10 reasons new catalogs: …and what to do about it

Despite the widespread consolidation and increased competition in the catalog industry today, new catalogs enter the mailstream every month. But those now launching catalogs are not necessarily “mom and pops” – entrepreneurial spirits with a great merchandise idea and little money who start the business from home. Instead, many of those studying, planning, or executing catalog start-ups are business-to-business companies looking at selling directly to their end users via disintermediation, or cutting out the middleman; retailers that realize they must let customers decide how and when they wish to shop; manufacturers with sufficient product depth to build a catalog concept; any firms interested in Internet selling, since catalog mailings can bring new customers to the Website and can be used for regular communication with customers; and companies in overseas markets where cataloging is not as mature as in the U.S.

But although the entities listed above may have more business experience – and deeper pockets – than the typical kitchen-table catalog start-up, that alone does not ensure success. Catalogs fail each year for anumber of reasons. Whether you’re a major manufacturer looking to sell direct or a hobbyist with a unique niche, understanding what makes a catalog fail is as important as knowing what makes a catalog succeed.

So here are the top 10 reasons new catalogs fail – and also information on what can be done to prevent or remedy the problems.

1. Your company has no plan for where it’s going and how it will get there.

A plan is a road map for getting from one place to another – hopefully without getting lost. The planning process helps you document the business opportunity and prepares you for what’s ahead, especially in the fast-paced and constantly changing catalog business.

To avoid this pitfall: Use a two-part planning process: a feasibility study (see the example at right) and an implementation plan (such as the sample outline on the opposite page).

Perhaps the most important aspect of planning is “doing the numbers” to support the viability of your catalog concept. You should develop three financial scenarios: a conservative case, an optimistic case, and a most-likely case, which you could determine using industry standards for response rates and average orders.

2. Your company has difficulty getting financing.

In the past three to five years, the economy has been unbelievably strong, and if you can build the economic case for it, there is money available for new businesses. But remember that few investors – private or public – will be interested in a catalog start-up without a decent plan and proper documentation of the business opportunity. Investors also prefer to put their money behind people who know the catalog industry and understand business management.

To avoid this pitfall: Make certain that you have a well-documented financial plan – this is where the feasibility study is essential. You’ll also need a strong management team – if not inhouse, then outside resources – you can tap to help manage the business.

3. Your catalog fails to establish a clear identity, niche, or brand.

Branding and niche are all about differentiating your products, services, and catalog creative from the competition’s. A strong, unique catalog identity has three aspects: superior merchandise, outstanding creative, and quality fulfillment and customer service. These three legs of “the brand tripod” keep the brand alive and well. Without any one of them, the catalog case is tremendously weakened.

To avoid this pitfall: Take extra time at the start of catalog planning to define the catalog’s mission and creative platform, paying close attention to the selection, sourcing, and pricing of the products. Sometimes this is called the unique selling proposition (USP). At the same time, you should define the second USP – the unique service proposition. Some catalog experts refer to these two platforms together as USP2.

4. Your catalog does not have a good idea of its target customer.

Rather than just one or two target audiences, catalogs often address three or four. But it’s important to know your target customer and each potential audience to market your offer in ways that speak specifically to each audience’s needs, lifestyle, and aspirations.

To avoid this pitfall: Constantly research to find out more about your customers and their demographics. You can use premailing research such as focus groups or phone interviews if you don’t have a customer base to survey. Once you determine your target customers, find the best way to reach them – or get them to find you.

5. Your company does not understand the creative subtleties of catalogs.

If you are designing your catalog inhouse, you need more than basic design skills and software such as Pagemaker or QuarkXPress. Catalog creative directors must understand such things as eye flow; hot spots; presenting offers for maximum impact and response; the intricacies of order forms; alternative types of pagination, page layout, photography, and typography; and the role of copy.

Successful catalogs follow proven creative rules and then learn how to break the rules as they go. If you don’t know basic catalog design rules, you’re not likely to produce a successful book.

