Co-op Databases:The co-op conundrum

Why do catalog list owners — especially those in need of the revenue generated by rentals of their lists — put barriers in front of mailers who want to use their lists?

In most cases, list owners are selectively blind to the presence of the co-op databases. They still believe that mailers will pay a premium for their list because they are an extension of their brand. And the traditional list managers and list brokers are complicit in this ignoring of the realities of the present day list environment.

One portion of the list industry maintains that catalogers who use these co-ops are putting too many eggs in one basket. Even if they are in more than one co-op, these mailers feel that their customer base will deteriorate and that the co-ops’ models are all black-box hocus-pocus.

For many catalogers, names from the five cooperative databases (Abacus, Wiland, NextAction, I-Behavior and Z-24) now represent more than 60% of those catalogs’ annual prospecting circulation. The genie is out of the bottle, and it is not going back in.

It is tough to refute the co-ops’ overall successful performance for catalogers. Their models work, and they are getting good response rates for the catalogs that mail them.

But there is another reason why co-ops are attractive to mailers — they are simply less hassle. As catalog marketing staffs have been reduced, there are fewer people left to analyze and order lists for often double the number of mailings that occurred just a few years ago — especially as mailers add titles to their base books.

Moreover, with increasing competition from the Web and other catalogs, promotional offers have become so commonplace, they are practically the norm for every mailer — especially during the fourth quarter.

Consequently, as a list broker, I find it both tragic and often comical when placing orders for a client, and they are refused permission by another catalog list owner to mail some type of offer. Do list owners denying permission to use their names really believe that their customers are totally shielded from receiving offers from their competitors — especially if that same list owner is also participating in the co-ops?

Conversely, when a mailer faces the option of paying $130/M, $150/M or even $180/M for names from another list owner, or $50 to $70/M for names from a co-op, where is that mailer going to turn?

Yes, the traditional list brokers will say that the $180/M list is much more “targeted” to the mailer’s optimum prospective customer. They will also say that any list is worth the price you pay for it if the performance covers the expense.

The traditional list manager will say that the rental price is always negotiable. Both parties will say it is their job to go head-to-head with each other to negotiate a deal for their respective clients.

But catalogers today don’t have time to worry about exchange balances, being denied permission to mail certain offers, or to wait two weeks while their broker negotiates with list managers for the same names they can obtain through a co-op — at half the price. It is easier for them to turn to the co-ops for additional names to mail.

When catalogers are wearing their “mailer hat,” the co-ops are a sensible alternative. But when catalogers are wearing their “list owner hat,” the co-ops have severely cut into their potential list rental income.

Unfortunately, the catalog list owners are often their own worst enemies when it comes to steering other mailers away from their own lists, and directly toward the co-ops. List owners need to realize that they are losing list rental income to the co-ops for several reasons:

  1. Many list owners still have arcane rules about what mailers can and cannot mail to their list, such as a prohibition of free shipping offers, or credit card offers, etc. This was acceptable when most catalogers still had a “clean” promotion-free version of their catalogs.

    Today, if a cataloger is venturing into promotions to drive sales, it wants that offer to go to all prospects. If a list owner refuses an offer, the mailer simply increases the quantity of names from the co-ops.

  2. If you, as a mailer, increase your use of the co-ops, your need for names from other list owners on exchange is reduced. When those mailers come to order your names and find that what was previously an exchange relationship has now moved to rental, that mailer typically cannot justify your list cost.

    Why? Your list is not worth $150/M when all the selects requested are added on. It is worth $50 to $70/M, which is the going rate of the co-ops.

    Think about it: If a mailer can’t get your names on exchange, they are not going to pay three times as much for those names when they can get the same names, as part of a model, from one of the co-ops. Sadly, the list managers who encourage list owners to continually increase their prices, in an effort to regain some of that lost income, are just as culpable in this process as the list owners.

  3. The co-ops are offering mailers large and significant volume incentives to use more of their names. How significant? How does “free names” sound? No net-name arrangement or discount on select fees can compete with that.

  4. Catalogs are no longer the domain of entrepreneurs who could work without a budget. As more catalogs become part of multititled conglomerates or publicly held companies, their accounting departments are not allowing for the swings in list rental expense caused by fluctuating exchange balances. Co-ops ensure that the mailer will be paying a fixed rate for all names, regardless of quantity.

  5. The decision as to what price to pay for a list is often made not on the basis of that one list alone, but on the basis of the budget for the overall mailing. So even though the cataloger may be able to “profitably” mail your list — even at a considerably high rental price — it may be forced to seek a lower-priced alternative simply because your high-priced list, as well as others, has forced the mailer over his or her allowed list rental expense budget.

    You have to face the fact that we are no longer in the entrepreneurial days when mailers would spend beyond a budgeted amount if there was profit to be made. We are in an age of accountability where meeting the expense budget is the name of the game.

  6. In today’s list rental environment, there is a premium placed on “brand.” That brand is what the list owners think of their lists, and all that they represent about their customers and their company. That perception of the value of their brand is what leads list owners to price their lists so high.

    But take brand out of the equation because it is not predictable, or at least not as predictable as product category or channel information when it comes to modeling performance. When the perceived value of brand is removed, the co-ops will always win, because their models work. Co-ops model on attributes that are tangible, and they are priced to invite more, not less, use of them.

    These reasons may sound foolish to the traditional list industry pro as they potentially forsake higher response rates and ROI in return for administrative convenience. But those are the realities of the catalog world today, and the co-ops have capitalized on it.

    List owners still insist on placing barriers in front of mailers trying to use their lists — barriers to which the co-ops offer a convenient alternative. It is no wonder that the co-ops now represent 60% of the catalog circulation, with that percentage increasing, and no end in sight.

Bill LaPierre (blapierre@millard.com) is senior vice president, brokerage, for list firm Direct Media|Millard.

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