November 18, 2012

Dear Catalog CEOs: Two Opportunities We Should Pursue

Dear Catalog CEOs:

When I work on a Catalog PhD Project (click here to contact me for your own, customized, highly profitable project or buy the booklet here), there are two opportunities.

  1. Mail more catalogs to catalog-loving customers.  This usually accounts for 35% of the profit opportunity in a Catalog PhD project.
  2. Mail far fewer catalogs to online/retail customers.  This usually accounts for 65% of the profit opportunity in a Catalog PhD project.
I continue to be amazed by the responses to each outcome.

Most catalogers do not want to mail more catalogs to catalog-loving customers.  Can you believe this?  You are catalogers, right?!  Among customers with characteristics like Judy (i.e. phone/mail shoppers), you can go from 17 contacts a year to 19 contacts a year and generate more demand and more profit.  You just have to add two contacts.
  • "But we like our current contact strategy.  It has an every-third-week rhythm that allows our staff to manage the workload easily."
  • "We don't have the staff to do that."
Every Catalog PhD project I've executed demands that best catalog-loving customers be mailed more often.  Most of the time, this opportunity is not capitalized on.

The second opportunity is to mail fewer catalogs to online/retail customers.  Often, I can save a cataloger 20% to 35% in housefile mailing expense.  This recommendation is sometimes met with resistance.
  • "If we cut here, we can't make online marketing scale to replace the sales, so we're not likely to take advantage of the profit opportunity without a sales opportunity to offset what we lose when we cut catalogs."
  • "Our matchback analytics suggest that your analysis is wrong."
  • "We'll never do mail/holdout tests, because we can't afford to lose sales."
  • "The co-ops tell us they can build models that increase circulation, increase sales, and increase profit.  That sounds good to us."
These, of course, are fairy tales.

There is no reason to generate sales at a loss (after factoring in short-term / long-term payback).  Would you voluntarily work an additional 10 hours a week and voluntarily take a 10% paycut?  Never!  But you'll gladly mail online/retail customers at a loss.

And we've proven, over and over and over again via mail/holdout tests that matchback results are terribly wrong.  Terribly wrong!  Matchbacks are a fairy tale that allow us to think that marketing "works", causing us to spend more on marketing (often, spending more with the vendors who coincidentally provide matchback reporting for us).  As an example, take a customer who will only purchase online, who hates catalogs, and will never shop from a catalog.  If you mail this customer 12 times a year, your matchback analytics will tell you that every order placed by this customer was caused by a catalog.  Every one.  Even though the customer hates catalogs.

All of the magic in a Catalog PhD project comes from prior mail/holdout tests.  I've executed and analyzed (or my teams have done so) somewhere close to a thousand mail/holdout tests in my career.  Mail/holdout tests represent truth.  When we don't want to execute a mail/holdout test, we're saying that we don't want to know the truth.

Finally, vendors have been telling us for two decades that they can "mine" better performing names ... they've been telling us we can increase circulation, increase sales, and increase profit.  When is the last time a vendor caused your catalog to generate 10% more sales on the same circulation level?  Be honest!

My projects uncover two opportunities.
  1. Mail more catalogs to catalog-loving customers.
  2. Mail fewer catalogs to online/retail focused customers.
When you read the statements, it's a no-brainer, don't you think?  You earn more profit.  

How is that a bad thing?

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