How To Prospect Effectively For New Buyers
by Stephen Lett
Catalogers need to prospect for new buyers in order to grow their business. It’s expensive. And, most catalog companies prospect at an incremental loss (defined as net sales minus cost-of-goods sold minus direct selling expenses = incremental breakeven). Even so, acquiring new buyers is important to the health of your business. This month, we will explore ways to prospect cost effectively for new buyers.
There is a certain attrition rate associated with a typical catalog house file. People die. Others move. Some become dissatisfied. There are many reasons why people stop buying. It is important to add new buyers to the house file in order to maintain a certain level of revenue and/or to grow the business. Rule of thumb: The percent increase in revenue growth will approximate the percent increase in your 12-month buyer file. For example, if your 12-month buyer file grows by 15%, your gross demand revenue will increase by approximately the same percentage. The growth of your 12-month buyer file obviously results from acquiring new buyers. Growth can also come from re-activating “old” buyers. Regardless, the focus should be on growing your 12-month buyer file in order to grow your business.
When prospecting, you will want to consider how and when to rollout list continuations (the proven lists) as well as new lists you have not previously tested. It is important to test new lists each time in order to plant seeds for the future. Generally, the better performing lists have a limited universe of names available. Therefore, testing new lists and expanding your prospecting universe is critical to finding enough “good” names to mail.
There are three (3) types of lists which are as follows:
- Direct Response Buyer Lists, i.e., Catalog buyers.
- Subscriber Lists (magazines, newsletters, etc.)
- Compiled Lists
All lists available for rental will fall into one of these categories. The cooperative databases, for example, such as Abacus, I-behavior, Z-24, Prefer Network, etc., are all direct response catalog buyer lists. Naturally, these types of lists generally work best for catalogers. However, don’t overlook the fact that subscriber lists and compiled list can work for your offer. They can also represent a source of new names in order to help you expand your prospecting universe. Compiled lists are used successfully by business-to-business mailers who want to target, for example, specific business sectors known as Standard Industrial Classifications (SIC). Consumer mailers who test compiled lists should model these lists prior to mailing in order to identify the mail order catalog buyers. Adding this step will increase results while minimizing the risk of mailing to compiled names.
CONSIDERATIONS WHEN TESTING A “NEW” LIST
- How actively is the list owner prospecting?
Determine the mailers 0 to 6 month file size as a percentage of their 12-month buyer file. If their 0 to 6 month file size is greater than 50%, the list owner is actively prospecting themselves and bringing new buyers onto their file. This should be a top consideration when looking at new lists to tests because it means they are keeping their file “fresh” and full of active catalog buyers. (This also applies to list continuations.)
- How well is the file maintained?
Make sure the lists are updated and run through list hygiene programs regularly. Even though it is important to run NCOA on every prospect going into your mailing, knowing if the list owner runs hygiene on their file will give you insight as to how well their list is maintained.
- What selections are available?
Can you select by recency, monetary value, etc.? Often, the selections that are noted on the list owner’s data card are not the only selects that are available. For example, you might be able to select (or omit) based on product category, demographics, seasonal purchases, etc. WORD OF CAUTION: Don’t make the selects too tight. And, don’t pay for selects you do not need. Select charges are expenses and they add considerably to the total cost of a list. Selects do work. You will need to compare the additional per thousand costs for the select against the resulting gain. Shown below are the actual results from a test with and without a dollar select. This is for example only to illustrate the affect of using a dollar select.
|List A - 6 Mos; $100+||14,252||166||$16,532||$99.83||1.16%||$1.16|
|List A - 6 Mos; No $ Select||14,251||136||$11,971||$87.92||0.96%||$0.84|
In this actual example, the dollar select of $100 out performed the segment of this same list that was mailed without a dollar select. Again, this was the same list; one segment was mailed using a dollar select and no dollar select was used on the other segment. This was an upscale list with an average order size of $110.
- Can you mail test lists that are out-of-category?
It is important to find lists that work out-of-category as a way to expand the universe. Although the success rate is lower than testing “in category” when you do find a winner, it opens a whole new universe of prospects names for you to mail. This is important if you want to grow your business beyond normal limits. This too can lead to new product development ideas.
