January 04, 2009

Catalog ROI Is Overstated Because Of Search

Last week, we chatted about how E-Mail ROI is mis-calculated. My stats tell me that you found the article interesting.

Catalog advertising causes the same issues that e-mail marketing causes, often on a larger scale.

The typical catalog marketer matches paid search orders that occur within 30/60/90 days of a catalog mailing back
to the catalog that the circulation team believes is responsible for creating the order.

However, the typical catalog marketer does not match back unconverted paid search expenses to the catalog responsible for causing unconverted paid search to happen.

Take a look at this profit and loss statement.

This is a fairly typical catalog profit and loss statement.

Notice converted paid search orders. These orders are matched-back to the catalog. Some catalogers match the paid search expense of those orders back to the catalog.

Almost nobody matches the unconverted paid search clicks back to the catalog that caused paid search to happen. In this example --- a reasonably honest assessment of a catalog profit and loss statement, the catalog caused 3,200 paid search orders to happen. However, at a 3% conversion rate, the catalog caused about 100,000 paid search clicks to happen.

The average cataloger does not allocate the cost of the incremental 96,800 unconverted clicks back to the catalog that caused the clicks to happen.

So three things happen.
  1. The cataloger significantly over-circulates the catalog, because the additional expense is not allocated to the catalog driving paid search. The catalog marketing effort is less profitable than it appears.
  2. The cataloger significantly mis-understands the impact of catalog marketing. In this case, circulating 1,000,000 catalogs caused 100,000 paid search clicks. The marketer fails to see that the catalog caused a 10% "engagement rate". This is a big deal --- the catalog is causing far more customer engagement than is typically measured.
  3. A portion of the 100,000 paid search clicks result in purchases with the competition, reducing your Net Google Score.
Eventually, we'll create a database infrastructure that allows us to capture appropriate customer interactions. This will fundamentally change how we market to customers.
  • We will attribute unconverted paid search clicks back to the customer/catalog combination, in our promotional history files. Instead of recording an $0.80 cost for the catalog, we'll record a $0.80 + $0.50 = $1.30 cost to the customer, incorporating the cost of the search. Ask your database, co-op, or web analytics vendor if they are able to do this for you.
  • When we make mailing decisions (e-mail or catalog), we will make the decision based on the historical paid search expenditure of the segment we're considering. We won't send as many catalogs or e-mails to customers who augment their experience with unconverted paid search. This is a big deal, folks ... we'll be much more profitable when we make this transition.
  • Example: Say your break-even on an $0.80 catalog is $2.50. Now you have a customer who loves to click on paid search ads when she receives a catalog. Your "real" cost of mailing the catalog is $1.30, driving your break-even over $4.00.
  • Example: E-Mail marketing is essentially free, until it isn't free! The new e-mail marketing discipline will require us to make e-mail marketing decisions, at a segment level, based on anticipated paid search expense. All of a sudden, e-mail marketing is fundamentally changed --- the discipline becomes nearly identical to catalog marketing.
  • Another Issue: We have the same problems with Affiliate Marketing and Shopping Comparison Sites. If catalog marketing drives a customer to an affiliate, and that affiliate skims 7% off the top of an order, the catalog needs to receive an expense penalty for driving demand to the affiliate.
We've spent a decade doing matchback analytics. Now, we need to provide the vendor community some leadership, so that matchback analytics account for the expense side of the ledger. We are continually making bad decisions because our database infrastructure fails to capture important information.

Who do you see doing this type of work out there, and what was the impact of this style of analysis?


  1. Hi Kevin --

    Beyond the common business flaws in the channel profitability models (not allocating costs correctly, over-attributing sales to catalogs) that you point out, there are often significant psychological issues at play too:

    * "Catalog is our heritage -- we're a catalog firm -- hence Catalog Is Important"

    * "We spend a great deal of money on printing and postage each quarter, a very great deal -- hence Catalog Is Important"

    * "We have many good writers and designers working heroically to put out each book --hence Catalog Is Important"

    * "Catalog Is Important -- ERGO we need to give Catalog every benefit in our financial models. For instance: if a book went into the household any time reasonably recently to the order date, then we credit the book. If we didn't give Catalog the benefit of the doubt, the books would look awful, and that wouldn't make sense, as we all understand that Catalog Is Important."

    2009 is going to shake our industry to the roots.

    By year's end, there will be few if any "catalogers" left.

    The survivors of 2009 will be "direct marketers", using an appropriate mix of online and print, and not wedded to the past.

    I'm not saying the print catalog will die in 2009 -- it wont -- but I think the "We are a Cataloger" approach is rapidly heading towards extinction, as retailers who overly prop up the print channel in their fin models head over the cliff.

    (Not trying to sound grim, but I fear that is how this reads...) Onward and upward --



  2. I considered writing this post as an open letter to you ... having your picture in the upper-right-hand corner of the post, suggesting that you are penalized for 97 uncoverted clicks while catalog gets credit for the three conversions.

    Yup, those comments are made every day. It's hard to separate the legacy of an industry from the future of an industry.

  3. Anonymous1:33 PM

    Finally getting caught up on my reading. I agree with your points. For those of us who are challenged by the details, how do you do this, especially for prospects who are anonymous paid search clickers:

    "Almost nobody matches the unconverted paid search clicks back to the catalog that caused paid search to happen."

    I have a visitor ID for the clicker and a mail file, now what?



  4. I wouldn't make this complicated. If you haven't linked website visitation activity to offline purchase behavior or to promotions, do what you can.

    Let's say that you match back online transactions to the January catalog, and you see that 1,000 paid search customers actually bought "because" they were mailed the catalog.

    Let's also say that your normal conversion rate is 3%.

    And let's say that your normal conversion rate from catalog shoppers is 5%.

    You can then make the assumption that if 1,000 paid search customers purchased after receiving a catalog, then 19,000 (95%) clicked through paid search but did not purchase --- and your web analytics tool can help you directionally verify this.

    Therefore, you actually have 20,000 paid search visitors that would not have happened had a catalog not been mailed.

    At $0.50 average cost per click (or whatever the number is), you have $10,000 of additional expense that should be allocated across your catalog segments/lists.

    Sure, you don't know which segment/list caused this, but isn't it better to estimate that you have an additional $10,000 in expense than to not even be aware of the topic?

  5. Anonymous4:56 PM

    Yes, that makes total sense.

    The new reality is you know you mailed them and you know they clicked; but you really don't know why they bought. Was it the catalog? Was it purely a product driven search? Was it the combination? Or, something else totally unrelated like a recommendation from their FaceBook friend and they used Google because they didn't know the exact URL?

    Some reasonable inference and business rules seem appropriate to get you close enough to inform better decisions. These will have a significant impact on ROAS calculations.

    This is where the debate starts and quickly gets heated since it ultimately drives revenue attribution and budget allocations.

    Clearly if a company sees the world through a catalog lens, the approach may be biased and may be harmful to the business in the long run.

    Thanks for the insight.


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