Catalogers are Turning to the Co-op Databases for Prospecting
By Alicia Orr Suman
With fewer hotline names and a scarcity of new rental lists to test, catalogers have been faced with a drought of new names to mail this year.
Seeking ways to beef up their mail plans with quality names at the lowest possible cost, more catalogers appear to be tapping into cooperative catalog databases.
Catalog co-ops have been around for more than a decade. But only recently have some reached the size and scope needed to become a substantial piece of your prospecting plan—making many catalogers more apt to ramp up usage of this alternative source of lists.
"There's certainly been a greater receptivity to the concept of co-op databases," confirms Lynn Wunderman, president/CEO of the I-Behavior catalog co-op. "It's a more challenging environment [today]. Mailers are getting more stringent about outside list usage."
Peter O'Neil, senior vice president and general manager at Experian Marketing Service, says he also is seeing increasing interest for his firm's Z-24 co-op database. "We're getting clients ordering more names, testing more cells, rolling out more," he notes.
One reason mailers turn to other solutions for their prospecting and customer file challenges, says Paul Imbierowicz, vice president of product management at Abacus, is that, "It's important to optimize everything you do, especially in a challenging economy."
An Integral Part of the Mix
Many catalogers confirm that co-ops have become an integral part of their prospecting programs. For example, Charlie Silver, vice president of marketing for Bloomingdale's by Mail, says co-ops now represent up to 20 percent of the catalog's prospecting circulation. "Prospecting is a challenge for us, as there have been relatively few new catalogs in the mail that could add to our pool of prospect targets," Silver explains. Blooming-dale's by Mail is using balance models and hotline names more effectively than in the past, he reports.
At Crutchfield, a cataloger of car audio and home theater products, marketing analyst George Michie reveals, "We're placing more emphasis on the alliances, such as Abacus and Z-24. We're finding those more successful than individual list rental now.
"By providing us with transaction-level data," he continues, "the co-op alliances give us the ability to prospect based on a broad range of purchasing behavior, which, when carefully modeled, is very powerful."
Catalog consultant Jack Schmid of J. Schmid & Associates says many of his firm's clients are having good results mailing co-op segments. He says a cataloger that has any of the following in its housefile should test co-ops:
- catalog requesters who haven't yet purchased;
- gift recipients from the past one to two years; or
- inactive, older buyers who would be below breakeven if you mailed the entire lot.
Scoping Out the Co-ops
Co-ops are specialists in statistical modeling, and they now offer better and more sophisticated models at less cost, says Schmid. Indeed, co-ops offer attractive pricing for cost-conscious mailers. Typically, membership is free, and you can get a volume of names at a reasonable cost—averaging around $70/M, compared to individual file rentals that cost upwards of $100/M.
With numerous players in the market today, you can join more than one co-op. And frequently the co-ops' data complements one another. List broker Donna Belardi, president of ALC of NY, observes: "While Abacus still appears to have retained most of the market share, Z-24 in particular is starting to work consistently well. And many catalogers have found pockets of success with smaller databases like I-Behavior and Prefer Network."
As a mailer that has worked with several co-ops, Crutchfield has found pluses and minuses to each. Calling Abacus "the Wal-Mart of the catalog co-ops," Michie says, "Their lists and models tend to outshine the others in terms of performance and the sheer volume of transactional data." But, he adds, the other co-ops often have data that bring unique elements to the mix.
I-Behavior and Prefer Network both model on the SKU level, and for niche mailers this has been a critical element to making these databases work, although they have fewer members, says Belardi. The difference with SKU-level data, says Wunderman: If a buyer purchases children's home furnishings from a gift catalog, it will differentiate that purchaser from a typical gift buyer.
Strategies for Success
The first step to effectively using information found in the co-op databases is deciding which co-op(s) to participate in. Examine each co-op's modeling techniques, the recency of their data and the number of members, suggests Belardi.
In addition, the following strategies can give your co-op mailing efforts the best chance for success.
1. Test. "Like all direct marketing, this is as much an art as a science," says Wunderman. "Testing is the only way to prove the science of it."
To test effectively, Experian's O'Neil advises, "Create different cells, and then run them head to head. Take 10,000 names from a half dozen cells, and go with it."
