Best Strategy for Hard Times and What NOT to Do!

by Stephen R. Lett

My entire career since graduating from Indiana University in 1971 has been devoted to catalogs. There have been good and off years. In these current tough economic times, it is logical (and necessary) to reduce expenses and to save where possible. However, I often see reductions being made in areas that wind up affecting the longer-term viability of a company. Often it is short-term gain and long-term pain! When the going gets tough, the tough don’t cut circulation or stop prospecting. They weather the storm. This month, I would like to outline strategies for tough times and important KPIs (Key Performance Indicators) you should be tracking on a weekly/monthly basis to know where you stand at all times.

This past year, I have seen catalogers scramble to reduce expenses. These cuts are not always in the best places. For example, some catalogs have reduced page count (without doing the proper square-inch analysis), many have eliminated mailings to web-only buyers (without proper testing), and others have changed paper stock/grade or eliminated mailings to prospects. All of these reductions are well intended, but are they the right decisions for the business? I say not in all cases. Often, these reductions are being made by emotional decision to cut expenses without regard to testing. Over the years, I have found that it is difficult to slash and burn your way to prosperity! Some of these decisions may save money short term, but long term, they could hurt.

The combination of increased cost and lower response rates is forcing catalogers to decrease circulation and make other cuts in order to maintain profitability. Here are things to do and not do in the face of these difficult economic times.

Mailing Internet buyers
The LTV (Lifetime Value) of an Internet buyer is often not as great as that of a catalog buyer. While we would typically mail at least the 0-to-12-month Internet buyers, it might be that the entire group should not be mailed. For example, a large percentage of first-time Internet buyers often never made a second purchase. These buyers are searching the Internet for a specific gift or item and not always “shopping.” You might want to test eliminating these one-time/first-time buyers from your circulation plan. Key code and mail them as a group. Track the results and see how they perform after match-back. We can mail our 0-to-12-month catalog buyers with a great deal of success: They are the heart and soul of our house file. However, the same may not hold true for the 0-to-12-month Internet buyers. Test this first.

Suppress multi-buyers generated from co-ops
When more than one database is used in a mailing, there will typically be 25-30% duplication from one co-op to another. The “hits” go into a multi-buyer pool, and they can be re-mailed a second time (or more). However, multi-buyers created from co-ops against co-ops generally do not perform well. (Rentals against rentals and rentals against co-ops are fine.)

How can you reduce the number of duplicate records from one co-op to another? The names you rent from a co-op are net of your house file. Therefore, if you stick with using one co-op, you will reduce the number of duplicates. This approach will only work if you are typically taking the same level of circulation and the results and names from each co-op are about the same. Another approach is to send the cooperative database the dupes from the co-op lists you used after every merge to suppress the dupes against.

Best practice: When running the merge purge, give priority to the co-ops over the other outside lists. Have your service bureau give the co-ops as a group random allocation.

Page count
Look to increase (not decrease) your page count — but only after you have done the proper square-inch analysis. Adding pages and selling more products to your existing customers is often a good strategy for increasing sales, especially when business is hard to come by.

Pages are a good value. The cost to increase pages is approximately one-half the percent increase in the page count. For example, to increase page count from 52 to 60 pages (+8 pages) yields a 15.4% increase in the number of square inches of selling space. Yet, the cost increase is only +7.4%. Sales should increase by one-half the percent increase in the page count. Therefore, if the page count increases 15.0%, demand revenue should increase approximately 7.5%.  Cutting pages will decrease revenue, and the cost will not decrease proportionately because, again, pages are a good value for the dollar (even with sky-high paper prices). To put this in perspective, please refer to the chart below:

8” x 10.5” Trim Size SQUARE
INCHES
SPACE
PERCENT
INCREASE
APPROX.
COST *
COSTS
PERCENT
INCREASE
ACTUAL
DOLLAR
INCREASE
48 p. + 4 p. = 52 p. 4,368  —— $216,000  ——  ——
52 p. + 4 p. = 56 p. 4,704 7.69% $220,000 1.85% $4,000
56 p. + 4 p. = 60 p. 5,040 15.38% $232,000 7.41% $16,000
60 p. + 4 p. = 64 p. 5,376 23.08% $240,000 11.11% $24,000
64 p. + 4 p. = 68 p. 5,712 30.77% $248,000 14.81% $32,000
NOTES:
* Includes printing, paper and postage for 400M catalogs.

Change catalog trim size (but not to a Slim-Jim)
Some catalogers have jumped to a Slim-Jim format without testing. To qualify as a Slim-Jim, the catalog needs to measure 6 1/8” X 10 3/4”. It costs a little more to print this size, the postage cost is less, and overall you’ll save money. However, before you convert to this size for the savings, you need to understand that the catalog must be “tabbed” or wafer-sealed to qualify for the postal savings (i.e., the letter rate). Having to break that seal or tab has been known to reduce the response rate in the consumer market by 7% or more.

If your catalog is full size and you mail at the pound rate, you would be better off reducing your head-to-foot trim size slightly. For example, if your catalog measures 10 1/2” from top-to-bottom (head to foot), you can convert to a 10 1/8” trim size. This will reduce your postage cost by approximately 10% without any loss of revenue. Ask your printer if they have a short cut-off press that can print this size efficiently

Reduce the number of drops? No way!
Reducing the number of drops means eliminating a mailing to the house file, which is never good. The house file is what generates the income. It’s the lifeblood. In fact, I would strongly recommend adding a house file drop. It is difficult to over-mail your house file, particularly your more recent 0-to-12-month buyers. Leverage your number-one asset, your house file, by mailing to them more often. Obviously, not all segments should be mailed; your R-F-M results will let you know how deep to mail.

Stay the course!
Companies that cut circulation, reduce page count, and make other radical changes without prior testing wind up paying the price. These slash-and-burn tactics never pay. You should absolutely cut your marginal circulation. But be sure you maintain your 12-month buyer count; don’t let your 12-month buyer count drop below the previous year. What’s more, don’t adjust mail dates to try to save money. Weather the storm and stay on course, and this, too, shall pass.

In summary, I often see catalog companies making decisions to save money in the wrong places.


Stephen R. Lett is the President of Lett Direct, Inc., a catalog consulting firm specializing in circulation planning, forecasting and analysis since 1995. Mr. Lett spent the first 25 years of his career with leading catalog companies; both business-to-business and consumer. He is the author of a book, Strategic Catalog Marketing. He can be reached at 302-539-7257 or by email at steve@lettdirect.com.

About the Author: Jim Gibbs

Vice President of Sales & Marketing at The Dingley Press. Jim has been with Dingley since 2002 and lives in Maine near our Lisbon, Maine plant location.