BENCHMARK’99

The economy may still be booming, but many catalogers are choosing not to rent their files; more are managing their own lists; fewer are exchanging names with other mailers; and overall, more are charging less for their lists

Although the past few years have been relatively stable and profitable for catalogers, listpractices among the participants in the CATALOG AGE Benchmark Report on Lists certainly aren’t reflecting economic prosperity. For one thing, base rental prices for lists have fallen in response to declining demand. Some mailers appear to be cutting costs by skimping on list hygiene services. And half of the survey participants say they manage their lists internally, up from 45% of respondents in last year’s survey. “The increase in catalogers managing lists internally indicates cost-cutting measures being taken in the industry,” contends Bill Nicolai, senior vice president of marketing for Portland, OR-based home decor and gifts cataloger Good Catalog Co. As a result, “the list business has been declining a little.” Also, he says, many catalogers have mailed to too many nonresponsive prospects, and they believe that list rentals are no longer paying off.

Twenty-nine percent of overall survey respondents rent their list to competitors, up from 24% last year, while 29% say they rent their lists to noncompetitors, a number virtually unchanged from 30% in 1998. Business-to-business catalog respondents, however, are less likely to rent to their noncompetitors; only 20% say they do so, down a whopping 30 percentage points from last year.

The number of respondents that exchange lists with noncompetitors fell 8 percentage points, to 19%. Among consumer catalog respondents, 24% exchange with noncompetitors, down from 33% of last year’s survey participants. But b-to-b catalogers are more willing to exchange with noncompetitors: 27% of this year’s respondents do, up from 17% of survey participants last year. List exchanges with competitors among total respondents fell 4 percentage points from last year, to 16%. (For more on list exchanges, see “List exchanges falling,” p. 31.)

Forty-nine percent of total respondents to this year’s survey do not make their names available for rental or exchange, up slightly from 45% in 1998. Fifty-three percent of b-to-b catalogers refuse to rent or exchange their house files, up only 3 percentage points from 1998. But a staggering 65% of hybrid catalog respondents keep their names to themselves, up from 30% in 1998.

The trend is somewhat different among consumer respondents: 41% do not make their house file available for rental or exchange, down slightly from 49% in 1998. Of those catalogers that do make their lists available for rental, 25% say they allow renters to append data to their house files, while 33% allow renters to model their house files.

More respondents this year are charging lower base list prices. For instance, 20% of total respondents say their base price is $70/M or less, compared to only 6% saying the same last year. The biggest change is among consumer catalog respondents, with 27% of them reporting that their base price is $70/M or less, compared with only 11% saying the same in 1998.

The mean base list price for the total respondents (as well as the hybrid segment) is $86/M, but the mean base list price for consumer catalog respondents ($83/M) is considerably lower than the mean b-to-b price ($104/M).

CUSTOMER ACQUISITION As for list selects, recency is still the most commonly available select, with 75% of respondents offering it. Fifty-nine percent of respondents offer a dollar select, and 52% offer a geographic select. The biggest downward shift is found in the gender selects, with only 35% of respondents offering them, down 9 percentage points from 1998. For 51% of respondents, charges for selects average $5/M-$9/M on top of base prices, while only 33% of total respondents charge less than $5/M. Among all respondents, the mean charge for selects is $7/M on top of base prices.

Thirty-six percent of respondents say they participate in some kind of co-op database, up 8 percentage points from 1998. That figure includes 46% of b-to-b respondents and 26% of hybrids (both of which are large percentage increases over last year). Participation in co-op databases among consumer catalog respondents declined slightly, from 43% in ’98 to 39% this year.

While 43% of the total respondents say they use at least one list broker, 33% of all respondents-20% of consumer catalogers, 40% of business-to-business mailers, and 58% of hybrids-don’t use a broker at all. One-third of the b-to-b respondents use at least three brokers, compared to 3% of consumer respondents and 11% of hybrids.

LIST MAINTENANCE Among the respondents that use a list broker, 41% pay a 20% commission, while 27% say their broker’s commission percentage is less than 20%. Twenty-three percent compensate list brokers with a flat fee, 7% provide an incentive based on results, and 4% cite an “other” compensation arrangement.

Although recency remains the most popular select for prospecting, its use is slipping: While 71% of last year’s survey participants chose it when renting or exchanging names, only 57% of this year’s respondents use the select. Similarly, while 51% of last year’s respondents chose dollar selects, only 46% of this year’s participants do. Thirty-four percent of this year’s respondents request geographic selects, up 6 percentage points from last year, while 31% choose frequency, compared to 25% last year.

