In November, CATALOG AGE met with six executives in Fort Lauderdale, FL, to discuss catalog marketing issues. Participants represented such diverse merchandise categories as jewelry, perishables, business promotions, and women’s apparel, but they all faced universal concerns from Web marketing metrics to effective customer incentives.
The roundtable participants
Steve Leveen, president of Delray Beach, FL-based reading tools and gifts cataloger Levenger.
Fred Neil, general manager of Boca Raton, FL-based jewelry cataloger Palm Beach Jewelry.
Eileen Schlagenhaft, marketing manager of West Palm Beach, FL-based citrus fruits mailer Cushman’s.
Tom Shipley, CEO of B2B Brand Group, an Orlando, FL-based holding company that includes the T. Shipley, Awards.com, and Reliable HomeOffice catalogs, which sell business furniture, promotional products, and office accoutrements.
Michael Tiernan, CEO of The Mark Group, the Boca Raton, FL-based parent company of women’s apparel catalogs Mark, Fore, and Strike and Boston Proper and gifts book Charles Keath.
Andy Williams, CEO of Vero Beach, FL-based fresh-flowers catalog Calyx & Corolla.
Moderated by CATALOG AGE managing editor Melissa Dowling and special projects manager Shayn Ferriolo.
What’s new, catalogers?
CATALOG AGE: What do you think were the major changes in catalog marketing during the past five years?
Fred Neil: Well, the economics of the business have certainly changed. The cost of putting a catalog in the mail has gone up, acquisition costs are up, and we have seen advancements in modeling and segmentation, the need to be more sophisticated, and the need to be multichannel…. It’s not just catalogs anymore, but looking at ways of getting in front of your customer, such as e-mail, or generally finding more customer touchpoints.
Eileen Schlagenhaft: Certainly in my world the Internet is the biggest change in trying to learn this whole new technology and the manner in which customers order from us…and how do we stay with that and keep up with the new technologies and learning how they can change our approach to advertising in terms of what works and what doesn’t. All of a sudden you can find that things get old very quickly, they tend to fall away and stop working, and then you’re on to the next thing.
Michael Tiernan: Customer acquisition costs have gone significantly up. I remember the days when the Postal Service used to raise the rate 7% every three years. Since then the cost to put a catalog in the mail, the postal component, has really changed. And then the rapid use of [cooperative database] Abacus and other collective databases with everyone going to the same pool of multibuyers has been an issue, and clearly the Internet in terms of integrating it with systems and merchandising and using your catalog to promote your Website.
Steve Leveen: I have to agree with Eileen: The Internet has probably been the biggest change. The dot-com industry has succeeded in raising the expectations about what Websites should be even if they didn’t have sound business models. Plus, direct marketers that have predated the dot-com industry and postdate the dot-com industry now have to live up to that level of expectation. Customers expect all Websites to be as good as Amazon.com, and that has put a burden on our industry.
I think that, at least at Levenger, it has been a negative to our financial performance because we have had to invest heavily in the Internet, mainly in staffing and to a lesser extent technology…for not enough incremental revenue. So that has been a big challenge. Looking forward, I think after the events of Sept. 11 and the anthrax threat, I can’t think of anything that is going to have a tremendous impact on the catalog industry from here on out but a radical increase in postal costs.
The Internet ROI
CATALOG AGE: Picking up on what Steve said, has anyone seen a big investment in the Internet without a real return? And if you haven’t yet seen much of a return, do you think you will?
Neil: It will come. In my particular business model, I have seen it. What we do is develop cobranded Websites. We have one base Website with about 5,000 offers, and we develop cobranded sites for major retail partners with hyperlinks from their site to the cobranded site. So rather than our going out and paying for traffic, expensive traffic that doesn’t convert as well, I am paying a commission on sales to my partners. It also gives them product expansion at a category level that is very SKU-intensive and too expensive for them to invest in from an inventory and human resources point of view.
The Web has done very well for us; we have made money and had a lot of traffic from day one. But if I had to do it on my own, by going out and renting names, it would have been expensive, and I would be in the same position as Steve, where there isn’t enough revenue to offset the expense of the ramp-up stage.
Tom Shipley: B2B Brand Group is a newly formed company that brings together three companies, all with different Web experience. You have T. Shipley, which had little funding from the start. We had to bootstrap it and put together the site with little capital. The affiliate programs we participated in, while they didn’t generate incredible volume, were able to pay for the little investment that we made, so [the site] has been profitable.