To avoid this pitfall: If you can’t afford catalog creative expertise on staff, enlist the help of an outside catalog creative agency or consultant for your first few years or issues. Most catalogers then bring creative inhouse once they’re mailing a half-dozen times a year. When hiring a creative agency, check its references and ask to see the catalogs it has produced to make sure that the company understands the task at hand.

6. Your company’s customer acquisition efforts are haphazard at best.

Prospecting is not a task that should be left to the rookie analytical person in the company. This activity has been called the lifeblood of a catalog, and it is the source of the company’s growth.

To avoid this pitfall: Historically catalogers have relied on rental lists to build their customer files, but mailers are increasingly using alternative media – promotional activities such as the Internet, space ads, package inserts, card decks, and trade shows. Regardless of the method, it’s important to use qualified outside list brokers or specialists in customer acquisition. And every mailing should include some new list or media testing and a source code to measure results.

7. You underestimate the time it takes to build the customer list.

I am always amazed that many new catalogers confuse a name on a rented list with a buyer. The customer list is where the profits come from to sustain and grow the company. A good rule of thumb is that a buyer is worth two to four times the value of a prospect, with the top 20% of the buyers (the top of the loyalty chain) worth as many as 10 prospects. Building and nurturing a customer list is hard work. It means cajoling one-time buyers to come back, reactivating customers whom you haven’t seen for six or 12 months, and constantly telling your best customers how much you appreciate them. Most catalogs take three to five years to build a customer list of sufficient magnitude to generate profit for the business.

To avoid this pitfall: First, you must acknowledge that the list-building process takes time. Next, you need to have sufficient capital to sustain the business during that important growth stage – the first three to five years. And finally, as a new catalog, you must do everything in your power to grow, nurture, and retain buyers. Identify opportunity segments (your best customers) and problem segments (buyers with low average orders and lapsed customers), and develop plans for targeting these groups.

8. Your company lacks the analytical skills to make the catalog profitable.

Many merchandise-driven catalogers have little appreciation for the numbers that drive the catalog business. Venture capital and catalog investors know this, so they want assurance that a start-up catalog they invest in has strong financial and analytical skills on the management team. If you expect to still be in business in five years, you’d better be analyzing every aspect of your catalog, from merchandise and list performance to estimating the company’s cash flow needs.

To avoid this pitfall: Make sure that you are well represented by strong analytical people, either within the company or on an outsourced basis. For the short run, you can seek outside help in circulation planning and post-analysis of catalog campaigns. But you must have the expertise to build and sustain a sound financial base from which to grow the catalog from day one.

9. Your company suffers from inadequate fulfillment and customer service.

Today’s start-up catalogs will be judged in their fulfillment and customer service by the company they keep-namely the big guys. Customers may buy from you once, but if the order is wrong, is shoddily packaged, or takes too long to arrive, your chances of getting these people back as regular buyers is a long shot.

To avoid this pitfall: If you want to compete with catalogers such as apparel giant Lands’ End or office products supplier Quill, you need to benchmark their call-answering time, order turnaround time, and othercustomer service performance numbers against yours. You can find these industry statistics in books and trade magazines (including Catalog Age’s Benchmark Reports) or by working with a consultant or a full-service fulfillment company.

10. Your company lacks a sound inventory management system.

Customer satisfaction is measured with every order, and your customers aren’t likely to be satisfied if you don’t have the goods in stock. Inventory management and accurate forecasting are becoming increasingly important in customer care. Backorders, inadequate inventory management systems, and lack of good old attention to detail have put many a cataloger out of business.

To avoid this pitfall: Catalog management software systems and other analytical tools such as square-inch analysis can help in forecasting, as well as with rebuying. But you also need a strong analytical team in this area. Some small catalogers rely on their merchants to manage their inventory, but a person who’s wonderful at sourcing may not be strong on the rebuying end of the business.

Even with the strong and growing presence of the Internet, and the competition and consolidation now occurring in the catalog industry, the print catalog is far from dead. And any catalog start-up today has a good chance of surviving – if it is aware of the common pitfalls in the industry, and can find ways to avoid or overcome these obstacles.

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