October 21, 2015

Make A Profitable Choice

Question:  You mail a monthly 128 page catalog. You decide to test a 64 page catalogs against the 128 page standard offering. You learn that the 128 page catalog generates \$4.00 per book, yielding \$0.40 profit per customer. You learn that the 64 page catalog generates \$3.40 per book (85% of total), yielding \$0.54 profit per customer. What do you decide?

1. You decide to continue mailing the 128 page catalog because your printer tells you that it generated more demand than the 64 page catalog.
2. You mail the 128 page catalog to a circulation depth that yields a break-even result. Then, you mail the 64 page catalog to the remainder of the circulation, as long as the 64 page catalog can be mailed profitably.
3. For every customer, you run the math, and if 128 pages is more profitable, send 128 pages. If 64 pages is more profitable, send 64 pages.

Here's what I observe.

1. 50% of catalogers would go with (1).
2. 35% of catalogers would go with (2).
3. 15% of catalogers would go with (3).
But, easily, the most profitable answer is (3). Bigger companies have figured this out, and they make a ton of profit as a consequence.