Are multichannel customers different from print catalog customers?
The answer is no – and yes
When it comes to defining the “new” customer, it’s important to first sort a few truths from myths. Given all the e-commerce buzz, one might think that soon, the typical catalog customer will be some young male professional ordering Kid Rock CDs from a wireless PDA while idling at a red light in his SUV.
That’s not quite the case. In fact, catalog customers of the future will likely look a lot like the customers of today. They’ll still be purchasing from print catalogs. The majority will still be of the baby-boomer generation, mostly married, both male and female, somewhat affluent and college-educated.
They won’t, however, act quite the same as your “old” customers once did. Your new customers won’t be new to cataloging, but they will have new expectations. By all indications, these consumers will both be spending more and demanding more. They’ll want more personalized service, more improvements in delivery and shipping, more guarantees of satisfaction, more product information, and they’ll likely want it 24 hours a day, seven days a week.
For catalogers, that’s not unexpected news. “Instant gratification has become the mantra for the consumer,” says David Hochberg, spokesman for general merchandise cataloger Lillian Vernon.
Clearly, today’s glut of shopping options – particularly online – has created fickle shoppers. What may be unexpected, though, is how well catalogers have kept pace. Despite the escalating consumer demands, despite the deluge of Web competitors, most catalogers interviewed for this story say they’ve actually increased their customer base in the past few years. And catalogers have largely kept up with complex customer demands – far better, in fact, than their Web-only competitors. Armed with data warehouses of purchase history, along with longstanding targeting and fulfillment experience, most mailers have created ever more effective ways to lure, cross-sell, and service today’s fussy customers.
Along the way, though, they’ve also learned some important truths about the new customer and what that customer expects. Through interviews with catalogers and consultants, here’s what Catalog Age found out:
Fact No. 1: Boomers still rule
Ten years ago, when catalogs like Lands’ End and L.L. Bean were hitting stride, 25-34 year-olds (at about 17% of the population) made up the country’s largest consumer group. Today, the population swell has moved up: 35-44 year-olds comprise about 16% of the population, making up the biggest group. Meanwhile, according to the U.S. Census Bureau, the biggest wage-earners, 45-54 year-olds, follow closely at 13% of the population.
The good news: Older boomers are bigger spenders. They earn more money than ever: In the past 10 years, the Census Bureau reports, median family income has risen from $44,000 to nearly $47,000 in constant dollars. Home ownership increased from 64% to 66% of occupied housing units.
Older boomers are also educated. More than 82% are high school grads, compared to 77% 10 years ago. Moreover, nearly a quarter of consumers over 25 today are college grads, up from 21% 10 years ago.
Most critically, older boomers like to shop direct, online or off. From 1992 to 1997, for instance, catalog spending jumped 50%, from $33.6 billion to $49.7 billion. Meanwhile, as online revenue continues to boom – from $7.8 billion in 1998 to an expected $108 billion by 2002, according to Forrester Research – boomers and seniors make up the fastest-growing e-market. In fact, 20% of online surfers are now 45 to 64 years old, according to the Web measurement firm Media Metrix.
The bad news: Catalogers pay a price for that boomer buyer. Combine education and experience with myriad shopping possibilities, and you’ve created one demanding customer.
Ten – even five – years ago, catalogers could dictate the terms of the catalog/customer relationship: Here’s what we offer, here’s when we’ll ship it, here’s what it will cost you. Today, customers dictate the terms. If they want a video tomorrow, they’ll find a company that will ship it that way. If they want the best price on a Sony DVD player, they’ll tap into a “shopping bot,” such as Buy.com, to get it. If they want a live operator, one had better be available. If they want to return a product, they’d like to have a store nearby at which to do it, without a hassle.
Once upon a time, your customers asked you for little more than the item price. Today, “they want to know the product specs, the country of origin, and other information before making a purchase,” notes Cathy Texeira, senior vice president of teleservices at multititle consumer cataloger Hanover Direct.
Repeat customers, furthermore, don’t want to repeat information: They expect that catalogers will know who they are, what they’ve ordered before , and how they like to be contacted. “Customers expect we are going to interact with them the way they want to interact with us – whether that means by phone or Web ordering or faxes or anything else,” says Coy Clement, CEO of multititle gifts mailer The Paragon Group.
