Best Strategy for Hard Times And, What NOT to Do!
by Stephen Lett
My entire career since graduating from Indiana University in 1971 has been devoted to catalogs. There have been good and off years. However, I can honestly say that this is the most difficult and challenging year I have seen. Gas prices, consumer debt and the National election all combine to create the perfect storm. In these tough economic times, it is logical (and necessary) to reduce expenses and to save where possible. However, I often see reductions being made in areas that wind up affecting the longer term viability of a company. Often it is short term gain and long term pain! When the going gets tough, the tough don’t cut circulation or stop prospecting. They weather the storm. Even the perfect storm. This month, I would like to outline strategies for tough times and important KPI’s (Key Performance Indicators) you should be tracking on a weekly/monthly basis to know where you stand at all times.
This past year, I have seen catalogers scramble to reduce expenses. These cuts are not always in the best places. For example, some catalogs have reduced page count (without doing the proper square inch analysis), many have eliminated mailings to web only buyers (without proper testing), others have changed paper stock/grade, or eliminated mailings to prospects, etc. All of these reductions are well intended but are they the right decisions for the business? I say not in all cases. Often, these reductions are being made by emotional decision to cut expenses without regard to testing. Over the years, I have found that it is difficult to slash and burn your way to prosperity! Some of these decisions may save money short-term but long-term, they could hurt.
The combination of increased cost and lower response rates are forcing catalogers to decrease circulation and make other cuts in order to maintain profitability. Here are things to do and not do in the face of these most difficult economic times:
| 8" x 10.5" Trim Size | SQUARE INCHES |
SPACE PERCENT INCREASE |
APPROX. COST * |
COSTS PERCENT INCREASE |
ACTUAL DOLLAR INCREASE |
|---|---|---|---|---|---|
| 48 p. + 4 p. = 52 p. | 4,368 | ------- | $216,000 | ------- | ------- |
| 52 p. + 4 p. = 56 p. | 4,704 | 7.69% | $220,000 | 1.85% | $4,000 |
| 56 p. + 4 p. = 60 p. | 5,040 | 15.38% | $232,000 | 7.41% | $16,000 |
| 60 p. + 4 p. = 64 p. | 5,376 | 23.08% | $240,000 | 11.11% | $24,000 |
| 64 p. + 4 p. = 68 p. | 5,712 | 30.77% | $248,000 | 14.81% | $32,000 |
| NOTES: * Includes printing, paper and postage for 400M catalogs. |
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- MAILING INTERNET BUYERS – The L-T-V (Life-Time-Value) of an Internet buyer is often not as great as that of a cataloger buyer. While we would typically mail at least the 0-12 month Internet buyers, it might be that the entire group should not be mailed. For example, a large percentage of first time Internet buyers often never made a second purchase. These buyers are searching the Internet for a specific gift or item and not always “shopping”. You might want to test eliminating these one-time/first time buyers from your circulation plan. Key code and mail them as a group. Track the results and she how they perform after match-back. We can mail our 0-12 month catalog buyers with a great deal of success … they are the heart and soul of our housefile. However, the same may not hold true for the 0-12 month Internet buyers. Test this first.
- SURPRESS MULIT-BUYERS GENERATED FROM CO-OPS - When more than one database is used in a mailing there will typcially be 25% to 30% duplication from one coop to another. The “hits” go into a multi-buyer pool and they can be re-mailed a second (or more) time. However, multi-buyers created from coops against coops generally do not perform well. (Rentals against rentals and rentals against coops are fine.) How can you reduce the number of duplicate records from one coop to another? The names you rent from a coop are net of your housefile. Therefore, if you stick with using one coop you will reduce the number of dups. This approach will only work if you are typically taking the same level of circulation and the results and names from each coop are about the same. Another approach is to send the cooperative database the dups from the coop lists you used after every merge to suppress the dups against. BEST PRACTICE – When running the merge purge, give priority to the coops over the other outside lists. Have your service bureau give the coops as a group random allocation.
- PAGE COUNT – Look to increase (not decrease) your page count. But, only after you have done the proper square inch analysis. Adding pages and selling more products to your existing customers is often a good strategy for increasing sales especially when business is hard to come by. Pages are a good value. The cost to increase pages is approximately one-half the percent increase in the page count. For example, to increase page count from 52 to 60 pages (+8 pages) yields a 15.4% increase in the number of square inches of selling space. Yet, the cost increase is only +7.4%. Sales should increase by one-half the percent increase in the page count. Therefore, if the page count increases 15.0% demand revenue should increase approximately 7.5%. Cutting pages will decrease revenue and the cost will not decrease proportional because again, pages are a good value for the dollar (even with sky high paper prices). To put this in perspective, please refer to the chart below:
- CHANGE CATALOG TRIM SIZE (but NOT to a Slim-Jim) – Some catalogers have jumped to a Slim-Jim format without testing. To qualify as a Slim-Jim the catalog needs to measure 6 1/8” X 10 ¾”. It costs a little more to print this size, the postage cost is less and overall you’ll save money. However, before you convert to this size for the savings, you need to understand that the catalog must be “tabbed” or wafer-sealed to qualify for the postal savings, i.e., the letter rate. Having to break that seal or tab has been known to reduce the response rate in the consumer market by 7% or more. If your catalog is full size and you mail at the pound rate, you would be better off reducing your head-to-foot trim size slightly. For example, if your catalog measures 10 ½” from top-to-bottom (head-to-foot) you can convert to a 10 1/8” trim size. This will reduce your postage cost by approximately 10% without any loss of revenue. Ask your printer if they have a short cut-off press that can print this size efficiently.
- REDUCE THE NUMBER OF DROPS … NO WAY! - Reducing the number of drops means eliminating a mailing to the housefile which is never good. The housefile is what generates the income. It’s the lifeblood. In fact, I would strongly recommend adding a housefile drop. It is difficult to over mail your housefile, particularly your more recent 0-12 month buyers. Leverage your #1 asset, your housefile, by mailing to them more often. Obviously, not all segments should be mailed your R-F-M results will let you know how deep to mail.
- STAY THE COURSE! – Companies who cut circulation, reduce page count and make other radical changes without prior testing wind up paying the price. These slash and burn tactics never pay. Absolutely you should cut your marginal circulation. But, be sure you maintain your 12-month buyer count; don’t let your 12-month buyer count drop below the previous year. What’s more, don’t adjust mail dates to try to save money. Weather the storm and stay on course and this too shall pass.
In summary, I often see catalog companies making decisions to save money in the wrong places.