Adjust Mailing Volume by Reducing Depth

Jun 25, 2007 8:28 PM  By

We have all discussed at great length the negative effects of the recent postal increases. Now we have to get over it and move forward with adjusting our mailings to the new cost structure.

One tactic you can use to offset your postage increase is to adjust mailing volume by reducing depth. This is really Circulation 101, but it is the first place to start.

In general, there is usually little harm in judiciously decreasing mailing depth; you are usually, at best, trading dollars with the lowest ranked segments in your mail plan. My recommendation is to examine each mailing this summer and fall and cut segments by raising the bar. For a typical mailing, here is a hypothetical example of how this would work (I’m making up these generic numbers so please substitute your own real information):

If you are now mailing down to $1.50 per book and that is $.50 below your break-even, then raise the bar up to $2.00. The result of this change is that 40,000 books get cut from the mailing. If the books in the mail cost $.80, this saves $32,000. You do lose sales from such a change. If the average cost per book of the catalogs not mailed is $1.60, then $64,000 in unprofitable sales goes away. But, since these sales were below break-even, there is an estimated cash gain of about $.30 per book not mailed for a $12,000 gain in profits.

So the end effect is that $44,000 in profits is gained and $64,000 in sales is lost. This surprisingly “easy to take” result is because the decrease in sales is compensated by proportionately larger reductions in marketing costs. When cutting from the bottom of a segmentation ranking, where the lowest segments are below water, sales go down and profits go up. The net effect of this change if multiplied over eight books in a year’s time is that sales would go down by $512,000 and profits should go up by $96,000.

But not all the listed sales actually disappear because they are partly offset by the lack of cannibalization of books that the same individuals would have received. This factor would tend to decrease the sales loss experienced from this change when considered as an isolated event and would further increase the profits. Here are the results from such a change summarized:

  • Sales decrease from what they would have been, but are partly recaptured by decreased cannibalization from books that the customer does receive
  • Profits increase
  • Marketing costs decrease
  • Direct-to-consumer growth slows
  • Fewer new-to-file customers are generated
  • New-to-file customers created are of higher value

I realize that this sounds like “something for nothing” or a perpetual motion machine, but we do have examples of how this has worked with several of our clients. One mitigating effect is that the negatives in the reduced new-to-file (NTF) counts do not come into play for at least a year, and by then they will be offset by recovering NTF generation due to less competition from other catalogs’ prospecting efforts.

Most every catalog company will execute this tactic as a matter of course, but it’s worthwhile to explicitly mention it as the first step.

Bill Nicolai is a senior partner at San Rafael, CA-based consultancy Lenser.