Customers also want top service at little cost. An Ernst & Young retailing survey, for instance, shows that more than half of online shoppers feel shipping costs are too high. Similarly, the Direct Marketing Association notes that more than three-quarters of shoppers cite guarantees, return policies, and knowledgeable sales reps as factors in deciding between one catalog and another.
The savvier the customer, in short, the greater the demands, notes consultant Katie Muldoon, president of Key West, FL-based consultancy Muldoon & Baer. And boomer customers are the savviest of all. “Their expectations are much higher for all service businesses, not just the catalog business,” she points out. “Expectations are always higher as we age and become more experienced.”
Fact No. 2: Customers may like the online life, but…
Given all the rah-rah about online shopping, one would half expect to see a deluge of catalog bankruptcies, or tumbleweeds blowing through the Mall of America. Consider this mind-blowing sampling of statistics from a 1999 Ernst & Young survey:
– Online shoppers are booming. About 39 million people shopped online in 1999, up from 17 million the year before.
– They’re buying online more often. In 1998, consumers made an average of six online purchases. In 1999, they made 13.
– They’re spending more. Nearly half of online shoppers spent more than $500 with e-tailers last year, up from 13% who spent that much in 1997. Last year, the average shopper spent $1,200 online; two years before, the average was $230.
– They plan to spend even more. Shoppers currently spend 15% of their “shopping money” online. In two years, they say they’ll spend 36% of that money online.
– They’re no longer “young, male early adapters.” Currently, about half of online shoppers are women. They’re about 40 years old; about 41% are college-educated; and the majority are married.
Clearly, many consumers like the empowerment of shopping online, Ernst & Young declares. The Web enables personalized pages, easy price comparisons, and an unparalleled depth of information. According to the survey’s summary, “[Consumers] can quickly learn the specifications of a high-definition television before plunking down $2,500, or the dealer cost of a leather trim/CD package in a new sedan, or the biography of an artist whose work they’ve admired.”
Little wonder that 85% of respondents in an America Online survey say it’s easier to shop online than through “traditional channels.” Moreover, if Forrester Research is correct, consumers will soon spend nearly twice as much online than they currently do in catalogs. By 2002, Forrester estimates, online purchases will total $108 billion. By contrast, both Catalog Age and the DMA estimate that consumer catalog purchases will total between $60 billion and $65 billion this year.
In going after catalogers, Web competitors picked a logical target. Even before the Internet surge, there had been some erosion in the catalog buyer market. According to the DMA, the percentage of adults purchasing from catalogs decreased from 60.2% in 1992 to 55.7% in 1998.
Today, of course, e-tail continues to threaten print – especially since catalog customers are more inclined to buy online than the average consumer. Last year, the DMA notes, about 22% of catalog shoppers made an e-purchase, compared to 17% of the general population (see chart, left).
At the same time, catalog consumers have begun to look and act a lot more like online consumers. Four years ago, for instance, the Fingerhut Website attracted a noticeably more affluent, younger, and better-educated customer than its catalog. Not anymore. “The difference is decreasing every year,” says Andy Johnson, president of e-commerce. “People who shop online are beginning to look more and more like the U.S. population. Someday the online population is going to be the US population.”
“Our potential customers are online but they’re not smack in the middle of Generation D for Digital,” agrees Dionn Schaffner, vice president of marketing at gardening products marketer Garden.com. In fact, she says, many of the online buyers are empty-nesters and retirees. “It’s the older, experienced crowd.”
Almost every cataloger interviewed for this story reports that 10% to 12% of their orders now come over a Website. That holds true for specialty food marketer Bear Creek, where shoppers are typically nearing retirement age, as well as for The Sharper Image, the icon of high-techdom in mail order.
Given all that, it’s easy to picture a future nation of virtual shoppers, where clicks replace calls and “carts” peruse screens instead of store aisles. Except….
Fact No. 3: Multichannel is the new business model
Customers will still want bricks, clicks, and books. In truth, consumers aren’t fleeing from stores and catalogs. In 1998, online sales comprised just 1% of all retail purchases, according to research firm Boston Consulting Group. By 2002, Forrester Research predicts that number will grow to just 6%.
