September 10, 2014

Creating A Growth-Based Catalog Vendor Ecosystem

Several years ago, I got to the end of a contact strategy project. The EVP, an earnest and good person, looked at me and said, if I may paraphrase: "I don't want more profit, we already generate plenty of profit. That's good enough. I need to grow. I need market share. Why do you care more about profit than market share? Real marketers care about market share!"

And with that, the two individuals I spoke with departed, sent me my check, and did not implement four weeks of hard work. I never heard from the company again.

Catalogers are at a crossroads. There are two business models that folks employ.

  1. Gain market share. Think Amazon. No profit for, well, ever. They just reinvest every penny back into the business, gaining market share in the process. Maybe they are the largest pyramid scheme in history, maybe they are the smartest direct marketers in history. It's one or the other. But make no mistake, they gain market share, at the expense of profit.
  2. Generate profit. Think Nordstrom. Nordstrom is a money printing machine. It's not uncommon for Nordstrom to generate 13% pre-tax profit or better - go look it up for yourself in their SEC filings. A sales associate, working in a retail store at Nordstrom, can earn $100,000 a year, five times what is earned at most retail brands. Now, they could be a much larger business, they could discount their way into oblivion to grow, and the could invest more than 2% or 3% of their net sales on marketing, in an effort to significantly grow. But they don't do that. They just print money.
Again, two types of businesses ... market share without profit ... or plenty of profit (which often leads to market share or leads to a smaller business that is much more profitable).

What type of business does the average catalog executive run?

Neither!

Most businesses straddle the middle, and obtain tepid results (think Macy's ... less than 5% pre-tax profit on a business that could happily grow much faster with no profit, or generate 15% pre-tax profit if it wanted to, but it would be a smaller business).

If you truly believe in the market share business model, then it is time to change how you do things. No more half-measures, for I'm tired of hearing the grumblings without any effort to create a growth-based catalog vendor ecosystem.
  1. Spend every penny of anticipated profit on customer acquisition.
  2. Demand that the co-ops and printers give you close-to zero variable cost solutions ... penny names from the co-ops, minimal profit from printing from the printers, and significant discounts from the USPS (they're giving e-commerce businesses incentives to ship boxes, lobby for significant postage discounts for spending amounts 10% above a baseline level). This allows you to invest even further, allowing you to grow faster, allowing you to increase market share.
And if you're not willing to do the hard work in (1) and (2) above, then you truly don't believe in the market share model, in spite of what you tell me. In that case, why not choose to be highly profitable, even if it means your business gets a bit smaller?