February 13, 2011

Dear Catalog CEOs: 3+3=4

Dear Catalog CEOs:

Back in the early 1990s, we knew that cannibalization existed.  If we mailed a title twelve times a year, and then we added a second title and mailed it twelve times a year to the same circulation quality/depth, we didn't get a two-fold increase in sales, did we?

And then the internet came along.

Today, catalog frequency and page counts are a highly sensitive topic.

I can't tell you how many meetings I've been in during the past four years, where the discussion goes something like this:

Merchant:  "The catalog is 144 pages, and I only have 24 pages to show my product.  I need 36 pages.  Please add 12 pages, make the catalog 156 pages.  Thank you." 

Kevin:  "The catalog will be less profitable at 156 pages.  In fact, the catalog shouldn't even be 144 pages, it should be 64 pages with call-outs to key landing pages."

Merchants:  "You can't sell product unless you show the customer the product.  I need an additional 12 pages.  Please add the pages to the assortment.  Thanks."

Kevin:  "What about e-mail?"

Merchant:  "What about e-mail?"

Kevin:  "Why don't you feature your products in e-mail campaigns.  Your e-mail campaigns go to over a million subscribers, three times a week."

Merchant:  "Real customers use catalogs, hardly anybody shops from e-mail campaigns.  Our catalogs generate $3.00 per book, we're luck to get $0.15 per e-mail, and that only happens when we offer 20% off and free shipping."

Kevin:  "What about your website?  Only 4.8% of your customers convert when they visit the website.  Why don't you spend time getting that rate up to 6.0% for your customers, you'll increase demand by twenty-five percent."

Merchant:  "Our IT team won't let us touch the website."

Kevin:  "What about search?  Why not partner with your vendor to maximize the search performance of your division?"

Merchant:  "Is that where we have to do all of that fancy bidding?  I don't even know what that's all about.  Just let me add the pages to the catalog."

Kevin:  "What about social media?  Have you built a deep, emotional connection with your fans?"

Merchant:  "Do you know how much work that requires?  And at the end of the day, I have fans, but I don't necessarily have sales. Just let me add the pages to the catalog."

Eventually, the merchant beats people down, getting his/her way ... sales increase, profit decreases, page counts increase, circulation depth decreases, prospecting decreases, the customer file erodes, and the business slowly sinks into a murky pool of warm tar.

In the post-internet era, page counts are death.  

Here's a typical relationship, one that I see over and over and over again:

Pages Demand Profit
0 0.00 0.00
12 1.46 0.48
24 1.89 0.56
36 2.19 0.60
48 2.44 0.61
60 2.65 0.62
72 2.83 0.61
84 3.00 0.59
96 3.15 0.57
108 3.29 0.55
120 3.42 0.52
132 3.55 0.49
144 3.66 0.46
156 3.77 0.42
168 3.88 0.38
180 3.98 0.34

As pages increase, demand increases at a ever-decreasing rate, yielding less and less incremental profit.  The problem, of course, is that the Circulation Manager sees 132 pages and $0.49 of profit and says, "yup, that works!"

It doesn't work.  It's simply wasteful.  These days, 3+3=4.  It's a relationship that subtly destroys the profitability of a catalog business in the internet era.

Testing indicates that the future of catalog marketing is all about small catalogs with a highly targeted assortment to a rural, older audience.

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