What’s more, online shoppers so far favor only certain merchandise categories – most of them not big consumer catalog markets. Catalog Age’s 1999 Consumer Catalog Shopping Survey, for instance, found that respondents’ top online purchase categories were computer equipment, books, and music/movies.
According to a more recent Ernst & Young study, the number-one online purchase category is still computers, followed by books, CDs, and electronics. Even further down the Ernst & Young list, principal purchase categories include magazine subscriptions, flowers, event tickets, artwork, and financial investments.
“You have to take into account that a lot of these online sales are in commodity markets,” says consultant Muldoon, “which, thank God, are not most catalogers’ markets.” Indeed, a 1999 study by Internet research firm Jupiter Communications showed that huge catalog markets, like apparel, comprise only 1.6% of online sales.
Overall, catalogers are still the clear winner in the direct channel. For all the online hoopla, only 53% of households today have personal computers; only 34% of the population is online; and only half of those online have made an e-purchase, according to Ernst & Young. By contrast, the DMA says nearly 90% of households have purchased from catalogs at some point during the past, and 57% made purchases during the past year.
The DMA notes, too, that customers still spend more with catalogs than online. Last year, the mean Internet purchase was $559. The mean catalog purchase, by contrast, was $637.
The new imperative: Service
And even as online shopping grows, it’s clear that your new customers aren’t necessarily choosing one shopping channel over another. Instead, they’re shopping wherever and whenever it’s convenient to them, whether by store, catalog, or Website.
Some multichannel catalogers, in fact, have already learned the hard way that online sales don’t always self-perpetuate. “We’ve had clients saying `We want to mail less, we want to push people to the Website,'” says Steve Trollinger, vice president, circulation and marketing, Shawnee Mission, KS-based catalog consultancy J. Schmid & Associates. “Then we saw some major consumer catalogers cut back their mailings, and watched their sales dramatically decline.”
The point is, says Trollinger, customers not only enjoy multichannel shopping, but insist on it as well. At Fingerhut, for instance, half the company’s new Web customers used a catalog to make their second purchase, says Johnson. Garden.com, formerly a “pure” Website, launched its first catalog in November, drawing thousands of prospects it failed to reach via the Web. And The Sharper Image recently boosted store sales significantly by running a discount coupon offer via e-mail. “It was enormously successful,” says Kathryn Grant, senior manager, Internet strategies.
The upside – and the downside
For most catalogers, channel-switching is not a bad thing. By and large, customers who shop in multiple channels are simply bigger spenders than those who don’t. “We’re finding the customer who shops in more than one channel shops more overall than other types of customers,” says Grant of The Sharper Image. “If someone is comfortable on the Internet and in the catalog, he or she typically tends to have higher average orders throughout the year.”
“We’re believers in convergence,” notes The Paragon’s Clement. “When you allow customers to go to a store and receive a catalog, you get more dollars. I’m hoping that having an actual mailbox, and an e-mail box, will allow a lot of us to have that same satisfying experience.”
The downside, though, is in servicing those multichannel customers. Today’s consumers want marketers to understand and respond to their individual needs, regardless of shopping channel, says Don Peppers, founding partner of marketing consulting firm Peppers & Rogers Group, Marketing 1to1, based in Stamford, CT. To capture the channel-switching customer, catalogers increasingly need live customer service (24 hours a day), targeted contact (whether e-mail or regular mail), and interactive customer “dialogues” (Web or phone).
“One-to-one marketing means treating different customers differently,” Peppers says. By collecting and modeling customer data, and by interacting with customers at call centers or Websites, “you say to your customer, `I know who you are, you tell me what you want, and I’ll make it for you that way,'” he says. Only through one-to-one efforts, Peppers says, “can you lock in customer loyalty.”
To that end, catalogers like Hanover Direct have already invested $5 million in data warehouse technology, in addition to “personalizing” Websites. Hanover customers who now click on a bike helmet, for instance, see a relevant offer or banner ad once they click to the next page. “That’s produced tremendous results in cross-selling and upselling,” says Mike Contino, the catalog’ers senior vice president of information systems.
