Profile on Plow & Hearth--Reaping What You Sow (2,623 words)
When Peter and Peggy Rice founded the Plow & Hearth catalog in an outbuilding on their Virginia farm in 1981, their inspiration was the back-to-basics movement. Nearly 20 years later, the country philosophy remains, but the back-roads mail order business is anything but backwards. Its adoption of a high-tech database in the mid '90s has led to quick, efficient growth through sophisticated modeling, which in turn engendered a home-furnishings catalog spin-off and a highly successful upselling program.
Now Plow & Hearth's dual commitment to direct marketing basics and use of cutting-edge technology is allowing the founders to reap what they've sown.
In April 1998, the Madison, VA-based catalog found an unusual partner in high-profile phone and e-commerce company, 1-800-FLOWERS.
Charmed as much by Plow & Hearth's expert fulfillment systems as its complementary gardening product line, Jim McCann's 1-800-FLOWERS purchased a majority interest in the country catalog. Now Plow & Hearth is finding that its 20 years of catalog experience will help define and shape the future of both companies, on and off the Internet.
Sowing the Seeds
Back when the Rices opened a small retail store in rural Virginia, they had their minds set on a bigger business than could be supported by their isolated community. Their plan was to grow the business through a catalog that would offer many of the necessities that they themselves used.
Peter Rice explains the business model: "In 1980, the prime interest rate was 18 percent, and it still boggles my mind. It was tough to get money, but the concept was really around back-to-basics: rototillers, wood stoves, food preservation, kerosene heaters, bulk vegetable seeds."
The back-to-basics movement emerged from two 1970s social phenomena: increased environmental activism and a broad-reaching energy crisis. Driven by a blend of idealism and pragmatism, Rice claims, "Country living has been at our core from the very beginning."
In the holiday season of 1981, the young couple mailed their first catalog—a slim jim printed half in color and half black-and-white with a blend of the products featured in their tiny store. The Rices sunk their capital into a 100,000-piece mailing. Overall, the response to the lists they had rented was "pretty negligible."
"That was an interesting time," Peter Rice says with typical understatement. Unsure whether their dream was still viable, the Rices turned to The Millard Group, the company's then (and current) list broker, which also served as the fledgling catalog's primary business advisor.
"At the end of the first mailing," Rice relates, "we sat down at the old kitchen table with Don Cody, who was with Millard at the time, and we asked ourselves, 'Is this a business? Is there enough of a pulse to keep going?'"
They looked closer at that negligible response, and found that among the 100,000 names, there were "enough lists that did pretty well and enough products that did pretty well." They decided to give it another shot with a refined strategy and list selection. They scratched together more capital, and a year later, dropped another 100,000 catalogs.
The results were significantly better using the fine-tuned lists and product mix. The next holiday season, they mailed 250,000 catalogs and graduated into seasonal mailing.
"From that point on, we grew rapidly," says Rice. "We were in the 'Inc.' 500 list of fastest-growing businesses four years in a row," from 1986 to 1989.
Finding a Niche Product Line
Today, a customer who flips through the Plow & Hearth Products for Country Living catalog is more likely to find hand-cast wind chimes and rustic table lamps than gas generators and food dehydrators.
"The business changed pretty quickly from essentials for country living to products for country living," explains Rice. "It's a subtle difference, but an important one because, while retaining a core of functional products that we're known for, we offer more products that are discretionary or decorative."
Plow & Hearth covers high-end home and garden turf. Its product line overlaps with L.L. Bean Home and Camp, Eddie Bauer Home, Alsto's, Sporty's and Gardener's Supply, although none is a direct competitor. For example, while Plow & Hearth still carries garden supplies, the catalog also sells grape arbors and teak porch swings instead of rototillers and organic compost. And while it still offers items for wood stoves and fireplaces, many of the hand-forged tools, screens and andirons are as beautifully decorative as they are practical.
A Database Kindles Growth
After reaching a circulation of 15 to 20 million in 1994, the next stage in Plow & Hearth's growth wasn't increasing the quantity of mailings, but improving the efficiency and effectiveness of the books it did mail. The spark? Database management.
"I came on board as the company started to hit its stride from a merchandising standpoint," says David Hay, director of database management for Plow & Hearth. "There were several factors that led to growth."
Hay began working with Plow & Hearth's upscale Charlottesville, VA, retail store when he was a student at the University of Virginia. He came into the burgeoning database department in 1994, a momentous year in the progression of the company.
