List and Data Strategies: Using Co-ops to Optimize Rented Lists

May 01, 2007 9:30 PM  By

Not too long ago, the relationship between list firms and the cooperative list services was about as friendly as that of the Hatfields and the McCoys.

But as targeted mailings become ever more important in light of the U.S. Postal Service’s May 14 rate increase, more list firms are seeking to have their lists optimized by the co-ops.

“Early on in the 1990s, we referred to the co-ops as ‘the Dark Side,’” says Bill LaPierre, vice president of catalog brokerage for Peterborough, NH-based list services firm Millard Group. “But the co-ops have evolved. The genie is long out of the bottle, and we have to do what’s best for the clients. And so we’ve certainly helped steer clients to the co-ops for a quick jump-start with tactics like optimization.”

The use of co-op databases for list optimization involves matching rented names against names from a co-op and assigning a score to them based on the co-op’s models. The simplest models are basically RFM (recency/frequency/monetary value) rankings within a particular market such as men’s apparel; more-sophisticated models can pinpoint high-dollar buyers or the zip codes with the greatest affinity. This process can suppress less productive names and subsequently improve the response rate from a particular list.

Say that the 12-month buyers of a rented list have performed very well for you, but the older names on the file haven’t. Geoff Batrouney, executive vice president of New Rochelle, NY-based services provider Estee Marketing Group, says you could send the older buyers to the co-op database and have it identify which of those older names are active buyers from other catalogs. You might then choose to mail only to those names.

Optimization 101

By and large the co-ops do not run list-specific models for optimization. In other words, you wouldn’t be able to bring your rented list from Neiman Marcus to the co-ops and ask it to match those names against those of the Bloomingdale’s by Mail names.

Instead the co-ops create a collective from multiple lists in the database so that they can optimize the rental by affinity, says Doug Kaczmarek, vice president of analytics for Longmont, CO-based co-op Wiland Direct. “A high-end, upscale shopper may not buy within a particular category but would have affinity to a brand and the potential to buy from other titles,” Kaczmarek says. “But generally, we would have names with product affinity.”

The increase in response from optimization varies widely based on the models and the market sector, among other factors. Bill Luth, general manager of Minneapolis-based co-op Prefer Network, estimates that the lift from optimized lists averages between 15% and 70%.

The size of the list is another factor in the effectiveness of optimization. Lafayette, CO-based co-op Abacus recommends that mailers bring a minimum of 100,000 names to the table, says Paul Imbierowicz, vice president of product management and development. That would be after selects have been chosen and the merge/purge completed.

Making sure you have enough names is especially important when you consider that optimization can flag as many as 50% of a list’s records as unlikely to respond. You can then choose to not mail to those names or to have the co-op find additional, suitable names to make up the numbers.

The cost of optimization is around $45/M, says Luth. Of course, that’s on top of the rental charges. And since prospecting is all about testing, Luth says the additional cost could be a disadvantage to optimizing rented names.

“Not every test is going to work,” Luth says. “The whole idea behind prospecting is to get as many new customers as you can at an acceptable cost. Sometimes you want to prospect to break even, sometimes you’ll prospect to take a small loss. But prospecting is all about testing and measuring the results.”

Two are better than one

So why not just get the names straight from the co-op and avoid the list firm as middleman? A key reason is that not every name on a rented list is likely to be in the co-op database, particularly if the list owner is not a co-op member. “If all you do is mail co-op names, you are not mailing the complete universe,” Batrouney says.

What’s more, the names available from a co-op tend to be more heavily mailed than those that aren’t; as a result, they suffer more from mail fatigue, which can suppress response.

And smaller, more targeted catalogers in particular can benefit from the rental lists of magazine subscribers and association members, says Casey Carey, senior vice president of data services for Abacus. The cooperative databases have information only on consumers’ buying habits.

“Optimizing rented lists makes sense when you have a niche title and need a more targeted list, like an association list,” Carey says. “We see that a lot with the smaller catalogers, and that’s where optimization works best. We know the names have an affinity, and the optimization will expose their trends and data.”

So if you’re a cataloger that sells medicine and supplies to horse owners, you could rent a list from the American Equine Association, then have it optimized with co-op data to see which members are catalog buyers. Association members who purchased from catalogs — even if they weren’t equine catalogs — are most likely better prospects than those that have never bought via mail.

More uses for optimization

Optimization can be especially effective for mailers with a large exchange balance. If you traded 100,000 names and your partner has 500,000 names, you could get those optimized to the closest 100,000 and be charged only for those.

“If I’m The Sharper Image, and I’ve been exchanging names with Orvis, I may have given so many names to Orvis that they wouldn’t be able to mail to every one of them,” says Imbierowicz. “If I was Orvis in this case, I would have the list optimized to get the best possible names and then count them toward the exchange.”

Optimization also opens the doors for files you may typically not use, says Tricia Fleming, vice president of brokerage at Hackensack, NJ-based marketing services provider Mokrynskidirect. For example, a home decor cataloger may be inclined to optimize the list of an apparel seller if both target a similar demographic.

You don’t have to limit yourself to working with one co-op. LaPierre says most of Millard’s clients deal with more than one co-op in an effort to make sure they are reaching the right customers.

“It’s the old saying, You don’t put all your eggs in one basket. You want to spread the opportunity around,” LaPierre explains. “There may be a price advantage when you go with one co-op over the other, but mailers want to make sure they have a variety of good names in mailing.”

LaPierre adds that some Millard clients also use its parent company, Omaha-based database giant infoUSA, to optimize rented names. List renters can license infoUSA data so that they can handle the optimization process inhouse.

“They can do what they want in terms of the modeling and analytics,” LaPierre says. “Where it’s of great use is for multichannel merchants with a retail and mail component. They’re looking for big chunks of names, especially if they want to do the work inhouse.”

Quick Tip

If you haven’t used the cooperative databases to optimize rented lists before, you may not want to start with your worst-performing rentals, says Bill Luth, general manager of co-op Prefer Network. Instead you should start with marginal lists, particularly those that used to work well for you but are no longer showing a profit.

“If you go with the ones that are just below your cut-off, you have a better chance at making them profitable again,” Luth says. “If the list has not been working for a while, it may not be worth using.”

Luth also advises not optimizing the first test of a list — wait to see the test results, then consider optimization if they fall short of your minimum requirements. An exception to that rule, he says, would be if you are looking to cherry-pick a large source to find prospects.