Since co-ops may offer more than one model, look into testing various models. Schmid explains, "Abacus, for example, has a basic Chaid and Synergy model, but there also are other more sophisticated models they're developing."
Also ensure that you have statistical reliability and validity in the size of the models being tested, adds Schmid. "Think of the 'rule of 100,' which states that every test side should have a minimum of 100 responses to be projectable for the future."
2. Consider costs vs. results. Prove the financial viability of mailing co-op names through testing. Says Crutchfield's Michie, "In terms of the additional costs of using the alliance data, it's a question of testing. We're constantly keeping an eye on the costs versus returns we're getting."
He recommends that you look at the costs in terms of the response rates you get. "That's the only way to determine if $80/M is too much to pay."
3. Don't second-guess the data. Wunderman says sometimes a co-op's modeling yields results that catalog clients just don't expect. "It can be tempting for a cataloger to say, 'This isn't what we know to be true about our customers. We don't think this is right.' But that's the exciting part of this process," she continues. "The data can reveal hidden opportunities for marketing. [Catalogers] have to give us an opportunity to prove it out. I say, 'Let us test it, and see where it leads.'"
4. Share information—including all results. On the front end, co-ops want to know as much about your business as you're willing to share. Among the data to share with your co-op: statistics such as average order size; seasonality of your business; whether your audience is homogeneous or dichotomous; and, says Wunderman, "in what direction the cataloger wants to grow."
Expect a more profitable relationship with your co-op alliance partners if you provide sufficient information, both in the form of what was mailed and the results of those mailings, adds Imbierowicz. He also suggests you share your mail files with your co-op provider. "With all of this information, we can get a better understanding of the results."
To facilitate data-sharing, he recommends that mailers transfer information electronically. "The faster we can get results and mailing information from our members, the faster we can act on it."
5. Demand quality service. "The level of customer service, quality control and follow-up by a customer service or sales rep handling the account can make the difference in whether or not their list grows to be a significant part of a cataloger's mailing," asserts Belardi.
Schmid concurs and suggests this strategy: "Push the individual customer service rep you're working with to find and develop different segments and models." Ask questions, such as: "What have other clients found to work?"
6. Work with a broker. Abacus still chooses not to work with brokers. But today more brokers are willing to participate in the co-op process.
What can a broker bring to the table? First, a broker can be helpful to a cataloger in managing the various co-op database relationships, says Belardi. Whether or not a broker places the orders, "There's still much to be learned when both vendors sit in a room to discuss and share analysis regarding their mutual client's prospecting plans."
Second, brokers may offer unique insights. With many of her catalog clients channeling up to 50 percent of their prospecting to co-ops, Belardi says she knows of potential pitfalls such as saturation, and can suggest solutions such as mailing lower model segments, which sometimes outperform what should be the best models.
While Crutchfield chooses to work directly with the catalog alliances, Michie says, "Our broker has been helpful in letting us know what's new out there in terms of lists, and has done a great deal of work getting mailers to allow their lists to be modeled by the co-ops."
New Ways to Use Co-ops
In addition to providing a huge prospect pool, co-op databases can be a resource for housefile modeling and outside list optimization.
Crutchfield has benefited from marketing insight reports generated by co-ops. "It gives us some ideas, for example, for space ad placement, and also helps us select outside list rentals that go beyond our typical universe," Michie says. For instance, Crutchfield found that its customers tend to buy men's shoes from catalogs—a connection it otherwise wouldn't have made.
Co-ops also are helping their members by acting as a filter on outside lists. Abacus' Optimization services enable you to select only the most responsive names on a particular list. The Optimization models ensure that you select active mail-order buyers with a proven affinity for a specific offer by ranking the list's names from least likely to respond to most likely to respond.
To boost catalogers' own list rental income, I-Behavior recently launched the I-Behavior List Rental Models product, designed to provide potential list renters with more information about the customers on members' rental files. This is inferred data, not SKU-level data that members enjoy, explains Wunderman. The program should help catalog list owners generate list rentals in incremental categories where they normally would not see a lot of tests, thereby helping to alleviate the problem of co-ops pulling rental income away from list owners.
For 2003, more catalogers may increase their reliance on the co-ops as an alternative list source, Belardi forecasts, "especially if each of these databases continues to grow and add members, and if they provide a high level of service and support to their customers."