More than half (54%) of total respondents say they will be mailing more outside names in 1999, compared to 56% last year. But only 46% of the total respondents say that circulation is up more than 2.5%-14 percentage points lower than last year, when 60% of total respondents said that total circulation was up more than 2.5%. These figures could indicate, as previous surveys have shown, that response to catalog mailings is not as good as in the past; as a result, circulation is being trimmed.

Twenty-eight percent of total respondents say they use the National Change of Address (NCOA) service to keep both rental lists and house files clean and up to date; 35% use it against house files only; and 5% use it for rentals only. The number of total respondents that don’t use NCOA at all crept up from 32% last year to 36% this year.

INTERNET STRATEGIES Although 70% of consumer catalogers use NCOA, this figure fell 7 percentage points from last year. Forty-three percent of b-to-b catalogs and 48% of hybrids do not use NCOA-not surprising, since businesses do not relocate as often as consumers.

Only 20% of total respondents say they use the Direct Marketing Association’s Mail Preference Service (MPS) file to flush out “do not mail” names, which is down 9 percentage points from last year. And 67% of respondents say they maintain a “do not mail” file, a figure unchanged since last year’s, which had dropped from 76% in 1997. Sixty-three percent of total respondents use Address Correction Service (ACS) to correct addresses in their house files. As for the Delivery Sequence File (DSF), which is most often used for businesses to check the accuracy of the addresses in their house files, 36% of total respondents use it-twice the percentage of those using DSF in 1998.

The number of overall respondents that promote an opt-out in their catalogs varies only slightly from last year, dropping from 48% to 43% this year. Sixty-seven percent of hybrids offer an opt-out, up from 38% last year, compared to 52% of consumer respondents and 36% of b-to-bers.

At Dodgeville, WI-based apparel cataloger Lands’ End, for instance, “we don’t rent our files and we only occasionally exchange them, but we still provide an opt-out because it’s important to know when we do exchange names which customers don’t want to receive mailings from additional catalogers,” says Charlotte Lacomb, manager of investor relations.

Only 6% of overall survey participants offer an e-mail address select, including-surprisingly-none of the b-to-b respondents, 79% of consumer catalogers, and 71% of hybrids. “There may be a hesitancy to release e-mail names because interactive marketing is still in its infancy,” says Andy Ostroy, managing partner of list firm ALC New York. It is also an extremely competitive area; as such, mailers may want to hold onto these valuable addresses.

Only 14% of total respondents use the Internet to purchase lists, while another 20% say they do not use the ‘Net to shop for lists but are considering doing so in the future. Forty percent of the business-to-business respondents, 47% of consumer respondents, and 5% of hybrids say they use the Internet only to research lists, not to purchase them.

In February 1999, the CATALOG AGE subscriber file was sorted on an nth-name basis to extract a representative sample of 1,000 top-level catalog executives. These subscribers received a letter of explanation, a 70-question survey, and a postage-paid envelope in which to return the survey to an independent marketing/research firm. Of the 946 deliverable questionnaires, 104 were completed and returned, resulting in a response rate of approximately 11%.

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BENCHMARK’99

Reflecting the ever-growing importance of database marketing to the catalog industry, this year we’ve broken out a separate database marketing benchmark report. In the past, we’ve presented the Catalog Age Benchmark Report on Lists and Databases as one survey. Instead, this year a separate Benchmark Report on Lists will appear in our July issue. n Looking first at how much database marketing costs the catalog business, database marketing consultant David Raab, principal of Raab Associates, observes that the prices of database systems and software have fallen considerably over the past few years. “Newer vendors are pricing their database software and systems at about half of what older vendors listed their prices at,” he says. “And that’s forced older vendors to discount their prices.” And as the cost of database marketing technology has come down, it’s no surprise that catalogers have stepped up their use of-and spending on-database marketing.

Although larger catalog firms typically spend the most on database maintenance and development, catalog respondents with annual sales of ñ1 million-ñ9 million allocate a slightly higher percentage of their total budget to this area. These small players spend a mean of 3.0% of their budget on database maintenance and development, compared to the overall survey mean of 2.7%. Overall consumer respondents spend 2.8%, b-to-bers spend 2.5%, and hybrids (targeting both consumer and b-to-b) spend 1.9% of their budgets on maintenance and development.

As for spending on database marketing software, respondents spend a mean of ñ6,500 annually. The b-to-b mailers are the biggest spenders, with a mean of ñ9,800, compared with means of ñ5,900 and ñ5,400 for consumer and hybrid respondents, respectively. The largest group of consumer catalogers (69%) spends less than ñ2,500 a year on software, and just 14% spend more than ñ20,000. By contrast, only 39% of b-to-b mailers spend less than ñ2,500, and 28% spend more than ñ20,000. Brian McCloskey, direct marketing manager for the Hewlett-Packard Co. Education Americas b-to-b catalog division, confirms these findings, saying that his company spends more than ñ20,000 a year on software. “We rely on our database to target-market our offerings by segment,” he says. “To do that, we need a reliable and user-friendly database; the software assures us of that.”