"In 1994, we developed an in-house marketing database and promotions reporting system that gave us a good handle on the business," says Hay. "That same year, we were one of the original beta test sites for ModelMax," predictive modeling software from Pittsburgh-based database software company ASA (Advanced Software Applic-ations). "In conjunction with our database, ModelMax helped us really manage our buyer file."
In 1998, the company mailed about 30 million catalogs—not an astounding increase, but Plow & Hearth's sales topped $60 million in revenues, showing improved profitability. By taking control of data, Plow & Hearth has concentrated on the half-million 12-month buyers in its 1.5-million name house file. It also has developed sound models to take better advantage of co-op databases and other prospecting efforts.
Plow & Hearth had experienced some success selling indoor furnishings, mostly solid, rough-hewn log pieces that evoke a 19th-century frontier cabin. That success was a trail that the database department followed to the American Country Home catalog market, the spin-off that first mailed in spring 1999.
"We decided that we're 'Products for Country Living,'" says Rice. "That's a pretty wide umbrella." Instead of spreading its definition of "country living" too much further, the company introduced the new title.
American Country Home's home-furnishings niche was largely identified through the use of Plow & Hearth's marketing data, a process made possible by the company's embrace of database technology.
"We also did some matches of our house file against Abacus," says Hay. "There were some pretty good matches with traditional home catalogs, and that supported the evidence that our customers had an appetite for indoor furnishings."
With a responsive market buried right in its own house file, Plow & Hearth had only to develop the right merchandise mix and brand. The result is American Country Home's mix of simple, quality casual country furnishings.
"American Country Home is an extension inside the home," says Peter Rice. "Really, Plow & Hearth never has done a whole lot of home furnishings. The furnishings we did were rustic, lodge, summer-cabin types of furnishings that complemented the products we cover for the hearth or garden furniture. Plow & Hearth would have no particular reason to get into Shaker, cottage or farmhouse furnishings, but American Country Home allows us to get into another category with very little product overlap, yet the same customers will find [it] very interesting."
Using ModelMax, Plow & Hearth identified, modeled and mailed to customers in its house file who had purchased home decor items. The remaining books were mailed to look-a-likes from prospect lists and catalog co-op databases.
Since the launch, the company is tracking purchase history separately for both Plow & Hearth and American Home—something that could make a more complete spin-off possible.
In addition to the spin-off, the company is creating versions of its Plow & Hearth catalog to better target customers. Previously, Plow & Hearth: Products for Country Living was producing four catalogs per year: spring, summer, fall and holiday. The company would re-mail each catalog several times for a total of 14 mailings throughout the year, or roughly once a month.
"We always change the cover," explains Hay. "[Now] we're starting to, more frequently, version catalogs within the season by adding more pages with new merchandise as it becomes more seasonally appropriate and removing merchandise as it becomes less seasonally appropriate."
The company has found that versioning is a very effective way of boosting response, and is likely to turn to current printer Quad/Graphics to do more.
"We hope to eventually get away from the one-size-fits-all catalog approach and actually start producing [more] personalized versions, so that we can contact prospects and customers with better product affinities," says Hay, noting that excellent results from some limited tests in 1999 means a likely roll out this year.
Upselling on the Phone
Improved data modeling is having a positive impact on other aspects of Plow & Hearth's business—the call center in particular.
Plow & Hearth has a long-standing upsell program called phone specials. Hay explains, "These historically were one-size-fits-all offers, usually low-price, impulse items that we offer at the end of a transaction after a customer has already made his or her choices. We have had this program in place a couple of years now and it was fairly successful. I wouldn't say we had astronomical penetration, but it was definitely generating good incremental income for us."
On the other hand, Plow & Hearth's item-specific upsell program was rather rudimentary, says Hay. "For example, an agent would try to upsell cushions to someone who was buying our presidential rocker," he says. "There was not real scripting. A box would pop on the agent's screen. It wasn't very friendly, it was difficult to read, and it would always pop up, regardless of whether the customer had already ordered the cushions or not."
Only the best, most experienced agents were able to work with the primitive system. That meant that during the busy holiday season, the 300 to 400 seasonal workers the company hired couldn't take advantage of either the phone specials or item-specific programs.
During these busy times, the company suspended its successful phone specials program. Explains Hay, "The rationale was that we would forgo these extra sales to cut down on the extra talk time to allow agents to take more orders, be more efficient and keep our service levels high."
