Hello Mr. (Catalog) President... Here Are 10 Things You Don’t Want to Hear
by Stephen Lett
You’ve heard the saying, “we hear what we want to hear”. At times, we are all guilty of this. We don’t want to face the facts. We want to think what we want to think. In our daily routines we do what is comfortable to us and often times put off dealing with the real issues at hand. We tend to be positive people and we don’t always like dealing with opinion which defer from our own. This month I have identified 10 things you, a catalog company President, probably don’t want to hear that no one else will tell you. Or, if you report to a President, tear out this article and put it on his or her desk! Listen to the cold, hard facts.
- We can’t grow if we don’t prospect more. In order to grow a catalog company needs to invest (key word) in new buyers. We are not going to find enough “good” lists to enable us to prospect at or above the incremental breakeven point overall. We need to be realistic! In order grow, we will need to prospect to lists performing below the breakeven point. This doesn’t mean these are bad lists. Rather it means that the payback will be longer requiring us to make an initial investment in our future. But how much longer is the question. Our rule of thumb is one year payback on any investment we make in acquiring a new buyer. This can vary by company depending on their margins, tolerance for risk, how fast they desire to grow, etc. Mr. Catalog President, to think that you can grow your catalog business by limiting prospecting to those lists that generate a positive contribution to profit & overhead is not possible. It costs money to prospect and to grow a catalog business.
- We should be renting our list to other qualified firms. I’m still surprised by the number of catalog companies who do not want to rent their house file. According to a leading list management firm, approximately 10% (or less) of all consumer catalog companies and an estimated 25% of all business-to-business catalogers do not rent or exchange names with any outside company. If you are a consumer catalog company, I see no reason why you should not rent your house file. For those of you who are business-to-business catalogers, the decision to rent or not to rent may be a more difficult one. Marketing business-to-business, the decision maker is more difficult to reach therefore; your own list could be more proprietary than someone else’s. However, if the offer is non-competitive, why not rent? Catalogs who do not rent their house file in more cases than not are only hurting themselves. The truth is they are not protecting their customers from mailbox clutter. Fact is they are missing out on extra income without risk. Mr. Catalog President, your customers enjoy receiving catalogs. They are mail order buyers; many are very active. You too can generate extra bottom-line income from the rental of these non-unique buyer names.
- Joining the cooperative databases is critical to our growth. Consider the impact of cooperative databases such as Abacus, I-Behavior, NextAction, etc., on your house file. There is a strong probability that a high percentage of your customers are already on one or more of these cooperative databases. In fact, Abacus feels they have over 95% of all catalog buyers on their database already. Your customers are being mailed regularly whether you rent your file or not. You are not protecting them or shielding them from receiving catalogs simply because you are not participating in a cooperative database. Mr. Catalog President, to exclude the use of cooperative databases is hurting your growth potential and you are not protecting “your” customers from receiving other catalog offers. A high percentage of your existing customers already exist on one or more of the cooperative databases which mean these names are being used frequently by other firms including your competitors.
- We should be willing to rent and/or exchange with our competitors. Why not? If you rent to a competitor it should be on a reciprocal basis so you too can benefit from using their list too. Consider a mail date restriction if you feel it is necessary. Don’t let a competitor use your file prior to the mailing of your own catalog if you feel more comfortable. Be sure your catalog is in the mail first. And, monitor and control the exchange balance. Once again, if you elect not to rent to competitors there is a high probability that many of the names will be selected for mailing if the cataloger mails prospect names selected from a cooperative database. Mr. Catalog President, you have just as much (or more) to gain from renting your house file to a competitor since they can most likely obtain these same names through one of the coops anyway.
- It’s the merchandise. A successful catalog depends on three things; merchandise, merchandise and merchandise! Typically, gift catalogers will turnover 30% or more of their merchandise every season. Fresh, new merchandise is the key to growth. Mr. Catalog President, your merchandise is not “fresh” and exciting. You are trying to pick-up too many items. Keep in mind the one-third rule which says one-third of the products are the winners, one-third are so-so and one-three are not cutting the mustard. At a minimum you should be replacing the one-third that is the real losers with new merchandise.
- We don’t have the cash to do that. Growing a catalog business takes funding. The cash flow of the business will determine to a large degree the rate of growth. Postage has to be paid up-front; inventory needs to be purchased, etc. Serious money is required to grow a catalog business. Trying to grow too fast can lead to financial ruin. Mr. Catalog President, we need to be realistic about our growth expectations based on what we can afford. We may not have the funding to grow as fast as you would like us to. What’s more, there seems to be a disconnect between our plan for growth and our cash flow.
- Catalog sales from the house file keep declining. Or are they? Every week when we look at the source code report, we get the feeling that our traceable catalog demand is declining. For example, the house file that once did $2.25 per book is now doing, or so it seems, only $1.70 per catalog. But wait a minute. What are we missing? Mr. Catalog President, it’s the Web. Unless we do a match-back we have no way of knowing how much of the demand that is going to the Web should credited back to our house file (and prospect) mailings. In a recent match-back for one of our clients, approximately 70% of demand going to the Internet was the result of a house file mailing.
- The prospecting universe is not unlimited. Most catalogers want to grow. However, they don’t always consider the fact that the prospecting universe, i.e., the number of qualified prospect names available to mail, is not unlimited. There may not be the universe of names to mail. The more niche, the more limited the growth will be. Mr. Catalog President, our planning needs to be based on mailing universe counts from the core prospect lists we have been using. Your desire to through out growth projections is well intended but they need to be supported by marketing and circulation data.
- No, we should not reduce our print quantity because of the increase in the Web. With the continuing increase in Web demand, catalog executives ponder the idea or reducing the number of catalogs circulated. Here is a typical senereo. Catalog circulation was increased by 20%. Traceable catalog sales are down 5% while Internet demand appears to be up 10% to 15%. The conclusion you might draw from this might not be the right one. Keep in mind that the catalog is the biggest driver of traffic to the Web. Recently, we were able to attribute approximately $2.0 million of demand from $3.0 million of Internet revenue back to a specific catalog source code. Mr. Catalog President, the Web is not a “field of dreams”, i.e., “you build it and they will come”. How do you think those buyers got to the Web? It was the catalog that drove them there.
- We’ve peaked! When you think about other markets, the sky isn’t the limit. Even when there seems to be an endless number of potential customers, it gets narrowed down by the size of your market, the number of catalog shoppers within that market, your competition and other factors. At some point, your business will mature and then it will become more difficult to maintain the same growth rates. Mr. Catalog President, your business has peaked. You have hit the wall. There are several ways to try to overcome this such as creating promotional offers, using modeling to improve performance, circulating smarter, etc. However, if you have peaked, circulation strategies may not be enough. You need to open and/or expand your market. Consider creating spin-off catalogs, changing your creative for a stronger and/or broader appeal or expanding your merchandise offer in order to expand your demographic universe.
Dealing with the facts is important. It is important to set realistic expectations and to listen to solicit input from others. Hear people out even when their opinions disagree with those of your own. Be willing to change and to try new strategies. By working as a team and listening to others when you really don’t want to, you can have a successful catalog company!