It’s one of the core tenets of direct marketing: You can’t grow if you don’t prospect. At the very least, you need to compensate for the natural attrition rate associated with just about every business. But prospecting above your house file attrition rate can be expensive.
The economics of the business today are such that most catalogers prospect at an incremental loss, according to Bethany Beach, DE-based consultant Stephen Lett. List fatigue, the continuous use of cooperative databases, and increased competition have contributed to declining results over the years. How much you can afford to invest in new buyers depends on their lifetime value, the financial condition of your business, and your desire and willingness to invest profits back into the business.
The goal, says Lett, is to increase your active 12-month buyer file. So look outside for new buyers via rented lists, co-op databases, and other prospecting methods. But also look inside at your own file for opportunities to move “older” buyers and nonconverting inquiries into the 12-month recency segment.
“When prospecting to outside names, you will want to consider how and when to roll out a list continuation,” Lett says. “And you will want to consider new lists to test in the same category. You should always include next test lists in every prospecting mail plan. Plant those seeds! For every 10 new lists you test, you will hit on two or three winners.”
And don’t overlook subscriber files and compiled lists, he adds. “While we tend to rent direct response names–proven catalog buyers– and with good reason, subscriber and compiled files can work especially when you apply such techniques as outside list optimization,” Lett says.
When you are testing a list for the first time, consider the following:
Determine how actively the list owner is prospecting. Look at the 0- to 6-month file size as a percentage of its 12-month file. If the 0- to 6-month file size is greater than 50%, the list owner is actively prospecting, which is a positive sign that it too is bringing in “fresh” new names.
Be sure you know how well the file is maintained. How recently has it been run against the National Change of Address (NCOA) file and other hygiene programs?
Make certain you can select by recency, frequency, and monetary value (RFM), but don?t make the selection too tight. You don’t want to pay for selects you don?t need. You can always tighten the selects as you read the results and continue to retest.
Try testing lists that are out of category. “Expanding your prospecting universe is most often a key factor in your ability to grow,” Lett says.
Find out which other companies are using the list you want to test. Request list usage to see who is using it on a continuing basis.
Consider how the file “netted” out of the merge/purge. “You can expect to ‘net’ out of the merge at a similar rate as the list continuations you are currently using,” Lett explains. “If the retention rate is significantly higher, the list probably does not have a synergistic base, and therefore it may not perform as well.”
When a test works, double the size of the list continuation, and continue doing so each time. For example, if you test 10,000 names, and they work according to your criteria, test 20,000 names the next time. If this works, order 40,000, and so on.