February 25, 2020

When Transactions Disappear

The 35% of my subscriber base that is catalog-centric is going through a ruthless transformation.

Fifteen years ago these subscribers made a major shift ... instead of leaving behind lists and embracing digital strategy, many (most) of the catalog professionals shifted to what are called "catalog co-ops". They gave their purchase transactions to the co-ops (for free) ... then paid money to pull unique non-duplicated names out of the co-ops for one-time mailing use.

The strategy "worked". From 2006-2010 the list industry died, and catalogers kicked the digital can further down the road while maintaining current-day catalog volume.

Here's a good way to think about what a catalog co-op meant to a cataloger. Let's pretend that there are five names available in the database, and the cataloger needs to mail three names.
  1. Customer #1 = 8 catalogers bought from last month, $800.
  2. Customer #2 = 5 catalogers bought from last month, $800.
  3. Customer #3 = 3 catalogers bought from last month, $300.
  4. Customer #4 = 2 catalogers bought from last month, $150.
  5. Customer #5 = 1 cataloger bought from last month, $75.
  6. Total File Power = 800 + 800 + 300 + 150 + 75 = $2,125.
  7. Total File Power Selected = 800 + 800 + 300 = $1,900.
The co-op (obviously) selected Customer #1, Customer #2, and Customer #3. The cataloger mailed the customers. The cataloger acquired new customers. All was good.

As catalogers went out of business and as Amazon cannibalized transactions typically reserved for catalog brands, the co-op file weakened. There was less file power. The situation looked like this in 2015:

  1. Customer #1 = 8 catalogers bought from last month, $800.
  2. Customer #2 = 5 catalogers bought from last month, $800.
  3. Customer #3 = 2 catalogers bought from last month, $200.
  4. Customer #4 = 1 cataloger bought from last month, $75.
  5. Customer #5 = No longer exists.
  6. Total File Power = 800 + 800 + 200 + 75 + 0 = $1,875.
  7. Total File Power Selected = 800 + 800 + 200 = $1,800.
Do you see the subtle difference?
  • File Power from the 3 Names Selected was $1,900, now is $1,800.
  • Total Co-Op File Power was $2,125, now is $1,875.
From a co-op standpoint you can see the collapse happening in real time (-12%), with a 20% reduction in the overall file.

From a cataloger standpoint you don't notice the change happening as dramatically (-5%).

Fast forward to 2020.
  1. Customer #1 = 8 catalogers bought from last month, $800.
  2. Customer #2 =No longer exists.
  3. Customer #3 = 2 catalogers bought from last month, $150.
  4. Customer #4 = 1 cataloger bought from last month, $75.
  5. Customer #5 = No longer exists.
  6. Total File Power = 800 + 0 + 150 + 75 + 0 = $1,025.
  7. Total File Power Selected = 800 + 150 + 75 = $1,025.
The File Power of the names you select in 2020 is about half of what it was in 2010. You're still getting three names, but you get one great customer, one tepid customer with lower File Power, and one customer that you never used to select but are required to select now because a good customer disappeared.

When we (Bill LaPierre and I) talk about the "Collapse of the Co-Ops", this is the dynamic we are describing.

This dynamic requires you to be oh-so-sophisticated at Digital Marketing to make up the difference. But because you've delayed being oh-so-sophisticated at Digital Marketing for the past fifteen years, you aged your existing customer base to a customer base that is not terribly responsive to Digital Marketing, rendering Digital Marketing less effective.

Oh oh.

This is what happens when co-op transactions disappear.

This is why understanding File Power is so darn important.

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