Making good ideas work

Jan 01, 2007 10:30 PM  By

Generating marketing ideas to increase sales, build the customer file, influence shopping on the Web, or persuade prospects to make their first purchase plays a critical role in the health of a business. The good news for smaller companies is that they tend to react more quickly to marketing ideas because they often have a more nimble organizational structure than a larger business. But sometimes the excitement surrounding the idea usurps the discipline of managing the idea throughout the organization — and therein lies the possible downfall of a good idea.

Whether you’re a business-to-business merchant or a consumer marketer, you need to keep in mind that implementing a marketing idea can affect every facet of your company, and not always for the better. Let’s look at some popular ideas and how to make them work for, rather than against, your business.

Ask any grumbling catalog/Internet shopper about his grievances and the perceived high cost of the shipping charges will probably be at the top of the list. So offering free shipping can be a great way to stimulate purchases or boost average order value (AOV). But promoting a free shipping offer may not work on all customer segments or in all channels.

For example, a high-end consumer apparel cataloger tested free shipping on three customer segments: prospects, best buyers, and lapsed or inactive buyers. The best buyers were most receptive; both response rate and AOV among them increased. Second most responsive were the lapsed buyers, whose response rate increased, though there was no significant increase in AOV. The surprise was the prospects, from whom there was no lift in response or AOV.

The moral: Free shipping can work, but just because customers complain about it doesn’t mean omitting the barrier automatically translates to a sale. You still have to offer the merchandise and services shoppers want.

A midsize b-to-b cataloger wanted to offer free shipping (referred to as “free freight” in many industries) in an effort to increase the number of items per order. Promoted loudly on the front cover, the promotion ran for two months. Customer purchase orders promptly increased, but the cataloger was surprised that the number of customers who used the promo code to receive free freight was no greater than the number who did not. The cataloger concluded the offer did not work.

But when the season ended and the company conducted a full evaluation of the marketing programs, it discovered that even the customer segments that did not take advantage of the free shipping offer did increase their volume per order! Happily, the cataloger enjoyed higher sales and larger orders without having to pay as much in outbound shipping costs as it expected.

A trichannel merchant was ramping up its e-commerce business and wanted to offer free shipping for any order placed on its Website. Hypnotized by the allure of a cheap advertising cost and instantaneous orders, the company ignored the potential impact to the bottom line.

Two problems became visible once the orders began coming in. First, the minimum order amount threshold to receive free shipping was lower than company’s average order value at the time, so the offer wasn’t encouraging customers to buy more items or items at a higher price point.

What’s more, the company had ignored is own financial model. Simply glancing at the financial statement, the merchant’s annual fulfillment cost as a percentage of net sales ran much higher than industry benchmarks of 12%-15%. When you offer free shipping, you must be able to carry the burden of foregoing the shipping income from the customer, with the burden being a tradeoff for an increase in lifetime value or other relevant criteria. Overall, what should have been an exciting success for the organization was a financial nightmare.

You can explore new ways to enhance the productivity of a free-shipping offer, such as “Free shipping on your next purchase from our Website with today’s minimum purchase of $XX.” In this way, you are not reducing the effectiveness of the customer’s purchase today — and subsequently are not eroding profitability — all the while encouraging a subsequent purchase on the Web. To accelerate the impact of the offer, identify a limited period of time to redeem the free shipping (for instance, “offer expires in four weeks”). The caveat here is your operational system must be able to identify customers who made a qualifying purchase as well as provide a mechanism for redemption during the defined time frame.

If “buy today, earn free shipping next time” is too cumbersome for your infrastructure, try “buy today, earn a free gift card/gift certificate toward your next purchase.” If your organization already offers and accepts gift cards or gift certificates, then you will have greater flexibility in granting, redeeming, and tracking the transactions.

Particularly for shoe and apparel catalogers, the inventory nightmare of customers’ ordering two sizes and returning one keeps the returns department constantly busy. The good news is that at least you have customers who are making a purchase. What about the customers who convince themselves not to place the order because they’ve concluded that ordering the wrong size and returning it is a huge hassle? How can you turn this bad situation around to a good experience? By promoting the Merchandise Return label (MRL).

The MRL — literally an oversize address label — is a service product from the U.S. Postal Service. (Some private companies, such as Newgistics, offer similar services.) What makes the MRL attractive to direct marketers is the ability to market it to customers as a benefit, in addition to the logistical benefit of enhancing the speed and deliverability of returned items.

For customers, the MRL is included in the box with their order. If a customer needs to return an item, he can simply peel off the MRL and place it on the box, then seal the box and take it to the post office or give it to the postal carrier. At that very moment, the customer pays no money for postage.

The cataloger receives the returned item quickly because the MRL is barcoded. The automation also reduces customer disputes regarding packages not received by the company. The Postal Service enjoys the benefits of automated processing and the revenue generated by this service.

