Catalog Circulation... Back to the Basics

by Stephen Lett

After the merchandise has been selected, the circulation strategy accounts for up to 70% of the success of any mailing. No doubt we can all use a refresher when it comes to circulation planning and execution based on the importance of getting it right! This month, we want to review the basics and those factors that are critical to the success of any mailing campaign. There are three parts to our column: (1) housefile selections (2) prospecting and (3) plan execution.

HOUSEFILE SELECTIONS

 

You will want to balance mailings to your housefile with the desired level of prospecting.  Approximately 50% of your circulation should be going to your housefile. Most catalogers use some form of R-F-M (Recency-Frequency-Monetary Value) to mail. An R-F-M classification “flags” each customer with a three --- place identifier that’s based on the recency, frequency and total monetary value of his or her previous purchases. The data are based on customer information within your housefile. Recency is always the #1 criteria for determining a repeat purchase followed by dollars spent. While frequency is important, it is not as important as the other two.    The three-dimensional designator of R-F-M is useful for locating each customer within a “cell” relative to other customers. The three-dimensional cube is divided into levels along the recency, frequency and monetary axes. Thus, each customer’s name resides within a given cell according to similar purchasing characteristics. This information enables you to identify which cells contribute the most to your profit and overhead expenses, and it helps you determine an appropriate catalog mailing schedule. To maximize revenue per catalog mailed, send catalogs only to customers within designated cells. R-F-M analysis can help your company minimize the waste of direct-selling dollars by identifying unprofitable mailings to less-frequent and inactive customers. This enables you to maximize profits and invest the money saved into growth-oriented programs such as new-buyer acquisitions. Here are the critical steps to take when planning your housefile selections.

Step 1 – Take the basic mailing information at the segment level – quantity mailed, orders received, gross sales for the year prior to the one you are planning, and calculate the performance measures -- percent response, average order and dollars per book. 
Step 2 – Quantify any changes to your programs, such as page counts, density, promotional offers, etc., in terms of a percent increase or percent decrease.  Apply these changes to the percent response and average order, as each would affect that measure.  Some changes affect either the percent response or the average order while others could affect both. 
Step 3 – Estimate the numbers of names you will have in each R-F-M segment for each mailing.  Make broad assumptions that the name counts have increased or decreased from the counts in the previous year in the same manner as your business changed for the total last year or during the period.
Step 4 -- Using your company’s own expense ratios and data that you are going to be operating under for this plan, calculate either the Revenue per Catalog (RPC) breakeven figure or the contribution to profit and overhead each of those segments will achieve.  We prefer to use the contribution calculation with a fully allocated order taking and fulfillment cost per order.  Continue this process segment-by-segment, book-by-book through the house names mailed. 
Step 5 -- Review all of the forecasted data. Here you are looking for two things; segments that should be eliminated and segments where you probably could mail deeper. When you have completed this step, it’s probably also wise to sort all of this data either by the revenue per catalog or the contribution per catalog and make sure that you have eliminated all of the segments you meant to drop.  

PROSPECTING TIPS

 

Prospect list continuations should consist of 60% of the total circulation going to prospects and 40% new tests.  Prospect tests should contain a good sample of out-of-category lists as well.  When you find an out-of-category market to prospect to that works, you will increase the ability to grow your business. Testing “new” lists and expanding the prospecting universe are critical to any circulation plan. Here are several things to look for when testing a new list.

  1. How actively is the mailer prospecting? When testing a list for the first time, it is always a good idea to determine the list owners 0 – 6 month file size as a percentage of their 0 – 12 month file size. If their 0 – 6 month file size is greater than 50% of their total 12-month buyer file, the list owner is actively prospecting and adding new, fresh names to their own housefile.
  2. How well is the list maintained?  Make sure the files you use are updated and run through the proper hygiene regularly.
  3. What list selections are available? Find out what selections the list owner makes available so that you can drill down on specific ones.
  4. Test lists that are “out of category.  In order to expand your prospecting universe, it is important to find lists that work for your offer, which is not in your particular product category. This is a key consideration if you want to grow your business beyond the normal limitations of your primary market.
  5. What other mailers are using the list?   Knowing this will give you an idea of how the list works for other mailers in your market. You can also request usage on your continuations in order to develop your own new test ideas.
  6. How did the file “net out” in the merge?  If you are mailing a list in your own product category, you can expect the “net out” of the merge at a similar rate to those lists you use on a continuing basis. For example, the percentage of names you lose in the merge (gross names ordered vs. net names out of the merge) should be similar to lists you are already using successfully. Rule-of-Thumb: the higher the dup percentage, the greater chance the list will work for your offer. If the retention rate is significantly higher, the list probably does not have a synergistic base to your continuations. It is less likely to perform as well for your offer.
  7. When a test works.  When retesting a given list, be careful to gradually increase the number of names you take as you rollout. Resist the temptation to more than double the number of names you rent each time. And, make certain you read the results of the retest before you retest it again. The results may not hold up.

PLAN EXECUTION

 

Once the housefile selections have been made and the prospect lists have been determined, it is time to execute the circulation plan. Written instructions should always be given to your service bureau which defines how the merge will be run. The main purpose for running a merge is to identify and to eliminate duplicates from your mail file. There are two types of duplicates a merge identifies which are as follows:

  1. Duplicates between files, which are known as Inter File Duplicates.
  2. Duplicates within a file are known as Intra File Duplicates.

Here are a few rules to consider when executing a mail plan:

  1. Always put your housefile (your customers) in the top priority with the best performing R-F-M groups at the top of the priority and the lower performing R-F-M cells at the bottom of the priority.
  2. There are times when you will only mail or re-mail a portion of your housefile. If the duplicates within the housefile were random, you might drop a record that actually is from the higher R-F-M priority. By prioritizing your housefile, you will be sure to mail the best performers.
  3. Assign your housefile buyers to the same family groups. Therefore, duplicates within the housefile will be considered intra file duplicates. By doing so, you will know what multis credited to the housefile will have also appeared on another list (other than the housefile).
  4. If you are not mailing all of the housefile records you put in the merge, make sure you do not drop what has been identified as multis. These are primarily records that came from an outside list that hit to your house file and they will perform well.
  5. Be sure to save the rental multi-buyers for re-use later. When there are duplicates on the file, the merge can assign the surviving record randomly across all lists or based on a defined priority by list.

There is a lot to circulation planning. Mailing by R-F-M, selecting the right prospect lists and executing your mail plan properly are all critical factors to the results you will achieve. Spend the upfront time required to do the proper planning and the results will speak for themselves.