With 50 percent of the company's sales coming in the two months before Christmas, cutbacks in upselling efforts were costly. For the 1998 holiday season, a technological upgrade solved the scripting problem, as well as the offering of already-ordered products. Using Decision POS, a PC-based script management software from ASA that integrates with ModelMax, Plow & Hearth could apply real-time predictive model scoring at the point of sale and establish simple rules-based logic for implementing cross-selling and upselling scripts. In other words, when a customer is most likely to accept an upgrade offer, Decision POS alters the script for the agent to make an item-appropriate suggestion.
While the roll-out only tested scripted suggestions of a dozen items, Hay's team saw immediate improvements. "With predictive modeling we saw the penetration and profitability of the phone selling increase, by basically eliminating most of the nonresponsive customers," he says. "Penetration rates tripled for the first two weeks after we implemented it."
The product worked by comparing it to transaction data, such as number of line items and total sale, even with limited gender and geographic data from customer records.
"One of the big benefits of the modeling is we reduce the number of times we make the offer to make the selling program more efficient so we could sell throughout the busy season," says Hay. He also notes that the program delivers friendly scripts for less-experienced seasonal workers.
For holiday 1999, Plow & Hearth upped the number of item-specific upsell suggestions, each selected by a human merchandiser, not predictive software. "This year we have in the neighborhood of 200 different item-specific selling scripts," says Hay.
Expanding on the Web
The next step for Plow & Hearth will be extending upselling and other advanced merchandising features to its Web site, launched as an e-commerce site for holiday 1998. The company is currently working on enhancing the site's features and functionality.
The site's front-end interface is designed by Fry Multimedia of Ann Arbor, MI, while the catalog back end handles the fulfillment of orders, which are batch-loaded into its off-line system.
The upgrades to the site will come courtesy of Plow & Hearth's new parent, 1-800-FLOWERS.
In spring 1998, explains Peter Rice, "We were in the typical entrepreneurial situation where my wife and I were shareholders who had invested in the company over time, and we were looking for a strategy to get liquidity."
Plow & Hearth was in the middle of dramatic growth in profits and revenue, and its 300,000 square-foot, state-of-the-art Virginia distribution center was a sought-after asset for any dot-com. With a good bargaining position, the Rices wanted to sell to a strategic buyer who would bring a lot to the table besides just cash.
Larry West, a merger and acquisition expert with New York-based West and Co., sorted through the company's suitors.
"Larry was the person we used to identify prospects. 1-800-FLOWERS was a company we never would have thought of in a million years," admits Rice. "Why would we really? We had no way of knowing what they were thinking and didn't know enough about them to know the potential synergies."
Those synergies include the related specialities of flowers, gifts and garden merchandise, as well as strengths in complimentary sales channels. 1-800-FLOWERS was an e-commerce pioneer, but it lacked direct mail, catalog or distribution experience. Plow & Hearth was an expert in catalog sales, database management and fulfillment, but it had not yet developed an Internet presence.
Another plus of the acquisition was the efficiency of pooled call centers. "A huge benefit is that our service centers work with one another," says Rice. In November 1998, 50 agents at Westbury, CT, the primary service center for 1-800-FLOWERS, were available to take holiday orders for Plow & Hearth.
"Around Valentine's Day, we turn almost totally into a 1-800-FLOWERS center," says Rice. "It gives more flexibility in terms of call center resources."
In addition, Hay explains, "Using ModelMax also helped Plow & Hearth take advantage of the 1-800-FLOWERS database. "We've been very pleased with the results we've gotten from their buyer file."
Early this year, Plow & Hearth will move its Web site to the 1800flowers.com engine, adding real-time ordering and inventory.
Next up, according to Rice, is a brand-new Internet collaboration between the two branches. He says, "We are working on another business in conjunction with 1-800-FLOWERS called GardenWorks.com, and we're looking at a launch in early 2000. Merchandising and content will be out of Virginia, but it will run on the new 1-800-FLOWERS engine."
Otherwise, not much has changed around Plow & Hearth. The Rices, including son Pete Rice Jr., still operate from their Madison headquarters. And running the catalog business continues to be the top priority.
"We expect to continue to grow at a healthy clip from a catalog circulation point of view," says Hay. "We're not going to allow the fact that some customers are migrating to the Web site to cut back our mailing at all."
From the kitchen table to the board room, the Rices have traveled more than a country mile. Instead of allowing technology to dominate them, the folks at Plow & Hearth have used it to retain a clear focus on the country-living products that first inspired them.