Multichannel Forensics And Postage Increases

There's been a lot of buzz the past few days about what appear to be an impending and significant postage increase for multichannel marketers, and in particular, small multichannel marketers.

Our industry is not likely to support other issues that place cost pressures on small, multichannel marketers. We don't rally around our partners when the cost of keywords or portal advertising increases. But postage increases, especially significant ones, can be easily quantified, and impact the entire multichannel marketing food chain. The food chain rallies around the cause.

Multichannel marketers can use Multichannel Forensics to understand the long-term impact of postage increases. If we assume that multichannel marketers reduce circulation to marginal customers and prospect lists, in an effort to offset cost pressure (this impacts list brokers, list managers, and compiled list folks, who depend upon a healthy prospecting business), the multichannel marketer will get fewer new/reactivated customers.

When fewer customers are acquired, the business fails to grow at a robust rate. Businesses must grow, or they die.

For instance, assume that a small multichannel retailer cannot mail 400,000 catalogs a year, due to the increase in postage. Assume that these catalog drive 7,500 new telephone-channel buyers, and 1,500 new online-channel buyers.

The cost increases cause the marketer to have to reduce circulation each year. This causes an ever-increasing impact on the business, over time, as is evidenced in the table at the bottom of this post.

Because the impact is cumulative, the multichannel marketer loses an equal number of customers each year. These customers cannot contribute to future sales.

In this example, $1.5 million in sales is lost in year one, $3.4 million in year two, $4.6 million in year three, $5.3 million in year four, and $5.7 million in year five.

Also notice that, in this example, the online channel is impacted by problems in the catalog channel. Our integrated, multichannel businesses suffer from price pressures in the catalog postage arena. Simple two-channel simulations can be used to illustrate the real long-term impact of short-term decisions.

These are frustrating times for catalog-based multichannel marketers, who are being pushed online by our customers, and ultimately, those who deliver our catalogs to our customers.

Five Year Business Simulation

Customers Not Acquired Due To Increased Postage Costs

Year 1Year 2Year 3Year 4Year 5

12mo. BuyersTelephone7,500 9,803 10,709 11,117 11,315

Online1,500 2,693 3,704 4,389 4,802

Phone + Web0 1,305 2,104 2,523 2,738

NewbiesTelephone7,500 7,500 7,500 7,500 7,500

Online1,500 1,500 1,500 1,500 1,500

Phone + Web0 0 0 0 0

Net SalesTelephone$1,312,500 $2,506,688 $3,065,062 $3,331,457 $3,462,622

Online$225,000 $890,438 $1,561,570 $1,971,198 $2,199,150

Phone + Web$1,537,500 $3,397,125 $4,626,632 $5,302,654 $5,661,772