Maximizing Outside List Performance
by Stephen Lett
Most catalogers cannot breakeven on the initial order mailing to prospects (which is why start-up catalogs have difficulty surviving). They depend on repeat purchases, i.e., turning buyers (one time purchasers) into customers (two and more time purchasers) for profitability. The subject of my column this month is to discuss ways to maximize outside list performance on the initial order trying to get closer to the incremental breakeven point.
Maximizing outside list performance can be accomplished by either increasing the response rate or the average order size or both. I prefer to focus on improving the response rate because it will yield a great number of new buyers thus growing your 12-month buyer file faster. I wouldn’t be concerned about trying to increase the average order size to prospects. A deliberate attempt to increase the average order size can often be at the expense of the response rate. When prospecting, the goal should be to add as many new buyers to the housefile as possible by maximizing the response rate. The chart below clearly shows the advantage of increasing the response rate as opposed to the average order size.
|RESPONSE RATE vs. AVERAGE ORDER
The results shown in chart “A” above, the RPC (Revenue per Catalog) mailed are identical. However, the response rate and average order size differ. From an operational standpoint, you might say it is better to have fewer orders and the same dollars. From a marketing viewpoint, a higher response rate is preferable because it results in greater housefile growth. In our example, the higher response rate yielded 270 (2,000 – 1,730 = 270) more new buyers.
Maximizing outside list performance is not easy and requires lots of testing. I want to give you ten proven ways to increase the response rate to outside lists.
CONSUMER PROSPECT LISTS
- Use ALL of the Cooperative Databases; Not Just One or Two – There are six consumer coop databases to take advantage of. These include Abacus, NextAction, I-Behavior, Z-24, Prefer and Wiland Direct. Yes, there will be overlap from one database to another but each coop will identify names worth mailing based on their modeling that another coop might not find. Each one of these coops builds statistical models differently.
- Select Based on Recency – In the priority of R-F-M, the “R” or recency of someone’s purchase will always rank highest. Therefore, when selecting outside rental lists, prospect to the most recent buyers offered by the list owner (unless there is a seasonality factor such as the case with a food mailer, for example). Often it is not necessary to add “M” or monetary value select and there is no reason to pay additional charges if they are not necessary.
- Maximize Rollouts vs. New Tests – Maximize outside list continuations first since these lists are based on prior history, i.e., actual results. Double the usage each time (assuming there is enough universe). For example, if you test a list of 10,000 and it works, select 20,000 prospect names the next time. After you have maximized your list continuations, fill-in with the lists you want to test.
- Use Marginal List Optimization – This will improve performance and thus increase the RPC mailed. There are two ways to use list optimization: selection and suppression. Both techniques use 10% to 20% of a given file. SELECTION: This method is used for pre-merge lists. With this technique, you can use a compiled or subscriber file to capture affinity, then, use optimization to select the top 10.0% to 20.0% of the known catalog buyers (refer to #5 below). SUPPRESSION: This method is used post-merge to identify and suppress the rental singles (one time buyers). After the merge, you can optimize the rental singles and suppress the worst scoring 10.0% to 20.0%. This method should yield a 5.0% to 15.0% (or higher) lift. (It is always good to mail a 5,000 to 10,000 back-test cell to monitor the suppression results in order to measure the exact lift your achieve.)
- Use Proven Direct Response Catalog Buyer Lists – You will always yield your highest response rate by mailing to proven mail order catalog buyers. These are people who enjoy the convenience of buying by mail, they like to buy from catalogs are they will be more incline to purchase from you.
- Know Who to Prospect to – Product affinity is the most important factor when determining which specific lists to use. Be sure to select lists which are synergic with your offer, i.e., home décor vs. home décor, for example. Be careful using subscriber and/or compiled lists (unless you are selling business-to-business). For consumer mailers subscriber and compiled lists need to be optimized prior to mailing. You will get your best results from proven mail order buyer lists whose product offering is compatible with yours.
- Take Advantage of Seasonality Factors – Know when to prospect in order to maximize results. Catalog seasonality does influence the results you will achieve. Typically, holiday is the best season for consumer catalogers. This means that the highest or best response will be achieved during the holiday season. Your fall results will be 70% to 75% of your holiday results. Spring is 65% of holiday and the slower summer months equal 60% of holiday. Why is this important? It says a typical consumer gift mailer, for example, we will maximize our prospecting results during the holiday season therefore this is when we should do the bulk of our prospecting if we want to maximize response. Let’s say that a particular prospect list generates during holiday a response rate of 1.88% and $1.17 RPC. Let’s also assume that our incremental breakeven point is $1.00 per book. The response rate for this same list mailed during the summer will be approximately 1.13% with an expected RPC of $.70 per book which is way below our incremental breakeven point. We can prospect to this list above the incremental breakeven point during the holiday season. If we use this same list in summer, we can expect an incremental loss!
- Rely Only on Match-Back Data – Today catalogers are lucky to trace 50% of the business to a specific source code. There are often lists that are made up of heavier web buyers and therefore, they may look like they do not work well, when they are actually profitable. In this case, without a match-back you would never know this and any testing would have been without reason. You might think you have trouble finding lists that work, when in actuality you have some winners to add to your continuations. In addition, you might have lists that look like they are falling off, or your total rentals look like they are trending downward. This might just be a result of heavier web sales. It sounds simple, but without truly knowing the level of performance of all segments mailed, you could be lead to some false conclusions that influence your marketing strategy. A match-back will keep you on track and give you the level of confidence in the results needed to make sound circulation judgments.
- Use Promotional Offers – Offers to prospects should be designed to increase the rate of response in order to grow the buyer file. Free shipping, for example, will typically lift the response rate 20% to 25%. A dollar amount off the order will also increase the rate of response. If you want to maximize the response rate, be careful not to set the dollar minimum to qualify for the offer to high. In fact, consider not having a dollar minimum. This will encourage more people to order.
- Mail by Functional Title (For Business-to-Business Catalogers) – or you business-to-business mailers, consider using your house file as a prospect file as a way to increase your RPC. Simply remove the name of your customer and replace it with a function title such as President, Purchasing Manager, or other. In addition to mailing your catalog to your customer, mail the same catalog to someone else within the same company and at the same address. There is no cost for the name and results you achieve will most likely fall somewhere between your housefile results and mailings to outside rented names. This should be a win-win for you and it will increase your RPC by increasing the response rate.
When prospecting, develop a strategy to increase the response rate and the revenue per catalog mailed. This will result in a greater number of the prospect lists you use achieving the incremental breakeven point. Prospecting is much more than renting a bunch of outside lists. These prospecting techniques should help you maximize your results.