## May 31, 2010

### Dear Catalog CEOs: The Prospect Catalog

Dear Catalog CEOs:

Some of you are already using a prospect catalog to improve overall performance.

Here's how the concept works. Let's assume you currently have a 128 page catalog. When you mail the 128 page catalog to your prospect audience, you observe the following metrics:

 128 Pages Circulation 500,000 Demand \$900,000 \$/Bk \$1.80 Profit Factor 37.0% Book Cost \$0.64 Profit \$13,000 AOV \$100.00 Response 9,000 Profit/Ord \$1.44

Now, what might happen if we used a 48 page prospect catalog? Let's assume that the old standby rule of "pages are added at half-productivity" holds here. In that case, we can use the "square root rule" to estimate demand for a 48 page catalog:
• Demand For A 48 Page Catalog = (48 / 124) ^ 0.50 = 0.612.
In other words, we'll obtain 61.2% of the demand.

Next, a prospect catalog is merchandised with only the best products. When merchandised in this manner, productivity usually increases by 20%, plus/minus. Let's assume a 15% increase in productivity.
• Demand For A 48 Page Catalog = 0.612 * 1.15 = 0.704.
Finally, we'll make two additional assumptions. First, we'll assume that the average order value is a bit less, because there are fewer pages ... we'll assume a \$95 average order value. Second, we'll assume that each page in a 48 page catalog is more costly to print and produce ... we'll assume that this catalog is 15% more costly to produce.

With these assumptions, what might a profit and loss statement look like for a 48 page catalog, vs. a 128 page catalog?

 128 Pages 48 Pages Circulation 500,000 1,340,000 Demand \$900,000 \$1,037,584 \$/Bk \$1.80 \$0.77 Profit Factor 37.0% 37.0% Book Cost \$0.64 \$0.28 Profit \$13,000 \$14,066 AOV \$100.00 \$95.00 Responses 9,000 10,922 Profit/Ord \$1.44 \$1.29

There are a lot of positives here:
• You expose your brand to 1,340,000 households, not a measly 500,000 households. Your co-op will love you for this!
• Demand increases by more than ten percent. Your CFO will love you for this!
• Profit increases in this scenario. Your CFO will love you for this!
• Responses increase by more than 20%. Your Circulation Director will love you for this!
This is why you create a prospect catalog. All of the metrics that matter improve, allowing you to greatly increase circulation depth, to increase demand, to increase orders, and to increase profit.

See, I'm not all about cutting catalog marketing, am I?

1. Kevin, as for the merchandise, I think the mix is not about taking "the" bestsellers but "low risk"-bestsellers only. Acquiring customers is about convincing them that they will not suffer from buyers' remorse. So one should use rather brands than private labels, rather products a little below the average pricepoint, rather "heroes" of frequency than profitability. Of course, this is based on our best practices in Germany. Is this different in the US or has this changed in recent years?

2. Nice analysis Kevin.

The danger comes when the cataloger depends 100% on the mail to acquire new customers. Online marketing adds a different breed of customer and increases penetration to the max.

In addition, many catalogers would benefit from freestanding inserts and DRTV. But they failed once or twice and gave up on the opportunity by not testing all available media opportunities.

Your blog brings this point home clearly as it should. The industry is still catching up.

3. Yup, it's like a portfolio that one wants to have as diversified as possible.