January 08, 2012

Dear Catalog CEOs: Pricing

Dear Catalog CEOs:

It's the story nobody in marketing wants to talk about.  Pricing.

Go back and look at your business.  Take the November 1 to December 24 window, and measure the percentage of an average order that is given away, via either free shipping or percentage off offers.  Does the graph look something like this?

You can see the impact of the post-911 environment in 2001.  And you can see the changes that started subtly in 2006 (invention of Cyber Monday), began to ramp up in 2007 (start of the recession / depression), took orbit in 2008 (financial crisis), and have continued unabated since.

We don't like to talk about this, do we?  We dance around the topic, saying we "have" to discount to "remain competitive".

Why not perform another analysis?  Go look at the evolution of your customer file, from 1995 to current.  Count the number of customers who purchased exactly two times per year.  Then count the number of customers who purchase exactly one time per year.  What do you observe?

I often observe that the number of two-time buyers, per year, is in decline, while the number of one-time purchasers is flat or growing.

What is happening?
  • The middle class, which formed the foundation of the typical catalog brand, is being obliterated.  Couple the aging of the customer file with the financial ability of the customer file to continue to purchase, and you have a problem.  Our response to the problem is to offer 30% off plus free shipping,.
Instead of asking what our "promotional strategy" is, we are better served thinking strategically about this topic.
  • What is our value proposition?  How do we price things in a way that allows us to generate a profit, while keeping our merchandise competitive and affordable?
Not everybody has to discount.  Apple sure doesn't have to discount, do they, when is the last time you got an iPad from an Apple store for 40% off?  Verizon doesn't seem to have to discount data plans.  DirecTV doesn't seem to need to discount monthly access to HD programming.  McDonalds seems to be able to raise the price of a Hamburger quite nicely over time.

So there's a lot of moving parts here.
  1. Customer files are aging in catalog marketing.
  2. Middle class erosion.
  3. Retailers only --- sales tax collection and crippling debt apply pressure to prices.
  4. Shifting wants to digital products.
All of which require a response from a business leader.  In 2012, somewhere between 8,000 and 22,000 Catalog Executive Teams will discuss the role of pricing in the future of a catalog business.  Do we adjust prices to reflect reality?  Do we offer discounts/promotions, attracting a specific type of buyer that may not purchase at full price?  Do we hold prices flat and accept a shrinking business?  Do we make free shipping permanent, and if so, how do we pay for it (hint, circulation reductions to over-mailed housefile buyers)?  Or can we raise prices (many of us can)?

It's time to move pricing into the strategic realm, and not consider it a discount/promotional tactic.

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