Reliable HomeOffice was a very small division of Boise Casade, which had decided not to invest in a Website. [Launching the Reliable HomeOffice site] for us is just a marriage with our current Website, so the cost is really low. The images are digital and are already there; we have the architecture in place; and we will work with our existing affiliate programs to help make its Web presence profitable. Awards.com came from the Internet model with significant capital resources invested.
The one thing we don’t know how to evaluate is how much of our Web business, other than the incremental business from the affiliate programs, is our core customers who are going online to order. The other question is, Are we really saving money? Yes, on the one hand, I don’t have someone answering the phones, so that is saving from the call center. On the other side of that, a lot of our business is cross-selling and upselling, and how great can the Internet be at cross-selling and upselling?
Schlagenhaft: As a smaller cataloger, we have entered the Internet arena very cautiously. It is very profitable for us — we haven’t put huge dollars into the Website, and the advertising programs we have worked with have been more on the test-and-see basis.
What I have learned along the way is that the banners didn’t really work, but because we were testing we didn’t have a large investment in banners. Having rented a lot of e-mail lists and hearing from other companies, I don’t think those are working for anyone either. We are trying to figure out how to win with search-engine optimization this season. But we are always testing with the Web because it is easy to roll out if it works.
Certainly it has shifted business. We have customers who are on the Website and call with questions, which is what we prefer. I wish they would call so that we have the chance to upsell and, in my opinion, build a better relationship with them. One of our strengths at Cushman’s is customer relationship management, and that is more tricky on the Web because there is no dialogue. But I think this area is going to continue to grow, and we hope it will help ease a little bit of the postage burden.
Tiernan: I think from a marketing perspective, the Internet has been interesting because in the early days we were competing with dot-coms that were spending millions of dollars, and we got sucked into that a little bit. What we have found is that we are getting a significant amount of channel shift, which we like because it is cheaper to process an Internet order.
But we are also finding that prospecting for customers by sending out a catalog yields a higher percentage of new customers than who come to the Internet. So we have really come full circle with the old direct marketing techniques of prospecting to get the best results for growth across all channels.
What is interesting is that billions of dollars of capital was put into startup companies that, for the most part, disappeared. So those customers have to go somewhere, and now brand becomes very important. People who buy direct want a relationship with a name they know and the promise of efficiency and longevity that comes with that name.
Leveen: Levenger does more than 30% of its business online. I think that direct marketers were in the virtual world when direct marketing began: Sears and Roebuck 100 years ago was virtual marketing because you had to look at pictures and read copy instead of having product in your hand, so I look at the Internet one way as a natural extension of direct marketing.
The good news for us direct marketers who are used to selling with words and pictures is that now the pictures can move and you can show many different perspectives that you cannot do in print, because it is a static. I also like that you can use more words. Again, catalogs were very limited in the number of words you can use, but on the Internet you can give them as much as they want. In the late ’80s in our first catalog, we had a few testimonials from customers, but we took them out because of the square-inch expense. Now we are adding them back in online. And [the testimonials] encourage customers — I don’t know that they boost sales, but I have a hunch that they do.
Neil: Do you think you are biased because you are a writer and you want more words?
Leveen: Yes. [Laughter]
Schlagenhaft: And there are definitely customers who want the copy and those who don’t, but for your business it probably works to have more words.
Leveen: Exactly, because we are “tools for serious readers.”
Andy Williams: We relaunched our Website last night around 7 p.m., and I hope it is working. [Laughter] It represents a little over half of our sales, but the previous owner didn’t have the capital to invest in the newest technology.
Eileen, regarding your point, our Website actually enables us to touch our customer more. We give them, of course, an e-mail confirmation of their order, but then we will follow up with messages like “Your flowers were sent today” or “Your flowers arrived today.” And when we talk to customers on the phone, we ask if they would like an e-mail confirmation. We find that each channel can direct people to another channel as well. E-mail broadcasts can lead people to their catalog, and the printed book with our Web address brings people to the site. You can direct people back and forth.
Allocating the sale
Neil: I haven’t seen any declines in response rates to the catalog, yet when matching back buyers from the Web who received catalogs I am getting a lot of people going directly to the Web. It has turned the metrics of my business upside down. We have to re-establish everything from the standpoint of acquisition costs and lifetime value.
