March 17, 2007

Multichannel Catalog Merchandising Strategy

The art of cataloging changed during the past ten years.

We used to market our catalogs to a target audience. We put the best merchandise in our catalogs. We sent the catalogs to our target audience. We measured results. We carried the best merchandise forward. We carried the best new merchandise forward. We capitalized on runners, we killed dogs.

Multichannel cataloging is different. Though we merchandise and market to our target audience, we have no control over which channel the target audience chooses to respond in.

Multichannel retailers run demographic profiles of the customers who respond to various products. For instance, assume we manage circulation at J. Crew. We advertise this Montauk Tote in our catalog.

In the telephone channel, we observe a DMPC (Demand per Thousand Pages Circulated) of $50.00. We're happy with this, because the outcome exceeds our profitability expectations.

Online, we notice that this item has a below-average conversion rate, a below-average "demand per visitor" metric.

Given the combination of the metrics, we elect to carry this item forward next season.

Still, something nags us about the performance of the item. So, we decide to look at the demographics of the customers who purchased the item, by channel.
  • Catalog Customers Who Responded Via Telephone: Age = 53, Income = $63,000.
  • Catalog Customers Who Responded Online: Age = 49, Income = $70,000.
  • Online Responders Who Did Not Receive A Catalog: Age = 46, Income = $66,000.
Can you see the challenge we face?

This item worked in the telephone channel. Our online-based analysis says this item performed below average. Our demographic profile suggests different audiences are responding, by channel.

Our challenge is to decide the role of catalog advertising.

If we want a profitable telephone channel, we run this item next year.

If we want to drive online sales, we don't run this item next year.

If we want to maximize multichannel sales, we run this item next year, but we may need to reduce circulation, or mail the catalog to a different audience. Eventually, we will mail catalogs only to customers who shop via telephone and web --- a limited audience.

Darwinian-style evolution of catalog advertising suggests that catalogs will either be constructed to maximize telephone sales, or will be mailed only to a limited audience that shops via both the telephone and online channels (or shops both direct and retail channels for companies who sell via retail). We're already heading in one of those two directions, most of us just don't know it, yet.

We're not going to get thought leadership from a Management Consulting firm on this topic. The answer does not appear in a $279 report from Forrester Research. The answer is not evident in a statistic that says "multichannel customers are worth 'x' times as much as single channel customers".

Multichannel CEOs and CMOs: I don't think there's a right or wrong answer, here. We simply have to decide what we want our multichannel catalog advertising to accomplish, and accept the consequences of our decision.

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