November 15, 2011

Catalogs 2012: Three Files

It's the topic nobody in catalog marketing wants to talk about.

A typical catalog business is fractured.

This happened to every catalog business over the past decade.  The degree of fracturing, the inherent belief in catalog marketing, the preferred customer acquisition strategy, and the age of customer are different for every company.

Let's explore each of the three customer files managed by a typical catalog brand.  By the way, if you're an ecommerce-only brand, the three files are a bit different, and will be explored in a later post.

File #1 = Tradition:  This is the customer file that catalogers crave.  It's a rural shopper, 55 years old or more.  A typical customer in this file is one who watched "thirtysomething" on ABC in the mid 80s, a Baby Boomer who shopped catalogs in the 80s and 90s.  It became a habit for this customer to shop via catalogs.  This customer will shop online, but does so only because a catalog was mailed to her.  This customer willingly pays $14.95 for shipping, because he has always paid $14.95 for shipping.  This customer is typically acquired from a co-op.  All of the rules of classic catalog marketing apply to this customer.  If 70% of your customer file is made up of this customer, well, then it seems like absolutely nothing has changed over the past decade.  When the print community, vendor community, or consulting community enthusiastically praise the ongoing success of catalog marketing, they are talking about this audience.  In the next decade, this audience is going to get smaller, and is going to spend less as the audience moves into retirement.

File #2 = Transition:  Catalogers have not historically had passion for this file.  Regardless how the customer was sourced, customers in transition have shifted purchase habits away from catalogs.  Mind you, these customers still love your brand, in fact, they love your merchandise!  These customers buy because of email campaigns.  These customers purchase after conducting a search, in fact, Google is a significant driver of business success within this file.  These customers want free shipping.  Though catalogers match online orders back to catalogs (largely because the cataloger mails this customer 14 times a year, so, by default, the cataloger has no choice but to match orders back to a catalog), customers in Transition do not shop because of catalogs.  I currently make the majority of my consulting income by recommending circulation reductions to customers in Transition.  In 2012, catalogers will significantly capitalize on circulation reductions in this audience, in an effort to be more competitive in the free shipping arena.

File #3 = Transformation:  Catalogers have virtually ignored this side of the business.  Tactically, catalogers have dipped toes in this tepid pool of water, largely without success.  Some catalogers have a presence on Twitter, some catalogers have a presence on Facebook, some catalogers experiment with Mobile.  For many catalogers, this is a foreign world, filled with younger customers who have significantly different shopping behaviors.  When a cataloger has some success with Transformational customers, the cataloger attempts to pull the customer back into the Traditional realm by pummeling the customer with a veritable plethora of catalog offerings ... driving the Transformational customer away, causing the cataloger to believe that "new media" doesn't work, further accelerating the development of the customer file to a "Traditional" composition.  F-Commerce, Mobile, Apps, Gamification, Social Commerce, the whole nine yards, they all fall into the Transformation file.

Every catalog brand has a customer file split across these three sub-files ... Tradition, Transition, and Transformation.

For some catalogers, customers nestle within a sub-file (Tradition), and do not change subsequent behavior.  In the short term, this is fantastic, because customer behavior is predictable, allowing the cataloger to maximize productivity via simple RFM and Regression-based approaches tied to Matchback algorithms.

For many catalogers, customers actively migrate from Tradition to Transition.  In the short-term, this means that the cataloger is over-investing in customers, costing the cataloger copious amounts of profit.  In the long-term, however, the health of the business is likely to be more robust.

Few cataloger have success in the Transformation realm, largely because of demographic issues.  The customer acquired via a co-op is not going to be the customer who uses the Etsy Gift Finder to shop.

We're going to spend some time talking about Traditional, Transition, and Transformation based customer files, because our current and future success depend on our ability to properly segment customers into these groups, then market to the customer profitably.

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