How Results Of The Catalog PhD Are Changing Over Time

We're nearly three years into running Catalog PhD projects (click here for your own copy of the original text from Amazon).

My, how times have changed.

When the catalog division was shut down at Nordstrom, way back in 2005, customers would distribute along a fairly even axis.

• Grade A (Mail 20+ Times A Year) = 10%.
• Grade B (Mail 10-20 Times A Year) = 15%.
• Grade C (Mail 4-9 Times A Year) = 20%.
• Grade D (Mail 1-3 Times A Year) = 25%.
• Grade F (Mail 0-1 Time A Year) = 30%.

Sure, there were more marginal customers than outstanding customers, but the distribution was somewhat even.

In late 2010, when the Catalog PhD was created, the distribution looked something like this:

• Grade A (Mail 20+ Times A Year) = 5%.
• Grade B (Mail 10-20 Times A Year) = 10%.
• Grade C (Mail 4-9 Times A Year) = 20%.
• Grade D (Mail 1-3 Times A Year) = 30%.
• Grade F (Mail 0-1 Time A Year) = 35%.

In other words, customers were moving "downstream".  With e-commerce and the myriad channels associated with e-commerce driving sales (hint - Google), catalogs were less important.  By mailing fewer catalogs, profit could easily be generated.  The theme of all of my work was "mail less often".  By and large, catalogers did not like this message - so in spite of the opportunity to be far more profitable, catalogers turned to the co-ops, looking to turbocharge sales.

Now, in mid 2013, the results have evolved again, this time fueled by demographics and mobile.

• Grade A (Mail 20+ Times A Year) = 10%.
• Grade B (Mail 10-20 Times A Year) = 3%.
• Grade C (Mail 4-9 Times A Year) = 15%.
• Grade D (Mail 1-3 Times A Year) = 22%.
• Grade F (Mail 0-1 Time A Year) = 50%.

There are two significant changes.  Can you spot them?

1. The number of customers to mail 0-1 times a year is growing, rapidly.  This is fueled by three unique issues ... first, the economy never recovered, so there are far more marginal customers today than in the past ... second, mobile is changing the world, with mobile customers tied to apps and engaging content, catalogs have less importance ... and third, demographics - with Jasmine having little interest in catalogs.
2. The number of customers to mail 20+ times a year is growing, rapidly.  This is fully fueled by Judy making choices - she is moving to catalog (more than in the past five years), and is not participating in the mobile ecosystem.  Sure, she uses mobile devices, then transacts because of catalogs.

What does this mean for the profitability opportunity identified by Catalog PhD projects?

• In late 2010, more than 70% of the profit opportunity comes from mailing fewer catalogs to the bottom of the file.
• In mid 2013, more than 50% of the profit opportunity comes from mailing more catalogs to the top of the file.

In other words, your customer file is splitting apart.

The majority of the customer file (Jennifer / Jasmine ... ages 18 - 51) needs dramatically fewer catalogs.

A portion of the customer file (Judy ... age 52 - 68) actually needs MORE CATALOGS.  More.  We don't have enough catalogs in the contact strategy stream to meet her needs.

We've been told, for ages, to be multi-channel / omni-channel ... to be all things to all customers across all channels.

The data is telling us something fundamentally different.

The data is telling us that customers are moving in opposite directions ... by appealing to all of them, we potentially satisfy none of them.

The data tells me that we are going to have to become much smarter at managing unique customer segments.

Ready for your own Catalog PhD project?  I'd think so, given the dramatic changes I'm seeing due to demographics, fueled by mobile (and Google).  Click here to contact me, right now!

$12,000,000 Profit on Catalog PhD Projects This Year? $22,000,000 Total?

It is an understatement to say that there are profit opportunities for catalog marketers these days.


In fact, in the past twenty months, I've uncovered $22,000,000 of annual profit opportunity for clients, using the Catalog PhD framework.


How is this possible?


Well, the secret is that "matchback analytics" employed by most catalog brands are fundamentally flawed.  After analyzing several hundred catalog and email mail/holdout tests, it is clear that demand happens organically ... in other words, if you don't mail catalogs or send emails to customers, customers spend money anyway.  Matchback/Allocation algorithms determine that organic demand, demand that would be generated because of brand loyalty, is caused by catalog/email marketing, severely overstating the importance of marketing at catalog brands, limiting the amount of profit you generate (though it generates significant profit for the entire catalog marketing vendor ecosystem).


Here's the fundamental flaw:  Take your average catalog brand, using an average matchback algorithm.  Most online transactions are allocated back to the catalog, with few transactions left for email or search or whatever channels remain.  In the following example, the brand mails 15 catalogs a year to the average customer.  Here's the profit and loss statement, by catalog count.

