Changing channels

Aug 01, 2008 9:30 PM  By

Bloomingdale’s announcement in May that it would cease publishing its Bloomingdale’s By Mail catalog and merge that business into its Internet division had my phone ringing off the hook.

Though I had been identified with the Bloomingdale’s catalog business in the early ’90s, the calls were misplaced: My role at Bloomingdale’s had been to manage the direct marketing efforts — including direct mail traffic-building catalogs — of the retail division, not the mail order unit.

This shows that people — even industry experts — are still confused about the purpose of a catalog today. And the increasing number of hybrid catalogs, some of which are trying to drive both retail and Web traffic — as well as create sales — are further complicating matters.

And this is a problem, because loosely defining what a catalog is — its purpose, what metrics are used to measure it, what department or division pays for it, how sales from it are credited, and other crucial metrics — can result in poor business decisions. In recent years, we have seen how drastic cuts in mail order catalog circulation can reduce Web sales, weaken brand, and impact other sales channels.

Retailers have been forced via the Internet to change their business focus away from the brick-and-mortar channel and onto the consumer. And we have also seen how the lack of channel integration frustrates overall marketing planning, not to mention the customer.

Even seasoned professionals in retailers that grew out of mail order admit that their efforts at evaluating integrated sales often lack sophistication. They confess that they may resort to gross simplifications to justify expense.

The main reason? They fail to identify the goals and expectations of the print catalog and the specific tactical objectives it is meant to serve.

The Bloomingdale’s story

In the 1980s, Bloomingdale’s charged me with bringing the direct marketing disciplines being applied to the Bloomingdale’s By Mail catalog to the retail division. That simply meant using customer information to market more effectively and to increase sales in the stores by driving more retail traffic. The store was the focus; the customer was the target.

First I had to prove to retail merchants that more was not better, and that segmenting customers into smaller pockets to be mailed could dramatically reduce expenses without affecting sales results. This was not an easy sale: Stores were used to throwing as much media as possible at customers — larger newspaper ads, more frequent radio and television spots — to achieve their sales objectives.

Added to this was the retail merchandisers’ inherent distrust of direct marketing. They believed at the time that “catalogs” would cannibalize store sales — another example of confusing the purpose of the retail catalog.

Meanwhile, the direct response catalog folks were — and often still are — just as confused about the tactical objective of a retail catalog. Some mistakenly lumped traffic-building books into the same category as mail order catalogs. They then berated retail practitioners for their extravagant, non-sales-producing photography, wasted advertising space, and poor direct response mechanisms.

The addition of the Internet and e-mail channels is a further complicating factor. Add to that the insistence the of some retail executives on making one communication vehicle serve multiple, often at-odds purposes, and we truly have a marketing dilemma.

Defining terms

Some basic definitions help. Catalogs, Websites, e-mail messages and direct mail can be both sales channels and communications vehicles. Television, like space advertising and radio, can also be both a sales channel and a communication vehicle, although for most store retailers these channels are used primarily for advertising.

A store is a store, a sales channel. In-store retail provides a broad selection of products, even in specialty shops. Mail order catalogs present a highly focused, edited choice of items that support the catalog concept to a targeted audience. The Internet, in contrast, can provide either a broad selection or specific products to fit a niche point-of-view.

When mail order catalogs exploded about 25 years ago, the distinctions were pretty simple. Those catalogs that consistently reinforced a highly focused catalog concept and provided shopping convenience were successful.

Meanwhile, department stores offered a broad array of items and usually saturated a market. The saturation let them to buy local media at a reasonable cost because they could amortize the expense over several locations.

Stores advertise items designed to motivate the shopper to visit the store. The retailer relied on customer purchase, but not necessarily on the purchase of the items in the advertisement. The primary metric was an increase in sales. Rarely at that time could stores track a customer purchase back to a specific ad or featured item.

Specialty retailers relied on mostly local advertising and, increasingly, direct mail to their proprietary credit card customer base to drive store traffic. When much of the retail catalog advertising was vendor paid in the ’70s and ’80s, the high cost of the printed traffic books allowed retailers to present their brand with flair, and high impact design.

But as the cost of these mailings increased, specialty retailers were forced to adopt some of the results-oriented disciplines of mail order cataloging to their advertising efforts.

When I was entrusted with generating greater ROI out of Bloomingdale’s traffic-builders, the retailer had just entered the mail order business. It was beginning to understand the broader reach, cost savings and potential for better-targeted offers that direct and database marketing afford. It thought that applying customer data to the retail business and using direct mail metrics would also work.

What happened? The number of customers mailed any given promotion may have decreased, but the total number of mailings targeted to specific customer segments increased. When I left Bloomingdale’s in 1993, the page count of our catalog mailings had risen 850%, and solo mailings by more than 750%. Growth had increased 850% with less than a 150% increase in overhead.

We used customer information to target our offers — furs, mattresses, cosmetics, for example — to those customers who were most likely to buy them. We built a retail customer database for our own purposes and applied over 75 statistical models to increase ROI, cross-sell products and build traffic. The customer database grew from 500,000 to 2.5 million individuals with purchasing records that could be used as marketing and merchandising decision tools.

Stores slow to catch on

But most other retailers have been slow to use customer information in their marketing efforts. In the past 25 years, several have built customer databases, largely through data capture at point of sale and credit-card history. But few have realized their full potential beyond creating loyalty programs or targeted mailings.

The Internet has changed the game again. Store retailers who had not embraced database marketing previously have been pulled — some kicking and screaming — into the world of analytics and multichannel, integrated marketing. Their comparative lack of experience in customer metrics has put them at some disadvantage to traditional catalogs.

For instance, Williams-Sonoma, Talbot’s and Cabela’s, have used data to make the leap from catalog marketing to opening stores to adapting direct response analytics to the Web. But more store retailers have recently risen to the challenge, including Borders, Loehmann’s and PetsMart.

What seems to be holding many traditional retailers back is what stymied retailers 20 years ago: an inability to define the purpose of the advertising channel used, limit its scope and targeted audience, evaluate it according to the metrics of each channel, and amortize the cost of the advertising across the channels it was meant to serve.

When you add an increasingly expensive medium like a print catalog to the mix, you have to carefully evaluate the contribution of the book to the entire marketing effort. Whatever cost or sales allocation method you chose, you must have a plan in place directed by a chief marketing officer responsible for all channels. And you need to follow the plan, recognizing that sales accrue to the company, not the channel.

Francey Smith is president of Chicago-based marketing consulting firm Francey Smith & Associates.