Lists or Co-ops: Which Fits Your Prospecting Puzzle?

Oct 01, 2010 9:30 PM  By

Even before the recession really kicked in two years ago, merchants were beating the co-op databases to death. And when the economy caused catalogers to put the brakes on prospecting, even more relied on the co-ops for names.

But some industry watchers say the co-ops may have finally hit their peak and that conventional list rentals could see an uptick.

If three-fifths of a catalog’s prospecting was through the co-ops three years ago, today it’s about seven-eighths through the co-ops, says Ken Lane, president/founder of catalog consultancy Hathaway & Lane. “But as catalogs start to increase circulation, you’ll see that the pendulum is swinging back to lists,” though it may not swing all the way back, he notes.

Co-op usage as a percentage of overall catalog prospecting has increased steadily during the past eight years or so, since Prefer and NextAction entered the market, notes Jim Harkins, principal at catalog consultancy JJH Direct.

“The co-ops are being overused, but sort of by default, because the available pool of direct response names is shrinking,” Harkins says. “Catalogers are taking names from multiple co-op databases, with the resultant overlap, which creates burgeoning pools of multibuyers that increase as a percentage of prospecting as well.”

Indeed, catalogers have become too reliant on the co-ops, says Kevin Hillstrom, president of database marketing consultancy MineThatData. That’s because the economics drive catalogs to the co-ops, and results-wise, mailers see the co-ops perform similar to list rentals, but at a lower cost.

Legendary Whitetails can attest to that. The sporting goods and hobbies merchant used to focus heavily on the initial response rate from rented names, primarily from subscriber sources, says its vice president of marketing, Mark Kaiser.

“Our prospecting efforts are continuing at nearly the same pace as in recent years, with a focus that spans several co-op databases as well as market-targeted list rental names,” Kaiser says. “But our co-op to rented list ratio has increased on the co-op side significantly.”

The 11-year-old company, which is geared primarily to deer hunters, this year shifted to a heavier percentage of co-op names rather than list rentals for prospecting. The benefit is reaching the deer-hunting-universe at a lower cost.

“Subscriber lists in our segments are limited, in number and size, and the co-ops are providing us targeted names with the additional boost of strong buyer profiles,” Kaiser says. “We anticipate higher lifetime value from these customers, but it’s too early to tell.”

Benefits beyond cost

Others say it’s not just about saving money. When The Sharper Image was purchased by a private equity firm from Chapter 11 two years ago and started mailing catalogs again in 2010, the gifts merchant saw the co-ops as a great way to build its database.

Though the new company had acquired the brand’s former customers, Steve August, its senior vice president/chief marketing officer, knew those names could be dormant. He also wanted to expose a fresh set of prospects to the brand.

So The Sharper Image decided to rely completely on names from Epsilon’s Abacus co-op database. That decision was driven by August: When he was operational vice president of customer marketing for Brookstone, he went with an all-co-op prospecting strategy with Abacus and saw a positive return on investment.

August says there are a lot of advantages to prospecting exclusively with the co-ops. One reason is that time management is better: His team doesn’t have to analyze hundreds of lists to see if one will pop.

Another is that you don’t have to get an offer approved by another merchant with the co-ops. You will need offer approval for either a list exchange or a list rental.

The predictability of the co-ops, August says, is also better than banking on list rentals. The co-ops give you statistics that can help you better determine the right names, while you play more of a hunt-and-peck game with the list rentals.

“You really don’t get a good understanding why a specific list may pop once for you, and why another one won’t,” August says. When you model through co-ops, you know the deciles, “and that allows us to understand how deep we can mail, how we can predict our circulation for the following year, and what kind of testing we can do in the deeper deciles.” Also, he says, “You can find more loyal customers through the co-ops,” though he declined to say what The Sharper Image’s conversion rate is or how many of its buyers are multibuyers. “Even if you model rented lists yourself, you wouldn’t find that same level of like buyers.

Bill LaPierre, senior vice president-business intelligence and brokerage at Infogroup-Direct Media Millard, says he can understand why merchants are relying on the co-ops instead of list rentals for prospecting. The problem is that web buyers are the customers of the future, he says, and “you can’t get them from the co-ops.”

But as long as co-ops keep selling catalog names for less, and they work to bring in catalog prospects, he says, “the merchant is not going to complain.”

Stacey Hawes, senior vice president-account management and business development, for co-op giant Abacus, says the co-ops have evolved at a similar pace as the list firms and therefore do offer web names.

“We’re truly not a catalog database at all, we’re not even a database of just direct buyers,” Hawes says. “The names we have from our participants are from their catalog and web buyers, as well as their retail-store buyers, and we also have their transactional history.”

In addition to those sources, Hawes says Abacus’ names are from nonprofits, publishers and the direct-to-consumer buyers who buy one-shot products through the mail.

Seeking the right fit

But MineThatData’s Hillstrom cautions that these might not be a fit with your customer base. You might get a responsive name from the co-ops, he notes, but it’s more than likely a one-time buyer.

“As you skew more toward the co-ops, your house file can become disproportionately older and more rural,” Hillstrom says. “So if you’re a fashion merchant, that affects the type of merchandise you carry.

This is something Hillstrom says he witnessed first-hand when he was vice president of database marketing at upscale merchant Nordstrom.

“When we got too reliant on the co-ops, we started getting customers who liked to buy slacks with elastic waistbands,” he says. “But we wanted to sell fashion.”

Hillstrom says catalogers should use not just the co-ops and outside lists, but paid search, natural search, online marketing, social and mobile for prospecting purposes.

A catalog chief marketing officer today needs to be a strategist, Hillstrom says, “and view the database like it’s a big portfolio and diversify it like one.” That way, the company isn’t too dependent on the co-op names, he says.