August 02, 2017

Circulation Theory: Part 9

Remember our e-commerce customer from yesterday ... 50% organic, 50% catalog driven? We mail a catalog, and the $3.00 matchback outcome is actually not-so-great.
  • ($3.00 * 0.50) * 0.40 - $0.80 = ($0.20) ... a loss of twenty cents.
This is a place where 90% of us simply refuse to cut back. We can't cope with cutting back, because of what it means to our industry. So we don't cut back. We extend our "lifetime value" window by a year and say we're mailing to a loss because we'll make it up on lifetime value, never once questioning how many times we are willing to do this (10x/year) and what it does to lifetime value (it ruins it).

It doesn't have to be this way.

Last week, I talked about page counts. This is where page counts become really important.

Let's say we're mailing 128 pages. Let's say we cut back to 32 pages. We get 52% of the demand we'd expect, and our ad cost drops to $0.25 (yes, you'll say it drops to a different figure - fine - use your estimates from your printer, no worries).
  • ($3.00 * 0.50) * 0.52 * 0.40 - $0.25 = $0.06.
OMG!

Look at that.

Now we're generating profit.

Now you can continue to mail the e-commerce customer.

You get to keep doing what you love to do!

You just have to make two compromises.
  • You have to reduce pages.
  • You have to stuff the reduced page catalog with your absolute best merchandise in order to generate profit.
Some of you are going to do this. You will generate a ton of profit for your company. You'll run marketing someday, because of your disproportionate impact on company profit. Your CFO will respect you. Your co-op rep and paper rep and printer will love you because you are keeping them in business.

Just do it. I wouldn't share this if I haven't seen this work to the tune of millions of dollars of profit. When it hasn't worked, it failed because creative sabotaged the effort (we need new creative) or the merchandising team did not put best items in (let's experiment with new items that signal the future of our brand) ... notice the word "new" in both comments?? Just follow the prescription to the letter. Best product, best creative, few pages.

Follow the prescription.

Please tell me ... what stops you from doing this? Be honest (kevinh@minethatdata.com).

Tomorrow, we wrap up our discussion. I hope you took notes, because the information shared over two weeks comprises the very essence of Circulation Theory ... it's stuff you have the tools to master!!