All Circuits are Busy
Approaching $8 billion in total sales and $559 million in profit for its most recent fiscal year, CDW’s roots are in cataloging in case you forgot. The Vernon Hills, Ill.-based provider of technology products and services for business, government and education was, and still is, a B-to-B cataloger, but a far cry from a mom-and-pop startup.
For the past decade, CDW (which stands for the company’s original moniker, Computer Discount Warehouse) recognized growth opportunities within the tech industry and sought a multichannel approach to reaching its customers. Using vehicles such as television, radio, Internet, in-house magazine publications, webinars, seminars, sponsorship events and catalogs, the company has consistently grown above the tech market’s average.
When Jim Garlow, CDW’s director of advertising and marketing operations, joined the company in 1999, sales were at $1.8 billion. During his tenure, revenue growth has steadily outpaced the market. For 2008, that’ll likely continue. Technology consulting firms International Data Corp. (IDC) and Gartner forecast 3 percent to 5 percent growth for the IT sector over the next year. “We’re going to outpace that” again, Garlow says.
Garlow attributes much of CDW’s multichannel success to the implementation of a closed-loop marketing technique. The company operates a five-step process for all of its marketing campaigns:
● measuring; and
With all meetings taking place at least a year in advance of the launch of a campaign, the company is able to devise and implement a well-structured plan with attainable goals. This comes from a deep understanding of the CDW customer.
History Repeats Itself
“CDW’s success, in part, has been driven by its focus on customers, and reaching those customers with the products and services they need,” says George Zengo, president of global print solutions at RR Donnelley, CDW’s catalog printer since 2001. “CDW has been flexible in responding to constant changes in the catalog mailing environment; especially forecasting demand.”
As Garlow explains, CDW bases its marketing efforts primarily on how its customers performed a year earlier. “We track how customers migrate over their life cycle year after year,” he says. “We see how they're spending, whether that’s increasing or decreasing, and how that spending compares to the average customer.”
CDW also relies heavily on tracking customers’ purchase histories, paying close attention to product categories. “We track to see if they’re purchasing heavily in one category vs. another,” Garlow says. “From that, based on past analysis, we can make a determination of what that customer’s going to do in the future year. For example, customers may buy laptop PCs every year, and that’s all they purchase. Those customers aren’t going to be nearly as strong as those coming to us to buy their laptops, desktops, networking, software, telephony, etc.”
With this data, the company sets financial goals for each campaign. Using industry projections from consulting services such as Forrester, IDC and Gartner as a baseline, CDW sets financial objectives to outperform the market. Its traditional goal was to be 10 percent better than the market, but that was when it was a $2-billion- or $3-billion-a-year company. “Now that we’re closing in on $8 billion,” says Garlow, “it’s tougher” to set such a high threshold.
Still, if the industry is projected to grow 5 percent this year across CDW’s product categories, CDW believes it can grow at 8 percent to 10 percent. These projections take into account past run rates, as well as specific industry segments such as health care, education, government, etc. “Where we may say we’re going to see more growth in health care,” Garlow says, “state government budgets may be flat, so we wouldn’t expect to grow as much in this segment.”
Catalog at the Core
After the customer, segment and financial data has been reviewed, CDW chooses appropriate marketing channels. The catalog “remains a focal point in the execution stage of the closed-loop technique,” according to Garlow. “It’s possible we could survive without it, but we wouldn’t generate nearly the sales we do with it. It’s almost like asking, ‘Can you do away with your Web site?’”
CDW produces nearly 20 different catalogs, each catering to the specific market segment it targets. A book mailed to small business customers is completely different from one that reaches health care customers. For instance, the small business catalog contains smaller-size servers specific to that market, whereas the health care catalog offers machinery and equipment specific to hospitals. As a general rule, Garlow says about 50 percent of the product line carries over each book, with the other 50 percent being unique to that book.
With 75 to 100 catalog drops per year and an annual circulation of more than 15 million, the print catalog must prove effective to justify its high cost. Though he won’t reveal the exact response rate a prospecting book must achieve, Garlow says the company will pull a catalog if it’s not meeting this level. For example, the company launched a telephony catalog four years ago that was discontinued after a year-and-a-half.
With so many catalogs in the mail, CDW takes advantage of numerous postal savings opportunities by working closely with its printer, RR Donnelley. “CDW adapted its program specifications to allow it to benefit as a co-mail partner in our co-op pools,” Zengo says. Specifically, CDW altered its trim size and adjusted its release dates, within business reason, to take advantage of the increased carrier route delivery and associated postal savings.
The company’s catalog circ has decreased by about 25 percent from its peak in the late 90s, when CDW made a conscious decision to move away from consumers and target businesses. But Garlow says the cutback hasn’t had an adverse affect on sales because the mailer has done a better job of targeting customers rather than just mailing to prospects.
In the past, CDW had two catalogs: a house catalog for its housefile customers, and a prospecting book sent to millions of prospects. Now it produces several books specifically for:
● small businesses;
● medium and large businesses;
● health care;
● and others.
“The more targeted we get, the more lift we see in these categories,” Garlow says. “Our circulation isn’t decreasing anymore, but it’s getting more targeted and we’re seeing stronger results.”
Matchbacks, Square-Inch Analysis Gauge Effectiveness
In measuring the effectiveness of a marketing campaign, particularly with catalogs, CDW uses matchbacks and square-inch analysis. Depending on the catalog and how often it’s dropped (monthly or quarterly), the company performs a two-week or six-week analysis.
With its matchback program, CDW can encounter duplication because its reps don’t request key codes on purchases from customers, believing they inhibit sales. “If I drop a catalog to said group of customers in the federal market, and I also mail them a direct mail piece during that time, and the same product is advertised in both,” Garlow says, “I’m going to double count it because we don’t have a way of differentiating which vehicle actually made the pull.”
Square-inch analysis, however, helps CDW determine whether products are carrying their weight in sales in the catalogs. CDW also compares how sales are doing for each specific vendor. “If we have HP servers in the catalog, we can see how the space we gave it performed, so if in a previous month we gave an item a full page and it was on the front cover, the next month we’d run it as a quarter-page and bury it in the middle of the catalog,” Garlow points out. “We also make comparisons on how the server in our catalog compares to HP’s overall sales of servers with us. And we can compare how the server in that catalog sold as compared to HP sales nationally, which HP shares with us.”
CDW is constantly adapting its marketing approach. For instance, the company has adapted its merchandising approach within its catalogs. Looking to sell solutions rather than just products, it now focuses on relating products together. If a customer is looking for a wireless hub at its company, Garlow notes, “we’ll present all the components you need for that wireless hub, rather than just giving customers a page of cables.”
Buying The Whole Package
Rather than offering mere “soldier pictures,” Garlow’s term for a shot of the product and the copy next to it, CDW merchandises customer solutions. The company wants its customers to buy an entire package, rather than a page of laptops, a page of cables, a page of data-storage components, and so forth.
With its recent $175-million acquisition of Berbee Information Networks and future plans for acquisitions and expansion in the works, CDW is primed to continue its strong growth. The company hired 400 additional sales agents last year and is slated to add another 400 this year. It also recently announced plans to open offices in Washington, D.C., as well as an undetermined East Coast city, staffing these locations with advanced services personnel. And with growth like that spanning the last decade, the five-step process driving CDW’s progressive, customer-centric multichannel marketing might as well be a path paved in gold.