A CEO’s Guide To Catalog Circulation ’08 (Part 1 of 3)
In the first of my three-part series on the evolving role of catalog circulation in today’s multichannel environment, this week I’ll take a look at how catalogers can identify the various customer audiences they serve.
Throughout the history of catalog marketing, CEOs have depended upon catalog circulation experts to drive sales, build up their customer bases and employ profitable marketing strategies. Before catalogers embraced the online channel, circ experts played a key role in the success of a catalog business. The methods circ experts used were largely the same each year, allowing CEOs to have a working understanding of catalog circulation concepts. Then the Internet changed everything.
In the first half-decade of e-commerce, the online channel didn’t garner enough sales to fundamentally change catalog circulation strategies. By 2000, however, it became difficult to ignore e-commerce sales. Internally, discussions focused on the marketing tools that drove e-commerce sales. For many catalogers, sales over the phone or via the mail began to decrease. Some noticed that every time a catalog was mailed, e-commerce sales peaked. Conversely, when there were gaps in the catalog marketing strategy, e-commerce sales slumped. Logically, one hypothesized that catalogs were responsible for e-commerce sales.
To prove this hypothesis, catalogers asked list processing vendors to assist them. The matchback analysis tool was created. Catalogers forwarded the names and addresses of customers who ordered online, via appropriate keycodes or otherwise, in the weeks following the in-home date of the catalog. The list processors told them whether those customers had received a catalog recently.
The matchback analysis proved that in many cases online orders came from customers who recently received catalogs. For catalog circulation experts, this was all they needed to know. Productivity wasn’t really declining; customers were simply using catalogs to place orders online. Management was notified of this finding. The term “multichannel marketing” was born, describing the phenomenon when multiple forms of advertising drive sales across multiple channels.
Fast-forward to this past year, which represented an inflection point. For many catalogers, online sales surpassed 50 percent of total sales. CFOs began to ask tough questions, challenging whether catalog marketing was needed to drive the large portion of online sales that now dominates many catalog businesses.
Catalog CEOs find themselves at a disadvantage these days. They have the classic circulation tools and strategies from the pre-Internet era, as well as the modern-day matchback algorithm to confirm that catalogs drive sales to other channels. But they don’t have the context to create a catalog marketing strategies that meet or exceed the needs of a diverse audience that now responds to myriad marketing strategies.
Identify Different Audiences
We’ve been told that “multichannel customers are the best customers.” This may have been true early in the multichannel era, but some catalogers have observed that once catalog customers shift their purchases online, customer behavior changes.
First, customers become much less likely to use the telephone or mail channels to order. Once customers are comfortable buying online, they tend to remain online. This becomes a “mystery moment” for catalogers. The belief is, these customers continue to order merchandise online because catalogs continue to be mailed to them.
Most catalogers continue to mail “multichannel” and “online-only” customers. This can become a self-fulfilling prophesy, however. Matchback analysis confirms that online orders occur among an audience that’s been mailed. Catalogs drive online orders. All is good ... or is it?
Many catalogers fail to execute “mail/holdout” tests, which are the only way to truly know whether catalogs drive online sales. One group receives the catalog, one does not. After 12 weeks, you tabulate sales results from the mail, phone and online channels. By subtracting the holdout group from the mailed group, you can identify the “incremental” difference, which is the true amount of value generated by catalog mailings.
Four Key Audiences
This is where different audiences come into play. There are probably four important audiences that behave differently from one another. This week, I’ll focus on the first two.
First, conduct the test among customers who always order via the phone/mail channel. This audience is your true “catalog” audience. Your test results will likely mirror your matchback findings. This audience will always need catalogs. To them, your brand is your catalog.
Second, conduct the test among customers who’ve purchased both online and via the phone/mail during the past 12 months. This is the segment of customers whose matchback analyses consistently give an inaccurate view of advertising effectiveness. Many of these customers are being “trained” to use the Web for ordering purposes. If a catalog isn’t mailed to this audience, some or many of the online orders would occur anyway. The matchback analysis inaccurately assumes the catalog drove the order. There’s significant opportunity for cost savings for catalogers within this audience.
Next week, I’ll continue identifying the various customer audiences that catalogers must segment and examine how your contact strategies may need to be altered in 2008 and beyond.
Kevin Hillstrom is president of MineThatData, a database marketing consultancy. He can be reached at firstname.lastname@example.org .