Among all respondents, 53% of those with annual sales above ñ50 million spend more than ñ20,000 on database software annually. Conversely, of respondents with sales of ñ1 million-ñ9 million, 53% spend less than ñ2,500 on database software, as do 100% of those with sales of less than ñ1 million.

Of the 17.7% of consumer respondents that append or reverse-append their data with additional information from outside sources, all of those with sales of less thanñ1 million spend just ñ2,500 or less a year to append, while 43% with sales greater than ñ50 million spend more than ñ20 million a year.

Again, the b-to-b respondents spend more. The largest portion (50%) of b-to-bers that append or reverse-append their data spends ñ5,001-ñ10,000 a year; just 13% spend less than ñ2,500. McCloskey says H-P spends more than ñ20,000 a year to append or reverse-append its data. “We’ll typically go the extra mile to correct information before it goes out-even in the 11th hour. We want to avoid customer confusion and make sure that the content we have on customers is accurate.”

While 63% of respondents overall spend less than ñ2,500 annually on database consultants, 50% of all respondents with sales greater than ñ50 million spend more than ñ20,000 a year on them. Among respondents with sales exceeding ñ50 million, 67% of hybrids spend more than ñ20,000 on consultants. On the other hand, just 46% of consumer respondents of the same size and 33% of b-to-b respondents this size spend that much.

For Eurosport, a ñ37 million hybrid cataloger of sporting goods and uniforms that markets to school teams and sports clubs as well as to individuals, a database consultant helps the cataloger locate lists of teams, says director of marketing and merchandising analysis Jimmy McIntyre. “Our database consultant really serves as a go-between in getting us lists and sending them to the service bureau for merge/purge, National Change of Address, etc.”

It’s no surprise that most respondents maintain recency/frequency/monetary history in their databases. In fact, 95% overall keep data on dollar purchase history, and 94% track the recency and frequency of purchases. And 94% of total respondents maintain data on the products purchased.

In addition, 80% of survey respondents maintain the source of customer acquisition, including 85% of consumer, 58% of business-to-business, and 81% of hybrid respondents. But while 43% of consumer catalog respondents and 37% of hybrid respondents maintain promotional history data on customers-such as what kinds of mailings they’ve sent to customers-just 11% of b-to-b respondents track and hold on to such data. (This is presumably due to b-to-b customers’ tendencies to move from job to job.) Instead, a significant portion of b-to-b respondents (37%) gather information on customers’ standard industrial classification (SIC) codes.

Interest in customers’ Internet purchasing history is fairly prevalent among all three catalog segments. Overall, 35% of respondents maintain data on Internet purchases, including 39% of consumer respondents, 32% of b-to-bers, and 24% of the hybrid survey respondents.

Many catalogers still shy away from database modeling. Just 42% of all respondents-52% of consumer catalogers, 21% of b-to-bers, and 38% of hybrids-do any modeling. The largest group that uses modeling (41%) uses it for RFM. This includes 52% of consumer respondents-although just 16% of b-to-bers and 38% of hybrids do RFM modeling.

Relatively few respondents-only 33% overall-say they use customer loyalty programs. Of that 33%, 39% are consumer, 26% are b-to-b, and 30% are hybrid catalogers. Among those using loyalty programs, all of the b-to-b respondents, 33% of consumers, and 22% of hybrids offer buyers clubs.

Of those 33% of respondents with loyalty mechanisms, 37% have continuity programs, including 25% of consumers, 60% of b-to-bers, and 56% of hybrids. About 26% overall use proprietary credit cards to build loyalty, including 17% of consumers, 60% of b-to-bers, and 33% of hybrids.

Despite the importance of knowing what your customer is worth, only 51% of all the survey respondents say they conduct lifetime value (LTV) studies, including 51% of consumers and hybrids, and 58% of b-to-bers. The good news is that this is up 7 percentage points over last year, when the list and database survey showed that only 44% of all respondents-54% of consumers, 25% of b-to-bers, and 30% of hybrids-computed LTV.

In surmising why nearly half of the survey respondents still don’t track customer lifetime value, Drew Eginton, president/CEO of marketing analytical software provider MarketSwitch, says that many companies believe it’s just too difficult and requires too much manpower. “Marketing is probably the least automated of any corporate function left,” he says. “So when you’re talking about very complex issues, such as how a customer’s LTV is going to change if you change your product mix or promotions, many companies find it too difficult to manually deal with such severe customer optimization calculations.”

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