How to Prospect More Effectively (1,575 words)
By Stephen R. Lett
You must prospect for new buyers to grow your business. But prospecting can be expensive.
Most catalogers prospect at an incremental loss*. Even so, acquiring new buyers is important to the health of your business. This month, I'll explore ways to prospect cost effectively for new buyers.
Why It's Important
There's a certain attrition rate associated with a typical catalog housefile. People die, others move, and some become dissatisfied. It's important to add new buyers to your housefile to maintain a certain level of revenue and/or to grow your business.
Rule of thumb: The percent increase in revenue growth will approximate the percent increase in your 12-month buyer file. For example, if your 12-month buyer file grows by 15 percent, your gross demand revenue will increase by about the same amount. The growth of your 12-month housefile obviously results from acquiring new buyers, but growth also can come from re-activating former buyers. Regardless of the source, focus on growing your 12-month buyer file to boost your business.
How and When
When prospecting, consider how and when to roll out list continuations (the proven lists), as well as new lists you haven't previously tested. Generally, the better-performing lists have a limited universe of names available. So testing new lists and expanding your prospecting universe is critical to finding enough good names to mail.
All lists available for rental will fall into one of these categories: direct-response buyer lists, (e.g., catalog buyers); subscriber lists (e.g., magazines, newsletters); and compiled lists. The cooperative databases (e.g., Abacus, I-Behavior, Z-24, Prefer Network) are direct-response catalog-buyer lists. Naturally, these types of lists tend to work best for catalogers. But subscriber and compiled lists also can work for your offer. They can represent a source of new names to help you expand your prospecting universe.
Compiled lists are used successfully by b-to-b mailers that want to target, for example, specific business sectors known as Standard Industrial Classifications (SIC). Consumer mailers who test compiled lists should model these lists prior to mailing to identify the mail-order catalog buyers. Adding this step will increase results while minimizing the risk of mailing to compiled names.
Questions to Answer When Testing a New List
How actively is the list owner prospecting? If the mailer's zero-to-six-month file size is more than 50 percent of its 12-month housefile, the list owner is actively prospecting itself and bringing new buyers onto the file. This should be a top consideration when looking at new lists to tests, because it means they're keeping their file fresh and full of active catalog buyers. (This also applies to list continuations.)
How well is the file maintained? Be sure the lists are updated and run through list-hygiene programs regularly. Although it's important to run NCOA on every prospect going into your mailing, knowing if the list owner runs hygiene on its file will give you insight as to how well the list is maintained.
What selections are available? Can you select by recency, monetary value, etc.? Often, the selections noted on the list owner's data card are not the only ones available. For example, you may be able to select (or omit) based on product category, demographics or seasonal purchases. Caution: Don't make the selects too tight. And don't pay for selects you don't need. Select charges are expensive, and they add considerably to the total cost of a list rental.
That said, some selects do work. Compare the additional per thousand cost ($XX/M) for the select against the resulting gain. Shown in the chart, "Examples of Using a Dollar Select," are the actual results from a test with and without a dollar select. Note: This is an example only and is meant to illustrate the effect of using a dollar select.
In this example, the dollar select of $100 out-performed the segment of this same list mailed without a dollar select. Again, this was the same list; one segment was mailed using a dollar select, and no dollar select was used on the other segment. This was an upscale list with an average order size of $110.
Can you mail test lists that are out-of-category? Use lists that work out-of-category as a way to expand your prospecting universe. Although the success rate is less than testing in-category when you do find a winner, it opens a whole new universe of prospect names to mail. This is important if you want to grow your business beyond normal limits. This also can lead to new product development ideas.
Who else is using the list? This will give insight into how a particular list works for other mailers in your category (be sure your broker can tell you who is continuing on the file). You also can request usage on your continuations to develop your own new test ideas.
How did the file net out in the merge? If you're mailing a test list in your product category, you can expect to net out of the merge at a similar rate as the list continuations you're using. If the retention rate is significantly higher, the list probably doesn't have a synergistic base to your continuations. Therefore, it's less likely to perform well. The exception is if you're testing out-of-category. What you net out of the merge is not as much an indication of list performance.
When a test works, how should you proceed? When a new list performs to your criteria, retest the lists before you roll out. Continuations never hold up as well as the test. If, for example, you mailed 7,500 names on the test, mail up to 15,000 names on the re-test. If these results hold true, you're safe to roll out to continuation levels.
Caution: Factor down your projected results when you roll out as compared with both the test and retest. Most likely the results, once again, won't hold true, and you could over-estimate order and revenue demand.
Maximize Performance of List Continuations
Study how well each list continuation performs during a period of time. It's not enough to look at list performance for each drop. Rather, look at the performance during a time period. How many times, for example, can you mail each list per year or per season? Can you mail the list more often, or are you over-mailing it now? The danger of over-mailing is that the performance can fall to the point where it looks as if you can't use the list at all, when that may not be the case.
Use ZIP models. ZIP models can be used to improve performance. They work well when you want to select lower-performing segments of a file (deeper selects) or use a larger file that perform marginally.
Continually re-evaluate the selects you're using. If you have lists that typically are lower-performers, consider mailing a tighter select rather than taking less names for the same select. For example, if you normally select a $50+ three-month buyer, try using a $75+ two-month buyer. This often will counteract the lower performance of the mailing.
Understand your demographics and customer base. Don't try to use your list selection to change your customer base. You can't appeal to a different audience without changing your merchandise, and you can't abandon your existing customers. For example, you won't appeal to a younger audience simply by mailing to lists of younger-aged people.
Look beyond standard performance indicators. In addition to evaluating response rates, average orders and revenue per catalog, also consider performance indexes. By doing this, you'll know if a list over- or under-performs relative to the performance of all lists used. This will help you plan and evaluate the lists you want to use. The chart, "Example of a Weekly Performance Index," shows an example of how performance indexes may appear on your weekly report.
Understand sporadic performance. If a list works sporadically, look for patterns. Perhaps your offer isn't appealing to those prospects at certain times of the year. If you see a pattern, limit when you mail to maximize the list's performance.
Keep an eye on exchange balances. If you're in a highly competitive market, this is an essential point. Often, your best lists won't rent to you if the exchange balances get out of whack. It's important to monitor these exchange balances yourself to avoid getting turned down and unexpectedly falling short on names.
Keep relationships open … always. Develop and maintain a good relationship with the list owners with whom you work on a regular basis. Sometimes, this occurs directly. Other times these relationships are formed through your broker or list manager.
Prospecting requires a good balance of different lists. You need the fresh names that individual outside lists can supply. Although cooperative databases are updated, the member companies may not send their file updates as frequently as they should. What's more, the co-ops select only multi-buyers, while individual outside lists include the single or one-time buyers who also may be good prospects for your offer.
Modeled names normally perform at or slightly better than your best outside prospect lists. Again, the performance will tend to decline after the first few highly indexed segments. The top segments are the real winners, while additional outside lists will be needed for continued growth.
Stephen R. Lett is president of Lett Direct, a catalog consulting firm specializing in marketing, circulation planning, forecasting and analysis. He can be reached at (302) 541-0608 or by e-mail at firstname.lastname@example.org.