When Less Isn’t More

When times get tough, most catalogers cut back on prospecting. But happily, converting new customers isn’t the only way to increase sales. In fact, many believe that it’s far cheaper and easier to increase average order values (AOVs) than it is to boost prospect conversion rates. Below, five tried-and-true tactics for encouraging customers to buy more.

TACTIC 1

QUANTITY DISCOUNTS

Consumer catalogers typically use this sort of discount — “Buy two at regular price and get the third for half off” — on products that need to be liquidated or on staple items. “If you have a huge quantity of an item, it makes more sense to use quantity discounts,” says Karin Miller, of Long Beach, CA-based consultancy Miller Merchandising.

True, you may be lowering your margins, but it can help boost the AOV. And when you’re discounting basic or consumable items, you get the ancillary benefit of encouraging future purchases. Business marketers, who typically sell multiples of consumable products anyway, often include detailed pricing schedules in their catalogs: “Up to five widgets, $4.99 each. Six to 10 widgets, $4.59 each. Eleven to 20 widgets, $4.39 each. More than 20 widgets, $4.09 each.”

Arnie Zaslow, executive vice president of Wyncote, PA-based ATD American, which sells uniforms, furniture, and law-enforcement gear to institutions and government agencies, says volume discounts have increased his company’s AOV by an undisclosed amount. And thanks to the efficiencies inherent in shipping multiple products to one customer, the tactic hasn’t eaten away at profits.

“When you sell 10 chairs rather than five, you only have the costs associated with processing one order,” Zaslow says, “so while we see the average order increase, we see our processing costs decrease.”

When determining pricing for volume discounts, consider your objectives. If liquidation, rather than increasing the order size, is the primary goal, margins are less of a consideration. But if you want to ensure that the discounts don’t have you seeing red ink, figure out how much you’ll save in shipping, handling, and fulfillment costs by sending, say, two widgets to one customer than in sending two widgets to two customers. Ideally, you can pass along your back-end savings to the customer without having to cover much of the costs, all the while increasing your AOV and engendering good will among your customers.

Still, volume discounting, like discounting in general, is not without risks. You could end up recruiting customers who will buy only discounted items, which could chip away at the overall lifetime value of your house file.

TACTIC 2

ADD MORE EXPENSIVE ITEMS TO YOUR MERCHANDISE MIX

It stands to reason that if you raise your average price point, you’ll raise your average order size. For instance, if you sell fruit baskets, most of which cost less than $49.99, adding a few more-lavish baskets that cost upward of $89.99 should increase your AOV — and may even win you new customers who felt your previous offerings weren’t luxe enough for their needs.

By the same token, though, dramatically increasing your average price point can cost you large numbers of customers who now perceive your catalog as being too rich for their blood. Several years ago, Wilson, NC-based gifts catalog Crow’s Nest Trading Co. had a $196 average order size but a low response rate, says co-owner/executive vice president Cary Tennis. “Our fabulous AOV was prohibitive to our growth,” she says.

So this past summer Tennis added more lower-priced items to the mix. As a result, the AOV fell to $160. But the response rate increased so much, Crow’s Nest Trading ended up reaping an additional $0.58 in sales per book.

“It was a real balancing act for us,” Tennis says. “We were trying to bring on more people to our house file, and with lower price points we were able to attract a larger demographic and range of household incomes.”

TACTIC 3

SHIPPING PROMOTIONS

Offers of free shipping are especially appealing to catalogers, such as collectibles marketer Lenox Collections, that shy away from discounting for fear of lowering the perceived value of their product.

Currently, the AOV for Langhorne, PA-based Lenox Collections is approximately $75, with an average price point between $40 and $50. When creating free shipping offers last year, director of catalog Maria Youth tested order thresholds of $100, $150, and $200 to see which proved most effective. Much to her surprise, the $200 offer performed best — and increased response and contribution dollars as well as AOV.

In addition to promoting the free shipping offers in its catalog, Lenox Collections trained its customer service representatives to promote small items such as ornaments and figurines to help customers increase their orders enough to be eligible for the free shipping.

But ATD’s Zaslow, for one, feels that by introducing free-shipping offers as even an occasional perk, you train customers to expect it regularly. In that case, you might eventually have to compensate for its impact on your bottom line by increasing product prices, which in turn could cost you customers.

TACTIC 4

BUNDLING

Bundling, a tactic used by the likes of Microsoft, is also a good strategy for catalogers. And in fact, Ocoee, FL-based cataloger Corona Cigar Co. has increased its average order size by $20-$40 since it started bundling lighters, cigar cutters, and other smaller accessories with its humidors two years ago.

“Bundling should always give value to the customer,” insists Corona Cigar Co. president Jeff Borysiewicz. “The total price should be less than if the items were purchased separately” — a fact he promotes prominently in the catalog. But because all of Corona’s bundled packages include high-profit items, the company can discount these products and still make money.

In addition, Borysiewicz tries not to go below a 50% margin. And he makes sure to add consumable items such as lighters and cigars when creating the bundled packages to encourage future purchases.

TACTIC 5

UPSELLING AND CROSS-SELLING

If McDonald’s can train its work force to ask “Do you want fries with that?” you can surely train your CSRs to upsell and cross-sell products. And computer telephony integration (CTI) technology can help.

At Corona Cigar, for example, as CSRs input orders pop-up screens on their computers suggest products that have an affinity with the items already requested by the customer. The screen displays a product description for the CSRs with the cost and a rating from Cigar Aficionado magazine, all in a script format to help cross-sell.

Borysiewicz warns of one potential pitfall: “Be careful about what you offer to your customers as an additional item. You don’t want to offer them a lower-priced item that may train them to migrate toward your lower-end offering, or worse, toward other lower-end competitors.”

To encourage its CSRs to upsell and cross-sell, ATD offers incentives. At the beginning of the year, the company sets annual sales goals. If the goals are met, the reps receive a bonus based on profit. In addition, the reps receive individual commissions based on sales.

“By letting our employees have an active hand in increasing order value and sales dollars, we create an incentive that works well for our customers and our workers,” Zaslow says. “After all, at ATD the motto is ‘spend more, save more.’”

Some business-to-business catalogers, though, find cross-selling and upselling a challenge. “In the b-to-b world, customers usually know what they want coming in,” explains Stephan Lebonte, vice president of e-business for West Chester, PA-based VWR Scientific Products. To overcome that tendency, the marketer of scientific equipment, supplies, chemicals, and furniture has added a comprehensive search engine to its Website along with sidebars on product pages suggesting companion items.

VWR isn’t the only marketer trying to use the Web to raise AOV. Early last year computer cataloger Dartek decided to try to migrate more buyers to the Web. The company decreased circulation by 25% and reduced its catalog from 100 pages to 88. It also offered prospects who ordered online free shipping and American Express Gift Cheques for customers who spent more than $500 on a Web purchase.

At the same time, says Dartek marketing projects manager JoAnn McNeely, the Naperville, IL-based company added suggestive-selling technology to the site. Product managers added links to related items on the side of the product pages and the shopping cart pages. Dartek added suggestions from manufacturers as well.

Dartek used Web-analytics firm WebSideStory to track the results of its Web project. By October 2002, even though the average value of offline orders had decreased 8%, Dartek’s online AOV had increased 19%.

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