October 31, 2010

Dear Catalog CEOs: Efficiency And Page Counts

Dear Catalog CEOs:

You're obviously aware that the USPS and your Printer have conspired against you, forcing you to produce catalogs with large page counts.

I say that, because every single time we have a discussion about page counts, you tell me that you won't produce a small catalog because of "discounts" and "efficiencies" provided to you by the USPS and your Printer. You tell me that they encourage you to produce larger catalogs.

Of course they tell you that you need to produce larger catalogs!

And you listen to them.

Isn't it time for you to listen to your customers? Put your vendors on the back burner and listen to what your customer is telling you.

Here's what I am seeing out there.

  • I'm routinely seeing that you can easily generate 85% of the demand on 50% of the pages mailed. Seriously! In many cases, the percentage is closer to 95%.
  • I'm routinely seeing that a targeted merchandise assortment, offered to a targeted audience, generates 100% of the demand on 50% of the pages circulated. For instance, if you were PC Connection, and the customer never buys Mac products, you eliminate those pages and you don't see a fundamental change in total spend on a reduction of pages.
Why is this important?

Well, you want to mail as many catalogs as you profitably can, right?

Let's assume that the 85% demand on 50% pages rule holds. You have a 96 page catalog, and you want to consider offering a 48 page prospect catalog.

Here's the profit and loss statement for an outside list (say from Abacus) in the 96 page catalog.
  • Demand = $1.30 per customer.
  • Profit Flow-Through = 40%.
  • Cost of Catalog = $0.60.
  • Profit = $1.30 * 0.40 - $0.60 = ($0.08).
Here's the profit and loss statement for an outside list in a 48 page prospect catalog that generates 85% of the demand on 50% of the pages. Remember, it costs more to mail the 48 page catalog on a cost-per-page basis, this is why the vendor community discourages you from doing it!!
  • Demand = $1.30 per customer * 0.85 = $1.10.
  • Profit Flow-Through = 40%.
  • Cost of Catalog = $0.38 (more expensive per page).
  • Profit = $1.10 * 0.40 - $0.40 = $0.04.
Oh oh.

You mean the smaller catalog is more profitable?

You mean that I can mail the smaller catalog to more customers, customers that I couldn't afford to mail the larger catalog to?

The vendor community sold you a bill of goods, one that benefits their bottom line, not your bottom line. Execute a test. Try a smaller catalog. See if your Chief Merchandising Officer can pick the best product and best creative to go in a smaller catalog ... if she can (and I'm confident that she can), you'll easily generate 85% of the demand on 50% of the pages.

And if you can generate 85% of the demand on 50% of the pages, you'll easily offset the 67% of the cost on 50% of the pages that the vendor community uses to discourage you from mailing smaller catalogs.

And you'll be more profitable.

And because you can mail deeper, you'll generate more top-line sales.

And because you can mail deeper, you'll have more buyers, yielding a stronger customer file.

What's not to like about that scenario? More sales, more circulation, more profit, more customers. Aren't those metrics that you adore?

Stop listening to your vendors.

Start listening to your customers!

And if you need help with the %-demand and %-cost curves, contact me, and I'll be happy to help you craft a few scenarios.

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