Consumer direct marketing has just about doubled in the past five years. It now accounts for about 15% of the total consumer merchandise sold in a $1 trillion retail marketplace. The catalog fraction of this direct channel is about half; Internet sales make up the other half. The largest direct seller of consumer goods in the U.S. is now Amazon.com, a marketer experiencing 20% growth in an otherwise flat retail environment.
The success of Amazon illustrates that the Web is finally taking significant market share from the catalogers even as online marketers’ price advantage, fueled by excessive capital, has faded. Nonetheless, major marketing forces are now aligning to benefit certain catalog marketers.
Some catalogers with specific market positions will benefit greatly and thrive in the emerging hybrid catalog/Internet marketplace. Others will suffer and even fail. But by aligning their merchandise position to take advantage of an altered retail landscape and strategically changing their marketing practices, most companies can enjoy increasing success.
Sales or marketing?
For the past few decades the term “marketing” has gradually replaced “sales” to describe the process of generating consumer transactions. The term was originally intended to represent the process of making it easier for customers to find one’s product. The concept is that marketing seeks to remove barriers so that consumers can actualize their needs. The major factor enabling this process is information. Only the consumer actually knows what he wants. The job of the direct marketer is to make information available to the consumer so that he can choose the products that meet his needs.
In this context, the consumer catalog industry isn’t a marketing channel at all. Taken in aggregate, it seeks to push as much product as possible on buyers by cramming their mailboxes with information on the chance that one particular catalog will somehow break into the buyer’s consciousness with the product that he happens to want at that moment. This isn’t marketing but rather a push-sell technique and, on the whole, not a successful one.
Some people think that the function of marketing is to create demand in the consumer’s mind — an arguable point. But in today’s overstimulated communications environment, catalog sellers are unlikely to garner enough attention from prospects to create sufficient demand. The best prospecting strategy now appears to be true pull marketing, which is to use information to enable a new customer to find your product.
The catalog graveyard is littered with businesses that had great margins, often exceeding 50%, but that had to spend so much on finding new customers through the mass mailing of unread catalogs that they could not make money. Sophisticated targeting techniques such as geo-demographic profiles no longer produce notable positive results because of their ubiquity. Nearly all companies use these targeting techniques, so they have lost their competitive advantage and beneficial pop.
To increase sales, formerly specialized offers have broadened their focus and diluted their product. But these companies are hardly thriving.
We are, however, seeing an increase in the performance of certain specialty catalogs. Characteristics of these businesses include
- a highly vertical product line (accessories for a particular sporting activity, for instance) or a sharply delineated product interest (say, authentic fixtures for restoring old homes)
- product lines too specialized for “big box” retailers
- relatively low catalog production and mailing expenses, frequently by using an annual “big book” supplemented with smaller mailings
- more than half of the new customers being acquired by non-direct mail means.
Sure, little niche businesses, you say. Nothing here of interest for a company that needs some real sales muscle. But I am aware of more than 10 specialty companies that fit the following profile: They have sales of more than $50 million, growth exceeding 20%, and an EBITDA of more than 15%. None of these companies are general catalogers, and all share the following distinct characteristic: Most of the new-to-file customers are coming in via the Internet, while most of the sales are being generated by a catalog.
Shoppers have become adept at locating their product needs using various Internet capabilities, such as search engines, product syndicators of catalog content (Catalog City, AOL Shopping), and aggregators of product from multiple sellers (such as eBay). Magazines often drive Web-served product searches as well: Prospects will read about a product in a magazine ad or article and then search for it online. The recipients of information from these sources sometimes order directly, but often they request a catalog.
A defining characteristic of all these Internet-originated contacts is that they represent genuine pull marketing rather that push selling. The customer is driving the process through his interests and needs, rather than being driven by direct mail promotions.
Making it work
The economics of a Web-generated contact for consumers searching to meet specific interests are often more favorable that those generated by direct mail prospecting. Conversely, the economics of catalog marketing are superior for subsequent contacts to these Internet-generated customers.
This may seem counterintuitive, given that e-mail costs a fraction of a catalog mailing. But print catalogs generate a vastly higher response rate, and this is not likely to change in the future. Even at the maximum frequency of e-mails, about one every 10 days, response rates are so low that a year’s worth of e-mails rarely equal the results of a single customer catalog mailing. That’s because, unlike a Website, which is dependent upon the capabilities of an Internet browser, a catalog is an ideal medium for browsing related product.
For several years, marketing professionals have been stymied when trying to distinguish the source of demand from Internet-served sales. The issue of true Internet demand vs. catalog “cannibalization” has been quite baffling to marketers tasked with efficiently spending funds to achieve a return. What is clear is that an increasing fraction of catalog recipients prefer to place their orders on the Internet. For most companies, this fraction runs from 15% to 30%.
Many sales are now a tangled hybrid of originating demand elements. Trying to scientifically unscramble and isolate the key elements by information channel may be obscuring the main point: Both may be necessary in combination for the sale to proceed.
Bill Nicolai is founder of several catalog companies and senior consulting partner at Lenser, a San Rafael, CA-based catalog marketing services company.
Checklist for Catalog/Internet Success
- Use syndicated links and unpaid search optimization to assure that product and company keywords result in a customer finding your site.
- Allow catalog requests and referral opportunities to be fulfilled across channels.
- Join appropriate product aggregation opportunities, such as Catalog City and Amazon.com. Work toward pay-per-performance advertising terms rather than pay-per-click or pay-per-view.
- Use list-optimization services such as those from Abacus, Z-24, NextAction, and I-Behavior to score Web buyers and inquiries for mailing.
- Use e-mail to prenotify buyers of catalog mailings.
- Use e-mail to allow lapsed customers to request catalogs.
- Use e-mail to allow customers to send referrals.
- Consider the information content of product characteristics when merchandising and presenting in a catalog. For example, include keyword information in product heads and text so that customers using product search aggregators will find your items in their automated searches. Remember, a search engine spider will only read text, not graphic elements.
- Work toward presenting custom page views for each customer based on his history. Even someone driven by a catalog to the “quick shop” window will pause and consider additional items if you show a product on the landing page that is specific to his interests.
- Try to assure that your customer always comes back to a site where his cart is prepared with his shipping and payment preferences, courtesy of a sophisticated shopping cart module.