.  Insourcing is great for the long-term profit and loss statement.


What Is Advertised Is Not What Is Sold:  I continue to see email and catalog holdout tests where items sell at the same rates, regardless whether they were advertised or not.  The best catalog marketers are going to crack this nut, figuring out what you have to advertise so that you can sell everything else.


Retail Is A Debt Dungeon:  The bricks 'n clicks dream of the management consulting world is dead.  Retail consumes the financial resources of a direct-channel business, and is largely a one-way street (online customers shop retail stores, retail buyers do not necessarily shop online).  Furthermore, the concept that catalogs drive retail sales has largely been debunked.  Sure, catalogs drive traffic to stores ... but not like they drive traffic to a website.  I'm not saying you shouldn't have a retail store.  I am saying that when you have a retail store, you are not a traditional direct marketer ... the financials and marketing strategies fundamentally change ... your customers fundamentally change ... and you fundamentally change.


Catalog Circ Reductions Fund Free Shipping:  This is a huge trend, based on your inquiries.  Free shipping or low-cost shipping are the future, and somebody is going to have to pay for this ... that somebody is the co-ops, who currently enjoy $0.06 per rented name, and marginal online housefile buyers, who will see a greatly reduced contact strategy in the future.  Co-ops, however, have a huge opportunity here!!  They have a database with nearly every household in the United States.  They will have the opportunity to segment customers based on promotional preferences.  Would you pay $0.15 per customer for access to customers that adore full price merchandise?  If you're running a free shipping promotion, would you pay $0.20 per name for customers who crave free shipping and continue to purchase after the initial transaction?  Co-ops have a huge opportunity here.  So do you.  Regardless, the trend will be toward circ reductions that fund other activities.


Brain Drain:  Do you know how hard it is to hire talent?  You'd think with a nine percent unemployment rate and a 22% under-employment rate that it would be easy to find talent.  Not so.  Talent is headed out of the catalog marketplace, into all that is hot and trendy (mobile, social).  We combated this trend by outsourcing all of our key functions to the vendor community.  Do not be surprised to see non-competitive catalog brands sharing resources in the future ... a circulation team can be shared among non-competing brands, for instance.  Heck, brands already share their most valuable asset ... customers ... with each other, so why not back-of-the-office functions?

Ecosystems:  The 1990s were characterized by ecosystems of catalogers exchanging lists with each other ... the health of all brands were interconnected.  The 2000s were characterized by an algorithmic ecosystem, be it the co-ops feeding you 55+ rural names or Google feeding you those searching for products right at this moment.  Social ecosystems are not designed for commerce, and mobile is simply an extension of e-commerce into new devices and locations outside the home (though a third of mobile activity happens in the home).  The ecosystems of the 2010s will be defined by social collaboration across catalogers, forced by private equity, or fostered by industry leaders with the forethought to share resources with non-competitive catalog brands.  I want to end on this point, because you need to seriously think about this topic ... the power of two $50,000,000 non-competitive catalogers openly sharing ideas/resources to benefit the growth potential of each business.  Why wouldn't PC Connection and Cuddledown of Main share resources, they aren't competing with each other?  How could either business possibly lose by knowing how each business approaches problems?  Could the circulation team at one brand do the work for the other, under dire financial situations?


Ok, time for your thoughts, go ahead and use the comments section to give your $0.02.

2 comments:

  1. Kevin

    This article is a tour de force of futurist vision. I agree totally with your premises and conclusions. This should be required reading for every B2B and B2C CEO and Senior Manager in the catalog industry.

    At the base of these thoughts is an example of the analyst's mind at work: cause and effect. Each of your points moves from a real cause to a real effect, and they are not negotiable; these effects WILL occur as you have specified. A few individuals (read: owners and CEOs) will read this prophetic article and actually DO something; most will not. And, ten years from now, when all of these effects have emerged from current causes, huge amounts of money will have been lost, left on the table, or squandered.

    It all begins and ends with the catalog industry's one major flaw: the capacity and ability to THINK. These companies want simple, pat answers supplied by vendors, but few will do the hard, cause and effect thinking that you have done in this superb road-map of an article.

    This article should be nailed to the "Church" door!

    Best regards,

    Don Libey
    Libey LLC
    Intermediary to the Catalog Industry
    www.libey.com
    libey@libey.com

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  2. Thank you for the nice comments, I almost didn't publish this, as I didn't expect it to be well received.

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