	Catalog	Organic	Total	Total	Total
Catalogs	Demand	Demand	Demand	Ad Cost	Profit
0	$0.00	$7.60	$7.60	$0.00	$3.04
1	$7.48	$7.60	$15.08	$0.65	$5.38
2	$11.34	$7.60	$18.94	$1.30	$6.28
3	$14.47	$7.60	$22.07	$1.95	$6.88
4	$17.19	$7.60	$24.79	$2.60	$7.32
5	$19.66	$7.60	$27.26	$3.25	$7.65
6	$21.93	$7.60	$29.53	$3.90	$7.91
7	$24.05	$7.60	$31.65	$4.55	$8.11
8	$26.06	$7.60	$33.66	$5.20	$8.26
9	$27.97	$7.60	$35.57	$5.85	$8.38
10	$29.79	$7.60	$37.39	$6.50	$8.46
11	$31.55	$7.60	$39.15	$7.15	$8.51
12	$33.24	$7.60	$40.84	$7.80	$8.54
13	$34.87	$7.60	$42.47	$8.45	$8.54
14	$36.46	$7.60	$44.06	$9.10	$8.52
15	$38.00	$7.60	$45.60	$9.75	$8.49
16	$39.50	$7.60	$47.10	$10.40	$8.44
17	$40.96	$7.60	$48.56	$11.05	$8.38
18	$42.39	$7.60	$49.99	$11.70	$8.30
19	$43.79	$7.60	$51.39	$12.35	$8.21
20	$45.16	$7.60	$52.76	$13.00	$8.10

This brand mails 15 catalogs per year, and as you can see, somewhere between 11 and 15 catalog mailings per year is optimal.  Based on matchback analytics, this business is doing a good job.

Reality, verified by mail/holdout tests, tells us something different.  Often, mail/holdout tests tell us that 50% of demand is generated organically, without need for marketing.  When that happens, the profit and loss statement looks a lot different:

	Catalog	Organic	Total	Total	Total
Catalogs	Demand	Demand	Demand	Ad Cost	Profit
0	$0.00	$22.80	$22.80	$0.00	$9.12
1	$4.49	$22.80	$27.29	$0.65	$10.27
2	$6.81	$22.80	$29.61	$1.30	$10.54
3	$8.68	$22.80	$31.48	$1.95	$10.64
4	$10.32	$22.80	$33.12	$2.60	$10.65
5	$11.79	$22.80	$34.59	$3.25	$10.59
6	$13.16	$22.80	$35.96	$3.90	$10.48
7	$14.43	$22.80	$37.23	$4.55	$10.34
8	$15.64	$22.80	$38.44	$5.20	$10.17
9	$16.78	$22.80	$39.58	$5.85	$9.98
10	$17.88	$22.80	$40.68	$6.50	$9.77
11	$18.93	$22.80	$41.73	$7.15	$9.54
12	$19.94	$22.80	$42.74	$7.80	$9.30
13	$20.92	$22.80	$43.72	$8.45	$9.04
14	$21.88	$22.80	$44.68	$9.10	$8.77
15	$22.80	$22.80	$45.60	$9.75	$8.49
16	$23.70	$22.80	$46.50	$10.40	$8.20
17	$24.58	$22.80	$47.38	$11.05	$7.90
18	$25.44	$22.80	$48.24	$11.70	$7.59
19	$26.27	$22.80	$49.07	$12.35	$7.28
20	$27.10	$22.80	$49.90	$13.00	$6.96

Oh boy.  OH BOY!


In reality, just FOUR catalog mailings per year yields an optimal outcome.  FOUR!


Now, yes, you're going to generate less demand.


And yes, this means that your housefile is going to shrink a bit ... unless you reallocate some of your ad cost savings back to customer acquisition activities or to marketing in other channels.


Look at the profitability of a customer, folks.  Using matchbacks/allocation algorithms, you generate $8.49 profit per customer at 15 catalog mailings per year.  Using HIllstrom's Catalog Marketing PhD, you generate $10.65 profit per customer at 4 catalog mailings per year.


This is how I have been able to help folks generate $12,000,000 of profit opportunity this year alone, and $22,000,000 in the past twenty months, using this methodology.  The matchback/allocation routines employed by the catalog vendor community fail to account for mail/holdout results, and fail to account for cannibalization between catalogs.  Hillstrom's Catalog PhD accounts for these factors.


The methodology is reasonably straightforward and simple.

1. Predict the likelihood of a customer purchasing in the next year (40%).
2. Predict how much a customer will spend if the customer purchases, annually ($100).
3. Predict the percentage of demand that will be organic, annually, at a customer level (50%).
4. Multiply the predictions (40% * $100 * (1 - 50%)) = $20.00.
5. Run a profit and loss statement, using cannibalization assumptions, to identify the optimal number of catalogs to mail.

I've just given you the keys to the kingdom.  I literally told you how to do this.  Show me a vendor that will give this type of information away???


So, what is stopping you from using this methodology?


You have a few options.

1. You can continue to use flawed matchback analytics, analytics you pay the vendor community to use.
2. You can implement the methodology I outlined here.
3. You can read the print version of the book for more details, click here now!
4. You can read the Kindle version of the book for more details, click here.
5. You can hire me to execute a project for you ... contact me now!

Here's a little bit of inside information ... I am raising prices on Catalog PhD projects, starting January 1, 2012.  By responding to this blog post (click here for this opportunity), you lock in 2011 pricing, saving you $$$$.

So take advantage, folks, what's not to like about generating more profit or saving a serious chunk of ad cost?  What would stop you from using this methodology?