July 08, 2012

Dear Catalog CEOs: Scale

Dear Catalog CEOs:

Is there a word that you hear more often these days than the word "scale".

Loosely defined, "scale" is a concept where somebody is able to make a small investment, and grow incrementally without making additional investments of time, resources, or money.

In the startup world, Facebook and Twitter "scale".  You can achieve hundreds of millions of users without a lot of incremental work ... the first million users are hard ... the next hundred million users require almost no work as the first million users do the work for you, at minimal cost to you.

In the catalog marketing world, co-ops reflect the concept of scale, on both sides of the equation.  I recall being at Eddie Bauer, back in 1998, when a sales rep from a co-op told me that "there will be a day when we have every transaction from every catalog brand ... when that day comes, we'll know everything about everybody and everybody will be forced to use us."  That's what scale is about.  And the co-ops got there, obliterating the list industry in the process.

This idea has been "co-opted" on the other side of the equation.  If you attend any catalog-based conference, you'll hear an Executive say that they love working with co-ops because "sales scale with co-ops".  In other words, it takes the same amount of human work to order 10 names from a co-op as it takes to order 10,000,000 names from a co-op.

Once that realization happens, laziness sets in.  As long as the co-op delivers acceptable results at a reasonable cost, there's no need to innovate, to work hard, to do anything.  Just ask the CFO to cut a check each month for 3.2 million names, and watch $4.0 million in sales come in.

It's at that very point that the cataloger is doomed.

Doomed for numerous reasons.
  1. The well-documented feedback loop, where 55+ rural customers tend to buy from a cataloger, causing the co-ops to optimize response for 55+ rural customers, causing the cataloger to only acquire 55+ rural customers, causing the co-ops to further optimize for 55+ rural customers, causing the creative/merchandise in a catalog to evolve to favor 55+ rural customers, causing younger customers to run away, frightened.
  2. Knowledge Gap:  Ask any catalog exec why new customer acquisition is trending above/below plan, and you'll get a simple response ... "Co-op names are/are-not working".  That's like saying you're having a heart attack because your blood pressure is high.  Why is your blood pressure high?  Be honest, do you, as an Executive, know anything about the names you are getting from the co-ops?  If not, then you're trapped in the knowledge gap.
  3. Laziness:  Businesses are built on hard work.  Once it becomes easy to do something, it becomes hard to find the hunger to do it better.
  4. Other Scalable Methods:  What is scale to one business is hard work to another.  Fab.com can grow from zero to millions in a short period of time via Facebook, Twitter, and Email.  To them, the business "scales".  To the cataloger, acquiring customers via Facebook, Twitter, and Email is one-to-one marketing, hard work, and is nearly impossible.  The farther a customer base evolves away from a younger audience, the harder it is to use methods that appear to scale to other businesses to scale your business, driving you further and further way from those methods.
For many catalogers, this is where we are, now.  Scale is working both for us, and simultaneously against us.

Sound familiar?

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