September 22, 2007

Co-Op Funded Catalog Pages

Catalogers that sell branded merchandise (merchandise that they did not design and source themselves, merchandise they purchase from another branded vendor) have challenging decisions to make.
  • Do you offer merchandise you know will sell very well, and pay for the cost of mailing the pages out of your budget?
  • Or, do you accept funding from the branded vendor, allowing them to feature their merchandise on your spread, incurring no paper/postage/printing costs?
Unless you are selling iPods or HP computers, it is common for co-op funded merchandise to perform worse (often much worse) than the merchandise you would choose to feature in a catalog.

Here's an example of what I'm talking about:

Catalog Mailing: Spread Analysis, Circulation = 1,000,000

Regular Merch Co-Op Funded

Demand $80,000 $40,000
Final Fulfillment $68,000 $34,000
Net Sales $54,400 $27,200
Gross Margin $27,200 $13,600
Less Marketing Costs $16,000 $0
Less Fulfillment Costs $6,528 $3,264
Variable Operating Profit $4,672 $10,336

Demand / 000 Pages Circ'd $40.00 $20.00
Customers Purchasing 1,159 580

Which spread would you rather feature in your catalog?
  • The spread that causes 1,159 customers to purchase, generating $80,000 demand and $4,672 profit?
  • The spread that is paid for by vendors, causing 580 customers to purchase, generating $40,000 demand and $10,336 profit?
(Hint: You have to determine the long-term impact of generating less sales and more profit on your customer file. How would you do that?).

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