Co-Op Dollars

I seldom talk about this, though maybe I should be talking about it more often.

Let's go back in the time machine, way back to 2005.  Do you remember 2005?  You should.   Your home was worth 70% more than it is now.  You could get a home equity line of credit on your home at an amazingly low interest rate without documentation of income.  Gas cost about $2.70 per gallon.  MySpace dominated Social Media.  Mobile was an oil company, merged with Exxon, not an Android device you held in your hand.  A tablet was something you wrote on with a pen, not a device that allowed you to play Angry Birds in high-definition.

I worked at Nordstrom in 2005.  It was in 2005 that we killed our catalog division, and still generated sales increases in direct-to-consumer and retail channels with a corresponding increase in profitability.

Now, I can hear the blowhards already ... "Yabut, Nordstrom is a retail brand, so you had all of that brand equity that allowed you to kill your catalog, your strategy couldn't possibly work for us."  It's amazing how people who never worked at Nordstrom are always smarter than the folks who did work at Nordstrom, when it comes to catalog marketing (or any kind of marketing).

Regardless, the catalog division was killed.  Instead, a "brand book strategy" was employed.  Some called this a "catalog", but honestly, it wasn't a catalog.  Vendors paid a fee to have their products advertised on each page (a practice called "co-op dollars").  The catalog featured cobbled together images from various brands, low density, high fashion, you get the picture.

Well, the performance of this fashion catalog wasn't "all that and a bag of chips" as some say.


But the revenue associated with this advertising concept is worth pondering.


Let's say that you have a 96 page catalog.  If your product isn't proprietary, why not ask your supplier for a few pennies to help advertise their products (this works for e-mail, and it works for your landing pages ... and if you really want to get your suppliers to hyperventilate, ask them for a few bucks to give them added exposure on your mobile website)?


Or you could remove eight pages of crummy-performing merchandise with ads, sort of like a magazine.  Oh, I know, you don't want to "destroy the brand" ... but that's an opinion ... you already rent your very best customers to your competitors, and somehow that doesn't destroy your brand, so maybe the situation isn't as dire as perceived.


Anyway, I'm not asking you to do this ... I'm asking you to think.  How can you generate revenue from your advertising, revenue that allows you to mail deeper and reactivate more names or allows you to acquire more new customers?

Co-Op Funded Catalog Pages

Catalogers that sell branded merchandise (merchandise that they did not design and source themselves, merchandise they purchase from another branded vendor) have challenging decisions to make.

• Do you offer merchandise you know will sell very well, and pay for the cost of mailing the pages out of your budget?

• Or, do you accept funding from the branded vendor, allowing them to feature their merchandise on your spread, incurring no paper/postage/printing costs?

Unless you are selling iPods or HP computers, it is common for co-op funded merchandise to perform worse (often much worse) than the merchandise you would choose to feature in a catalog.

Here's an example of what I'm talking about:

Catalog Mailing: Spread Analysis, Circulation = 1,000,000
	Regular Merch	Co-Op Funded
Demand	$80,000	$40,000
Final Fulfillment	$68,000	$34,000
Net Sales	$54,400	$27,200
Gross Margin	$27,200	$13,600
Less Marketing Costs	$16,000	$0
Less Fulfillment Costs	$6,528	$3,264
Variable Operating Profit	$4,672	$10,336
Demand / 000 Pages Circ'd	$40.00	$20.00
Customers Purchasing	1,159	580

Which spread would you rather feature in your catalog?

• The spread that causes 1,159 customers to purchase, generating $80,000 demand and $4,672 profit?

• The spread that is paid for by vendors, causing 580 customers to purchase, generating $40,000 demand and $10,336 profit?

(Hint: You have to determine the long-term impact of generating less sales and more profit on your customer file. How would you do that?).