Annalee Dolls erases inventory management risks with 'circular marketing'

By Bob Watson Jr. , Director Of Sales , Annalee Dolls; , Bob Watson Sr. and Chief Operating Officer

In 2002, we were in financial trouble.

Our company — Annalee Dolls, Inc. (ADI), a manufacturer of collectible dolls based in Meredith, N.H. — had three active and independently operating channels of distribution: independent stores, department stores and direct to consumer (catalog, store and website). However, we needed to do something to get ourselves back on track. Examining our options, in 2005 we decided to add the off-price channel to our mix. The channel would expand our 70-year-old brand to a much broader marketplace while offering the chance to manage our inventory more efficiently.

What Is Circular Marketing?
The only way this new approach could work was to integrate sales channels so every channel would be paid dividends. We knew we were on to something, so Bob Watson, Sr. [co-author of this article] and Dave Pelletier, CEO and partner of ADI, formally launched an experiment called Program 21. It formed the basis of what we now call circular marketing.

Here's how it works: We send product to independent retailers for free. The retailers and ADI work as a team to sell product to consumers. Product that retailers don't sell is sent back to our distribution center. Since retailers can return the product, they don't have to account for any residual inventory.

After collecting returns from stores across the country, we use most of this inventory to supply direct-to-consumer discount programs via our outlet store, sales fliers and the web — all with a favorable margin. We also sell some of the product to off-price marketers for a smaller margin. Off-price products are often purchased by people unfamiliar with our products. These new customers then can begin to search for our other products at retailers that offer large, current assortments.

The Results Are In
The program works. We studied 3,000 consumers who bought our products at full-price retailers and learned that customers who purchased their first Annalee Dolls within the last three dolls they'd bought either bought them online or from an off-price channel. ADI customers who start buying in off-price channels convert into full-price customers.