Cruising for co-ops

Here’s some advice for anyone looking for a co-op database:

Play the field.

That is, don’t rely on only one. Try them all, and go with the ones that work.

“All of the co-ops should be tested,” says Susan Pizzano, executive vice president of consulting firm Marketsmith. “I don’t want to say how many is right for everybody, but the sweet spot would probably be three or four.”

That’s especially true for small to midsized mailers that lack the universe of a Sears or a J.C. Penney, says Steve Trollinger, senior vice president of client marketing for catalog consultancy J. Schmid & Associates.

But there’s an art to choosing co-ops. And it’s not easy to master.

Where do you start?

Newcomers should begin with Abacus, then work from there, notes Michelle Houston, vice president of circulation services for Lenser, a catalog agency. Why? Because Abacus offers the largest selection of names and niches.

“It doesn’t mean we don’t have respect for NextAction, I-Behavior or any of the other co-ops,” Houston says. “We just think you should take baby steps with the biggest group of names available.”

But let’s say you’re getting a high number of unprofitable uniques from the co-op. It may be time to test others.

J. Schmid did a test for a client, using Abacus, NextAction, and Wiland Direct. The winner in terms of producing the most unique names? Wiland Direct.

But not all uniques are equal. Some may be multibuyers, and others might be names that were not picked up by the other co-ops, Trollinger says.

The most desirable names are those of multibuyers, because they come from many model sources. Their higher response rates justify frequent contact.

Obviously, the goal should be to put your best models in the database and pull the names most likely to act like your customers.

What should you look for in a co-op?

Your choice should not be based on size. On the contrary, you should look for transactional data and other attributes that indicate propensity to buy, says Ken Lane, president of direct marketing agency Hathaway & Lane Direct.

Another measure is how the file performs, and if you reach your break even.

Lane believes in experimentation.

“You should get on board with one of the smaller co-ops before they get flooded,” he adds. “They may have less names in their pool, but they’ve already tapped into the best names of their biggest clients.”

Diminishing returns

Sound advice no doubt. But FootSmart, the footwear and healthcare cataloger, went in the opposite direction.

“About a year ago, we were having the conversation of whether we were in too many co-ops and if we were getting what we waned out of them,” says Sonja Stanley, FootSmart’s customer acquisition manager.

Working with Pizzano and Marketsmith, FootSmart had built its house file with Abacus and then added NextAction and two others.

“But Abacus and NextAction were providing us with more unique names than the other two, so we decided to stay with them.”

And what names they were: those of female footwear buyers over the age of 55, and purchasers of lower-body healthcare products like braces and arch supports — exactly what FootSmart needed.

But the point is well taken: At some point, you may be getting diminished returns with multiple co-ops.

One problem is the duplication factor. Trollinger warns that there could be a dupe rate of 75% to 85% if you take 5 million names from Abacus and NextAction.

But there are varying reports on this. Lenser recently studied the results of a post-merge model based on names from three co-ops. It found that 60% of the names did not overlap.

Then there’s the hassle. The more co-ops you’re in, the more relationships with account reps you need to handle, Pizzano adds. Moreover, multiple co-ops can be “overwhelming to manage” for a smaller business, says direct marketing consultant Michael Grant.

“You need to start with at least two co-ops so you can compare names,” he adds. “As your house files and business grow, you can compare the co-ops more and do more testing with them.”

And don’t lose sight of the names you’re putting in. Having an exchange balance is never a good thing, Pizzano says.

Though there are no limits on how many names you can take from a co-op, the rule of thumb is to take two to three for every one you put in.

“When you give out your most valuable commodity, you have to ask what your rule of engagement will be,” Pizzano says. “Are you going to work with your competitors, are you willing to let synergistic mailers get the information? Or do you want the income from the names you take out?”

Belardi/Ostroy ALC does a co-op scorecard for its clients, comparing the volume of names they are pulling vs. the number they are contributing. The goal? To make sure they are getting better-value prospects than they put in, says Donna Belardi, president of the list firm.

Pulling out

Okay. You’ve done your homework and have identified an underperforming co-op.

Don’t simply stop using it. Pull your own names out, too.

“If you’re thinking about cutting ties with a co-op, you need to make up your mind ASAP because it makes no sense for your files to become stagnant there,” Belardi says. “It’s not like you are using a vertical list, where you can come back to it at different points during the year.”

And if you aren’t pulling out as many quality leads as you are giving, it’s a good sign it’s time to move on, she adds.

But don’t do anything rash. Pizzano recommends giving a failing co-op one more test.

If you are getting a profitable return on your investment, keep rolling the dice. If not, it’s time to fold.

Co-op vendor overview
Abacus 1990 1,550 100 million
I-Behavior 1999 1,350 95 million
NextAction 1990 1,300 110 million
Prefer Network 1999 460 100 million
Wiland Direct 2004 500 100 million
Z-24 1990 762 115 million
As of May 2007 | Source: Marketsmith

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