As a marketer, you can use the MRL to encourage a purchase. For instance, you can offer free exchanges for a different size or color. This immediately reduces the barrier to purchase and minimizes the number of customers who will buy two sizes of a particular item knowing that they’ll be returning at least one of them. It also gives customers a level of confidence about their choices and your company as a whole. And for your company, the cost to fund the MRL exchange may be less expensive than offering a promotional discount along the lines of “Save 20% off any order” to encourage a purchase. Imagine boldly promoting “Buy any shoe, and if it’s the wrong size, exchange it for free.”

You might also promote the convenience of the MRL, letting customers know that no postage is needed; the postage fees are deducted from the customer’s refund. Let’s say a customer returns a pair of $80 pants. A week later, the customer’s charge card notes a $74 credit, for the pants minus the $6 postage. No hassles.

Most multichannel merchants design a catalog for a particular season or period of time, and with an acute awareness the catalog will go to different customer segments and be mailed several times throughout the season. A cost-effective way to strategically align creative with customer segments and subsequent mailings is to change the front cover. This entails a new design (layout, photograph, copy), prepress work, printing, data processing, and bindery.

If you can afford to design a different back cover, inside front cover, and the inside back cover as well, you probably should. Why? Because if your covers (all four pages) are printed separately from the body of the catalog, as is often the case, the prepress, printing, data processing, and bindery costs will be the same whether you redo one page or all four. Talk to your printer to find out the page configuration used in producing your catalog. You will learn which pages are part of the same big sheet (known as a form or a signature) and how you can take advantage of the manufacturing process and change the look of the catalog at a reasonable cost.

To determine if it is reasonable to expect additional sales to recoup the costs of changing the creative, run a quick break-even calculation. Let’s say it costs $2,500 to redesign the form and to print the new four-page cover; let’s also say you have an average order value of $45. By dividing the $2,500 by the $45 AOV, you’ll see that you need to yield an additional 56 orders to break even. If the catalog circulation is 15,000, can you reasonably expect to earn 56 more orders (a 0.37% lift in response) than what you’d been planning?

In my experience, the short answer is yes. If you have not done this type of versioning before, you can test the hypothesis (run an A/B split test, sending the new version to half of the catalog recipients and the old version to the other half).

Understanding how the printing process works can help you design creative treatments, such as messages or cover versions, to specific audiences. For example, you can develop the layout of the front cover to accommodate a preprinted dot whack or a corner banner. This way, you maintain the creative structure of the cover even as you change the messaging inside the dot whack or in the corner banner. The cost of this type of change is modest because you pay only to change the black-ink type inside the dot whack — what’s known as a black-plate change. The messaging inside the dot whack may include a special offer to lapsed buyers and an announcement to best buyers that 75 new products await them inside.

Black-plate changes are typically the least expensive way to version catalogs to speak directly to a particular audience. Again, ask your printer to provide you with an estimate for the change. Let’s say it costs $750 to make the change; again divide the cost by your average order value of $45. This time all you need are 17 additional orders to break even. If this version targets 5,000 customers, do you anticipate a boost of 17 orders or 0.34% additional response?

One multichannel merchant wanted to freshen up the catalog by regrouping certain sections of the book. Page 22 would now be page 7; page 29 would be 18. These and other, similar changes ultimately affected all 32 pages. The mailer didn’t realize that reorganizing the pagination in this way would have huge implications requiring new prepress and printing of the entire catalog.

Wanting to change the look of the catalog to support different mail drops throughout the season has merit. But again, you need to determine if you’ll gain enough of a lift in customer responsiveness to support this added expense. Here is quick math to guide your decision: Let’s say the printer will charge you $18,750 for a print quantity of 25,000 books. Divide $18,750 by your average order value of $45, for 417 orders. Divide 417 by 25,000 to yield a 1.67% response rate. With the changes you want to make, can you reasonably expect to receive and additional 416 orders on top of the original number of orders planned? If you were mailing to a customer group that was expected to yield an 8% response rate, the revised plan for that group would now be 9.67%. Is this a realistic increase or too aggressive?

If you decide to version your catalogs, with multiple covers, black-plate changes, or any other method, don’t forget to ask your printer how the versioning will affect the bindery line and postal rates. Depending on the printer, the equipment, the manufacturing process, and your contract, adding versions may lead to other costs.

For example, assume your original print quantity was 60,000 catalogs, with all 60,000 to be postal sorted and qualified as one mail stream and stitched in postal order on the bindery line. If you decide to have three versions of 20,000 each, your printer may have to run three separate postal sortations and run each version on the bindery separately. Doing so will increase your per-unit postage rate as well as your manufacturing costs. Some printers do have equipment to accommodate the three versions totaling 60,000 as one postal sort and one bindery run, so you have to ask about their specific capabilities.

Marketing ideas present numerous opportunities to support growth. But each idea must be considered from a manufacturing standpoint to uncover hidden costs as well as operational issues that will affect the overall success of the campaign.


Gina Valentino owns Kansas City, MO-based consultancy Hemisphere Marketing.