Thought you might find this quote interesting, from their Q2 conference call (click here for the actual transcript):
"In direct marketing we continue to move forward with our catalog circulation optimization strategy. During the quarter year over year advertising expense declined 26% net of a 34% increase in on-line marketing. We continue to believe that refining the balance between catalog sales and on-line marketing is a significant opportunity and we will be participating in a strategic test with Google at the end of the month to test this initiative at the next level."
The second-most popular project I work on is catalog optimization --- reducing catalog expense without a major hit to topline sales. It's a very popular topic these days, for obvious reasons.
Here's a quote about Pottery Barn Kids: "We will also continue to shift our advertising spend from catalog to e-commerce as we capitalize on the new functionality in customized e-mail, affiliate marketing and search."
Here's an exchange you might enjoy --- anybody who's ever been responsible for reducing catalog marketing expense while at the same time is responsible for growing the online channel can relate to this:
Anthony Chukumba – Ftn Capital Markets
I had a quick question in terms of the catalog circulation optimization effort. Your catalog circulation if I wrote these numbers down correctly, catalog circulation declined 19% and your catalog pages declined 25%, but year over year your direct to customer business was down 24%. I guess what I'm wondering is do you feel comfortable that you haven't cut back too much on your catalog circulation? In other words, it strikes me as a little bit out of line that you're direct to customer sales be down even more than your catalog circulation. It sort of implies that some of the circulation you got rid of wasn't necessarily marginal kind of dead beat circulation.
A substantial piece of the reductions were in the Pottery Barn brand, so I'll let Laura speak to the specifics related to Pottery Barn and their strategies, and then I'm going to let Pat talk about the broader catalog circulation optimization strategy. Laura could you take this specifically related to the Pottery Barn brand where you're doing a lot more versioning?
We have been actually, this is a very important question for all of us and we continue to have a lot of discussion and research done on the subject and we look at it monthly and go through and look at where there are opportunities and make adjustments, and it's a very productive process.
We do have less promotions than last year, so as Sharon said earlier, there are sales that we drove last year that weren't as profitable as they should have been and weren't good for the brand longer term, and that is part of what you're seeing with the direct to consumer decline that's worse than the catalog circulation cut.
And just to extend that a bit across all of our brands, the techniques, we're in our 23rd year of using the sophisticated regression analysis to rank our file when we go to mail it. And over the growth years, we were looking at how we could use this to find the next best prospect. In this environment, we're able to use these techniques to identify those people who would most likely not buy and not mail them, and we have done a number of control groups and are very confident that the circulation we've cut would have produced minimal sales compared to the cost of having mailed those catalogs. The other point that Sharon brought out earlier, and Laura mentioned, is that we're able to divert some of our catalog spend to on-line digital marketing that is producing more attractive results and we are very optimistic about our opportunities here especially in the back half of the year across a wide range of digital marketing efforts from e-mail, to affiliates to re-targeting to paid search and also the initial results of Google's new caffeine algorithm which tends to favor brands and pushing up our page rankings.
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