- Who else is using the list?
This will give insight into how a particular list works for other mailers in your category (make sure your broker can tell you who is continuing on the file). You can also request usage on your continuations in order to develop your own new test ideas. But be careful, list usage does not always mean than the usage is both ways! You still need to consider all factors when deciding to test a particular list.
- How did the file net out in the merge?
If you are mailing a test list in your product category, you can expect to net out of the merge at a similar rate as the list continuations you are using. If the retention rate is significantly higher, the list probably does not have a synergistic base to your continuations. Therefore, it is less likely to perform well. The exception is if you are testing out of category. What you net out of the merge is not as much an indication of list performance.
- When a test works, how should you proceed?
When a new list performs to your criteria, retest the lists before you rollout. Continuations never hold-up as well as the test. If, for example, you mailed 7,500 names on the test, mail up to 15,000 names on the re-test. If these results hold true, you are safe to rollout to continuation levels. Word of caution: Factor down your projected results when you rollout as compared with both the test and retest. Most likely, the results, once again, will not hold true and you could over estimate order and revenue demand.
EXPANDING YOUR MARKET AND MAXIMIZING THE PERFORMANCE OF LIST CONTINUATIONS
- Study how well each list continuation performs over a period of time.
It is not enough to look at list performance for each drop. Rather, look at the performance over a period of time. How many times, for example, can you mail each list per year or per season? Can you mail the list more often? Or, are you over mailing it now? The danger of over mailing a list is that the performance can fall off to the point where it looks like you cannot use the list at all when that might not be the case at all.
- Use ZIP models.
Zip models can be used to improve performance. A good use for Zip models is when selecting lower performing segments of a file (deeper selects), or when using a larger file that performs marginally.
- Continually re-evaluate the selects you are using.
If you have lists that are typically lower performers, consider mailing a tighter select rather than taking less names for the same select. For example, if you normally select a $50+ 3-month buyer, try using a $75+ 2 month buyer. This will often counteract the lower performance of the mailing.
- Understand your demographics and your customer base.
Do not try to use your list selection to change your customer base. You cannot appeal to a different audience without changing your merchandise and you have to be careful not to abandon your existing customers. For example, you will not appeal to a younger audience simply by mailing younger age lists.
- Look beyond standard performance indicators.
In addition to evaluating response rate, average order and revenue per catalog, you should also consider performance indexes. By doing this, you will know if a list over or under performs relative to the performance of ALL list used. This will help in the planning and evaluation of the lists you want to use. Shown below is an example of how performance indexes might appear on your weekly report:
- Understand sporadic performance.
If a list works sporadically, look for patterns. It could be that your offer isn’t appealing to their base at certain times of the year. Or, it could be that the customers they are acquiring don’t find your particular offer appealing. In either case, if you see a pattern, you can limit when you mail in order to maximize the performance of the list.
- Keep an eye on exchange balances.
If you are in a highly competitive market, this is an essential point. Often, your “best” lists will not rent to you if the exchange balances get out of balance. It is important to monitor these exchange balances yourself to avoid getting turned down and falling short on names unexpectedly.
- Keep relationships open... always!
It is always advisable to have a good relationship with the list owners you work with on a regular basis. Sometimes, this occurs directly. Other times these relationships are formed through your broker or list manager.
As a final word, please keep in mind that prospecting requires a good balance of different lists used. There is a need for fresh, new names individual outside lists can supply. Although cooperative databases are updated, the member companies may not send their file updates as frequently as they should. What’s more, the coops only select multi-buyers while individual outside lists include the single or one-time buyers who can also be good prospects for your offer. Modeled names normally perform at or slightly better than your “best” outside prospect lists. Again, the performance will tend to decline after the first few highly indexed segments. The top segments are the real winners while additional outside lists will be needed for continued growth. You cannot rely 100% on the cooperative databases for prospect names. A greater universe is needed for growth. Remember; maintain the proper balance of prospect names vs. mailings to your house file. Know how much prospecting your house file can financially support. Grow... yes! But be careful not to over mail or to grow too fast without knowing the affect this could have on your bottom line. Black ink can turn red very quickly!!!