Measuring Catalog Success in the Digital Age, Part 1
You might think in this multichannel marketing world of increased personalization and automated response where consumers buy or pass in a split-second at a surging number of contact points, that the catalog is dead. You would be wrong.
Times have changed, for sure, but the catalog has endured, often bringing in big numbers for mailers. Helping the cause are millennials, whom recent studies have shown to be very fond of their niche-aimed catalogs.
To best continue its survival, though, the measurement of catalog success must change. Return on ad spend (ROAS), a longtime means of determining catalog success or failure, needs to be re-examined, refreshed and, in some cases, removed.
ROAS is calculated on revenue vs. cost. Simple, right?
However, as catalog marketers ask for more budget, pointing to improved ROAS, management is responding that the overall business isn’t seeing improvement. They want bottom-line business results.
At the end of the day, ROAS in no way speaks to the incrementality and effectiveness of driving overall business sales. Instead, it’s a way to financially balance the money spent on customers vs. the money they in turn spend with the brand.
The solution is to look at catalog marketing in terms of its incrementality — how it reaches a balance of different customer segments to boost the bottom line — by understanding and acting on customer profiles to connect the brand with prospects as well as both existing and lapsed customers. Instead of betting on a sure thing by reaching out to customers that would purchase anyway, marketers need to generate incremental revenue by identifying and reaching out to all their relevant customer groups. No other answer is going to produce the results that CEOs demand.
Here's the path to get there:
Catalog marketers are measured and incentivized based on ROAS, which drives them to focus their catalog mailings on the top RFM scores — i.e., the most recent, most frequent buyers. Because budgets are constrained, this in turn forces catalog marketers to drop less recent, less frequent customers from the list. This is a self-fulfilling prophecy where the brand stops marketing to less valuable customers, and they predictably fade away into inactivity. Therefore, the ROAS looks great, but the top-line sales of the business remain flat.
Meanwhile, brands are using ROAS to compare marketing channels to one another, particularly when control groups aren’t an option. They ask: “I’m spending $XX amount on catalogs, email, paid search keyword optimization, what’s my ROAS for each?"
There are some cases where this provides value, but it’s more geared to customer segments than the impact on those segments. Marketers need to be sure they're really focused on how different populations will skew ROAS metrics. Are the populations truly apples to apples? For example, a catalog that's mailed to best customers will have a higher ROAS than a paid search campaign. Marketers then need to do their homework to understand why there's a difference, how to reconcile it to get comparative results across all channels, and what optimizations in spend will have the biggest impact on the overall business.
One Step Forward, One Step Back
The way businesses capture customer information is improving, thus the housefile is growing beyond the reach of the current budget. This changes the dynamics of the catalog housefile. Again, the marketer driven by ROAS is forced to cull the list to keep new customers on it by dropping less recent and less frequent buyers. The marketer is forced to focus on the cream of the crop. What if marketers used the catalog to nurture new customers, grow one-time buyers and reactivate inactive buyers? ROAS would suffer for sure, but there's an opportunity for incremental revenue.
This is a perfect illustration that what we choose to count counts. Metrics drive decisions, behavior and results. If you're not getting the results you want, it’s probably time to re-examine your metrics. Revenue growth comes from the entire portfolio of customers. The goal of marketing is to move customers forward in the buying lifecycle from prospects to buyers, from one-time buyers to repeat buyers, and to reactivate customers you haven’t seen in a while. Brands need to drive up customer counts across the entire lifecycle.
So what metric should brands be using to measure catalog performance that produces real revenue growth? The answer is simple: revenue per customer. With a representative test and control group, catalog marketers should be tracking all the revenue each customer spends during the catalog matchback period. The average revenue per customer will provide the most important, yet often overlooked, answer of what a customer would have spent had they not received a catalog. This approach eliminates the noise or parsing through complex attribution rules to see which marketing channel should get credit for each sale. With the test and control, all of the other marketing influences are normalized and it leaves you with a true measure of success — incremental revenue to the business.
With capture rates increasing, that list should be growing. There are newer customers who need to be pushed forward and nurtured, but you’re ignoring them to put a catalog in the hands of someone who doesn’t need it.
Part two will look at the revenue impact of sending a catalog to a lapsed customer, and how to find a profitable balance using ROAS.
Paul Welsh is vice president of analytics at Customer Portfolios, a marketing technology leader that uses insight and analytics to increase customer value.
Related story: Can Catalogs Be Replaced With Only Internet Marketing?