August 15, 2010

Dear Catalog CEOs: Modern Catalog Contact Strategy

Dear Catalog CEOs:

Many catalogers are using the same contact strategy that was employed sometime in the late 1980s. We structure our businesses around the contact strategy, staffing to the level of contacts that we pre-authored twenty or more years ago.

And we like "big" contacts, don't we? The printing vendor community provides efficiencies for having bigger page counts. The USPS provides efficiencies for having specific, larger page counts. Our merchants demand larger page counts so that the entire merchandise assortment can be presented to the customer.

All of these activities work against the behavior of the modern customer.

The modern customer (under the age of 55) is going to buy online, regardless whether you mail catalogs or not. We always over-state results by adding orders to catalogs that would happen online anyway, with or without a catalog mailing.

Beyond that, however, we fail to properly analyze page counts.

Here's an example that I run into every day. A company has a 148 page catalog that generates \$2.50 when mailed to the average housefile customer.
• Pages = 148.
• Cost = \$0.74.
• Demand = \$2.50.
• Profit = \$2.50*0.35 - \$0.74 = \$0.14.
In this situation, we'd mail the catalog, heck, it was profitable, right?

Let's try something different. Let's create a 64 page catalog, editing out only the best sellers from the 148 page catalog. The cost of mailing the catalog, on a per-page basis, is 15% more expensive. We'll use the square root rule to estimate demand at (64/148)^0.5 = 66% of the 148 page catalog:
• Pages = 64.
• Cost = \$0.37.
• Demand = \$2.50 * 0.66 = \$1.65.
• Profit = \$1.65*0.35 - \$0.37 = \$0.21.
What is so interesting about this is that few folks will actively create the smaller catalog, even though it is more profitable. And among folks who do create the smaller catalog, people will circulate the larger catalog to break-even, and then will transition to the smaller catalog.

Why toss so much profit into the dumpster?

Even better, why not create a targeted version of the smaller catalog? Put in the best product within one merchandise division, and send it only to customers who previously purchased from the merchandise division? When you do this, productivity often increased by 20%.
• Pages = 64.
• Cost = \$0.37.
• Demand = \$2.50 * 0.66 * 1.20 = \$1.98.
• Profit = \$1.98*0.35 - \$0.37 = \$0.32.
This ends up being the most profitable version!

A modern catalog contact strategy will include many small catalogs, with targeted merchandise sent to a targeted audience. The days of a larger catalog mailed to the entire audience are over, it is an unproductive way to generate mediocre levels of profit.

Contact me now to obtain an evaluation of your contact strategy!