By this time of year, most catalogers are tweaking and executing winning marketing plans for the fall and holiday seasons. You can make this process more efficient by putting together your own marketing tool kit. This tool kit should provide you with all the essentials needed to build your strategy and execute your plan.
Just as a hammer, a Philips screwdriver and a wrench are toolbox essentials, the following components are the foundation of your marketing arsenal.
The tracking plan
Just about every marketing decision you make is data driven, right? (Say yes.) And to make good data-driven marketing decisions, you have to have good marketing data. You’ll get those data from good tracking.
Long gone are the days when 90% complete data capture was the benchmark. Today companies are doing well to track 60% of the transaction data to a mailed source code, meaning that nearly half of your marketing intelligence is sitting “unclassified” or is being claimed by your Web division.
So what do you do? Get vigilant about matching back orders to their source. And for those orders whose source you still can’t identify, look at the parameters of your business model to determine if it makes sense to allocate, on a prorated basis by segment, the balance of uncoded orders.
The goal
As with any project, you can’t start without a plan. And you can’t build a plan without a goal. File growth, revenue growth, and profit growth are all viable goals. But each has a distinctly different path to achievement.
File growth means heavier prospecting, more-focused inquiry conversions, and more-aggressive reactivation strategies. It could mean venturing into new acquisition methods such as space ads, card decks, or insert programs. And it almost certainly means greater expenses and a smaller bottom line, though the long-term benefits from growing the 12-month buyers file can be substantial.
Revenue growth can mean mailing deeper to less profitable (or unprofitable) segments, more-aggressive prospecting efforts, or increased mailing frequency to more segments of the house file. Quite often revenue growth goals reflect the adage “You’ve got to spend money to make money.”
Profit growth means getting stingy: contacting your best buyers more frequently (catalogs, e-mails, postcards) and keeping prospecting to a minimum.
Naturally, most catalogers would like to grow their house file and increase revenue and boost profits. And, in fact, you can achieve all three simultaneously, though one goal has to be the top priority, and you must manage the business with the utmost efficiency. The key is to have a focus, something to work toward.
The house list inventory
The next tool in the kit is an accurate house list inventory — a quantity breakdown of your file from either an RFM (recency, frequency, monetary value) or a model standpoint. These house file counts will drive your plans for everything from paper buying and postage estimates to top-line and bottom-line forecasts. If actual counts are too high, you produce more pieces than you can mail and risk damaging profitability. If actual counts are too low, you leave money on the table by short-mailing the file.
The inventory is also a handy tool because it can provide you with direction on offer strategies. High-frequency, high-monetary recent buyers should be getting more-frequent communications and special “thank you” messaging. Recent low-dollar buyers may warrant offers designed to increase their average order values. Older buyers may require offers targeted at reactivation.
The financial tools
The essential financial tools are a profit and loss statement (P&L) for return on investment analysis, a breakeven calculator, and an acceptable customer acquisition cost calculator.
A comprehensive P&L will give you the full picture of performance so that you can see if you’ve achieved your financial goals. A good catalog P&L will also keep the product information (sales, returns, cost of goods) separate from the cost of fulfillment (picking, packing, shipping, credit-card fees), the cost of advertising (all of the creative expenses, postage, paper, list costs), and all general and administrative costs.
A good breakeven calculator, as indicated in the “Breakeven Analysis by Order” chart at right,will allow you to evaluate scenarios for increasing or decreasing average order values, product margins, advertising costs, and bottom-line requirements. Given these pieces of information, your breakeven calculator will tell you what is required in terms of response rate and dollars per piece mailed to meet your goals.
A customer acquisition cost estimator is critical to prospecting campaigns. Whether you use lifetime value analysis over a three- to five-year period or a 12- to 18-month payback period, it is essential that you understand how much you can afford to acquire a customer and to reactivate a lapsed buyer.
The execution tools
At this point, you have what you need to build a strategy. Now you need the tools to execute the plan.
A comprehensive contact strategy, one that incorporates all customer and prospect communications including catalogs, postcards, solo packages, e-mails, and insert media, should outline by segment and key dates whom will be sent what. It gives your production team the data they need to set schedules and the information you need to establish performance metrics.
You should develop a mail plan for every customer contact that you have. It’s easy to drop an e-mail campaign and watch the orders come in. But why not segment the e-mail file the same way you do the catalog file? You should. In fact, consider building mail plans that segment customers and prospects who will receive catalogs and e-mails from those who will receive catalogs only. This will allow you to evaluate the performance of an integrated e-mail and catalog contact strategy.
The drop-by-drop mail plans are the historical records for your mailings. Everything from input and mailed quantities to list expenses, source codes, response data, and P&L by segment can and should be incorporated into a well-designed mail plan. At the end of a campaign or season those drop-level mail plans will be what the marketing team and management use to recount what happened and why. Whether for catalogs, e-mail, supplemental mailings, or alternative media, the mail plan is the duct tape of the marketing tool kit.
Steve Trollinger is senior vice president, client marketing for J. Schmid & Associates, a Shawnee Mission, KS-based catalog consultancy.
BREAKEVEN ANALYSIS BY ORDER
| AVERAGE UNIT PRICE | $33.33 | $50.00 | $66.67 | |||
| AVERAGE UNITS PER ORDER | 1.50 | 1.50 | 1.50 | |||
| AVERAGE ORDER VALUE (AOV) | $50.00 | $75.00 | $100.00 | |||
| Returns | 1% | ($0.50) | ($0.75) | ($1.00) | ||
| Cancellations | 3% | ($1.50) | ($2.25) | ($3.00) | ||
| NET ORDER SALE | $48.00 | $72.00 | $96.00 | |||
| Cost of goods | 45% | ($21.60) | ($32.40) | ($43.20) | ||
| Fulfillment cost per order | $10 | ($10.00) | ($10.00) | ($10.00) | ||
| + Fulfillment income/order | $6.95 | $8.95 | $10.95 | |||
| Net fulfillment expense/order | ($3.05) | ($1.05) | $0.95 | |||
| CONTRIBUTION (before promotion, overhead, and profit) | ||||||
| @ 0% of Sales | $23.35 | $38.55 | $53.75 | |||
| @ 10% of Sales | $18.55 | $31.35 | $44.15 | |||
| @ 20% of Sales | $13.75 | $24.15 | $34.55 | |||
| COST PER PROMOTION PIECE | $0.50 | $0.50 | $0.50 | $0.50 | ||
| CONCLUSION: | ||||||
| Formula = Promotion cost/Contribution | ||||||
| BREAKEVEN – Variable @ 0% | 2.14% | 1.30% | 0.93% | |||
| Sales per catalog* | $1.07 | $0.97 | $0.93 | |||
| BREAKEVEN – Overhead @ 10% | 10% | 2.70% | 1.59% | 1.13% | ||
| Sales per catalog* | $1.35 | $1.20 | $1.13 | |||
| BREAKEVEN – Fully loaded @ 20% | 20% | 3.64% | 2.07% | 1.45% | ||
| Sales per catalog* | $1.82 | $1.55 | $1.45 | |||
| *Sales per Catalog = % response × gross sales | ||||||