Whereas before I had an acceptable cost per name that I was mailing to on the print catalog side, now I will go to a much deeper cost per name because I know that I am also getting people who are going directly to the Web. On paper it looks worse, but if I allocate those sales back to catalog, from a P&L standpoint it is getting my cost per name for the catalog back to an acceptable level, and driving incremental sales and revenue to the Web.
Additionally, the most difficult thing right now is being able to determine what type of customer I have. There are three types: a Web-only customer, a print-only customer, and a multichannel buyer — I don’t have retail. Within those two channels, I have to determine what the most appropriate contact strategy is mixing e-mail promotions and print promotions. How do I get the most efficiency out of my marketing efforts to generate the highest return for the company? And on the Website, I generate a lower [average order value], but at the end of the day I don’t care because I have generated that through incremental customers, and my channel shift isn’t that significant…. When I look at it from that standpoint, I am mailing as many catalogs I can and not really looking at catalog response, but overall channel response and how they cluster around catalog drops.
CATALOG AGE: How accurately do you think you are allocating the sales?
Neil: I am matching back to see the people who received the catalog…. Knowing that down the line I can be more effective with Web marketing and offer one-to-one marketing if I can get my customers familiar with shopping with us online. And with jewelry I can do great e-mail promotions around events, anniversaries, birthdays. But to answer your question, we track back and measure and look at the downstream revenue of our Web customers.
Shipley: In times like this we either get smart or get desperate, and I am sure there are things that we’ve done to boost response that will have long-term negative repercussions. Is anyone doing any offers and promotions that you would never otherwise do, and can they give you a lift?
Tiernan: They can give you a lift. But there is a significant risk. Look at department stores — they sell 70% of their product off-price.
Neil: [Discounting] is a drug that you can’t get off. I was at Montgomery Ward, and once you give the customers that “sale drug” you cannot convert them back.
Tiernan: You can get a lift, but you are changing your business and that is pretty risky.
CATALOG AGE: But is there any positive way to implement changes to get a lift — perhaps a preferred buyers program?
Neil: That is the only way we do it: You do something for me, and I will do something for you — for instance, volume discounts or dollars off based on order amount. And we discount on the phone for an upsell; the wallet is open, so we try to get an impulse buy.
Tiernan: I think one other opportunity that yields moderate success in difficult economic times is that a lot of companies go out of business, so there are a lot of mailing lists that become available. We have purchased some mailing lists out of bankruptcy courts, and it adds to your database, and you can massage the added names to get a bit of a lift with some new customers. Particularly if there is an affinity with your offer.
Prospecting and promotions
CATALOG AGE: Anything as far as acquiring customers that you do differently now in this tight economy?
Neil: We do special cover wraps on an acquisition where we offer a free gift with purchase. We want to exceed customers’ expectations, I don’t care if they are spending $19.99 or $999. If I am giving something away free I want it to be something she is going to wear and not something that she will just throw away. It’s an attempt to make them comfortable with us and with purchasing, especially that first time.
CATALOG AGE: Is everyone else sending out a different version of their catalog designed specifically for prospects?
Schlagenhaft: We do some incentives for conversion. For the catalog, our season is very short, and we all know the value of that second purchase, so we will send a gift certificate or a dollar-off coupon in January based on the amount of the customer’s holiday purchase. We will send these promotions to both giver and recipient. Because our prime selling season is so short, we try to use this as a reward to get the customer ordering again and to get them into a buying pattern.
Williams: Most people sending flowers are sending their emotions, and they are sending the flowers for an occasion. For example, in September when there is no holiday, we will offer incentives on the phone such as half off, but we still make money. Our margins are such that we are able to do that, but we also would not discount shipping or offer discounts during holiday times like Valentine’s Day and Mother’s Day. We have a conversion rate of about 25%, and we are still making money on that second discounted offer. Believe me — I am a CPA by trade.
CATALOG AGE: In terms of contacting your customers over the course of a year, how often are you contacting the top portion of your house file? And has that slowed because of the economy?
Tiernan: One strategy for customer rejuvenation is less contact so that you get more out of each mailing.
Neil: You need to do the math and see if you will get the incremental sales needed to offset the cost of the amount of contacts. We have done testing on increasing our circulation and seen negative contribution, so we have throttled back with frequency and seen higher productivity.
Schlagenhaft: We are really trying to focus on merchandising to expand. Some examples may seem odd, but they work. For instance, Honeybells [a seedless hybrid of tangerine and grapefruit] are our big seller, so we expanded into anything with that flavor — dog biscuits, cakes, anything to get those sales. We are trying to drive more sales through merchandising.