List exchanges — when mailers agree to make their lists available to each other by trading names rather than charging the usual rental fee — became more accepted during the cash crunch of the past few years.
According to the 2004 Catalog Age Benchmark Report on Lists, 30% of all respondents have negotiated net exchanges. Respondents that make their house file available for rent or exchange are more likely to rent names to noncompetitors (84%) than to exchange names with them (72%). When dealing with competitors, however, only 41% rent names to them, whereas 62% are willing to exchange names with them. (For more results from the 2004 Benchmark on Lists, see page 34.)
“With exchanges, we can prospect at a lower breakeven rate,” says Vern Frol, CEO of horticultural cataloger Charlie’s Greenhouse & Garden, “which allows us to be a little more flexible in some of the lists we use.” Mount Vernon, WA-based Charlie’s Greenhouse, which mails fewer than 5 million books a year, has been exchanging lists for three years.
Some industry professionals would argue that list exchanges cost catalogers the revenue they might otherwise reap in renting their names (see “No Free Ride,” right). And some mailers have such a narrow marketing niche that trading with competitors would be counterproductive. “Our target market is 80,000 librarians, and everyone knows who they are,” says Jodi Yuhas, director of marketing for Cleveland-based World Almanac Education, “so it doesn’t make sense for us to exchange names.”
Nonetheless, many mailers agree with Adam Carrick, vice president of Taylor, MI-based toys cataloger Imagine the Challenge, who says, “Exchanging really lowers our prospecting costs.”
Imagine the Challenge has been exchanging lists for the past five years. When approached by another mailer about exchanging names, the company usually examines the other mailer’s offer and customer demographics to see if they align with its own. If they do, Carrick says, Imagine the Challenge typically tests an exchange of 10,000 names. Larger mailers — those with annual sales of more than $20 million — usually exchange 15,000-25,000 names on a test. Ideally, mailers should exchange on a name-for-name basis.
Successful exchange programs depend on many variables, including the size of the companies and how long they’ve been mailing. To get the most out of your list exchange program, keep these dos and don’ts in mind:
- Do exchange with competitors
You may be reluctant to trade names with your rivals, but as San Francisco-based catalog consultant John Lenser points out, the best exchanges come from your competitors, since they are qualified mail order names in your niche. True, you’ll also have to give up your names, but the benefits outweigh the disadvantages, he says.
- Don’t forget it’s a two-way street
Suppose nonprofit mailer March of Dimes approaches Neiman Marcus about a list exchange. The upscale cataloger/retailer probably wouldn’t be able to make a nonprofit mailer’s list work. But the nonprofit may be able to make Neiman’s list of affluent buyers work quite well. A good exchange must benefit both parties; if it doesn’t, stick to list rentals.
- Do keep track of exchange balances
Ideally, exchanges work like a bank account. Let’s say you exchange 20,000 names with another cataloger. You can use some of those names now to round out your next mailing and “bank” the remainder for future use, or you can use the entire balance for a single catalog drop. Your list brokers and managers usually maintain an exchange balance summary, an account of the amount of names your company owes to other mailers and the amount of names your company is owed. The exchange balance summary is referred to during circulation planning meetings.
- Don’t let costs dictate your prospecting mix
While exchanging names may save you some money, if you don’t garner customers from those “free” names, the list is hardly a bargain. Don’t let the promise of reduced costs blind you to the realities regarding the suitability of the names, warns Charlie’s Greenhouse & Garden’s Frol. “What happens is you start exchanging lists that may be too far past your own demographics to make it worthwhile,” he says. “And you wind up using lists that you shouldn’t.”
- Do watch for heavy promotions
When contemplating a list exchange program, make sure your offers are fairly similar to those of the other mailer and that the other party isn’t running too many promotions, such as free shipping or discounts for first-time buyers. “We don’t want another cataloger mailing our customers a free-shipping offer — especially if we’re not offering it,” says Imagine the Challenge’s Carrick. Mail pieces and subsequent offers should be reviewed at the time of the arrangement.
No Free Ride
Some industry watchers believe that many catalogers misinterpret the true “cost” of exchanges. They may think that exchanges are free — but that’s hardly the case, says Andy Ostroy, president/CEO of New York-based list firm American List Counsel of New York. Rather, exchanges “are ruining the industry” by costing mailers list revenue, he says.
The problem gets magnified when mailers benchmark exchanged lists against rented lists. When analyzing performance, the “free” list wins,“and these results are erroneously driving circulation and marketing decisions,” Ostroy says.
Say a cataloger exchanges 10 million names a year — not unheard of for larger mailers, according to Ostroy. On rental, the company would stand to earn an average net of $85/M-$100/M, or $850,000-$1 million. But when exchanging, this income is forfeited. “Yet few mailers analyze it this way,” Ostroy says.
Nancy Re, circulation director for Colchester, CT-based S&S Worldwide, which sells educational and recreational supplies to institutions, agrees. She prefers working in the traditional list rental/list management environment because it’s easier to keep track of the cash coming in and going out.