A customer service upgrade aims to build on that loyalty. “We now ask customers if they want to be contacted by e-mail or voice mail,” says Hanover’s Texeira. “We’re no longer a call center; we’re a contact center. It’s your choice as a customer.” This summer, Hanover will also add live, real-time customer service to its Website, hoping to provide seamless service for a demanding, active customer. “Initially there was a lot of chitchat about self-service [online],” she says. “But customers don’t want that. They want the resource of, `May I help you?’ whether it’s for questions about browsers or products or delivery options.”
If catalogs have historically mirrored consumer desires, then, it’s no wonder that today’s typical cataloger has become a multichannel kaleidoscope. The new customer may look a lot like the old customer, but her experience and expectations are creating a whole new industry.
Overall, “it’s still a catalog business,” says Bill Nicolai, senior vice president of marketing at multititle co-op gifts cataloger Good Catalog Co., “but three or four years hence you might not be able to say that.” Because of customers’ evolving demands and changing needs, Nicolai says, the selling landscape “is going to be so integrated and so hybridized you won’t be able to say what it is. Before long it’s all going to be one big remote shopping experience.”
Like the new consumer customer, the new business customer hasn’t changed all that much. Companies still want top-notch service and fast delivery from marketers – but many are beginning to want these things across multiple selling channels.
As shown by the Catalog Age U.S. Business 2000 survey of catalog and Internet buying trends (see supplement, June issue), most – more than 93% – of business respondents say they purchase products from mail order catalogs. As for the Internet, while only 36% of survey respondents say they purchase online, a surprising 52% of nonbuyers say their primary reason for not buying on the Web is “not having access to the Internet.”
This lack of access and the relatively small percentage of business Internet buyers among those with access are both expected to change in the near future, however. And this multichannel trend will likely evolve even faster than what has occurred within the consumer market. Catalogs will continue to be primary purchasing sources for many businesses, as will some retail outlets, but many businesses are preparing to shift their purchasing to the online world. More businesses, in fact, plan to be buying online than selling online. An April 2000 poll taken by the National Association for Business Economics showed that more than 10 times as many companies are planing to purchase over the Internet in the future than are planning to sell online.
Thus, much of the anticipated increase in business e-commerce will be due more to changes in the business customer’s buying habits than to the increase in the number of businesses selling online. As for how big the online channel will become, The Boston Consulting Group believes the value of b-to-b e-commerce will reach more than $2 trillion by 2003 – a huge jump from the $671 billion the research firm says was spent online by businesses in 1998. And The Yankee Group, which also sees b-to-b e-commerce reaching more than $2 trillion in the next three to four years, estimates that on average, 30% of goods and services will be bought online by companies by 2004.
In truth, some of this explosion will be due to business customer’s tendency toward higher spending overall. The Catalog Age U.S. Business 2000 survey shows a mean of more than $8,700 spent by businesses through catalogs annually (compare this to the $350 mean spent by the respondents to our 1999 Consumer Catalog Shopping Survey), and a mean of $5,758 spent by businesses online.
Along these same lines, in November 1999, research firm ActivMedia announced that its surveys showed that Websites selling to consumers had median transactions of $244, compared to $800 for Websites selling to businesses.
Many b-to-b marketers are hoping that portals or “hubs” – vertical online marketplaces – will become attractive to business customers. This one-stop shopping approach, where businesses can find a collection of sellers offering similar product, may indeed take off, considering business customers’ primary motivations for shopping by the catalog and online channels (see chart above). Among other things, hubs could offer the convenience, pricing, and improved shopping experience that businesses want from sellers.
– More than 50% of all U.S. households are now online – 90% of these use the Internet (Harris Interactive)
– A total of 135.7 million people in the U.S. are Internet users, representing more than 36% of the global population of Internet users (CyberAtlas/eForecasts)
– The median income for online households is 57% higher than the average American household, $58,000 vs. $37,005 (eMarketer’s eUser & Usage Report)
– 58% of new Internet users in the U.S. are women (up from 44% in 1998), and women are predicted to lead men in Internet access, 60% to 40% by 2002 (NetSmart America)
– Seniors will account for $3.5 billion (19%) of total consumer online spending in the U.S., and $16.7 billion by 2002 (eMarketer’s eUser & Usage Report)
– 73% of women regularly access product and service information online, more than any other kind of information (Women.com)
– Home PC use in 1999 surpassed 1 billion hours per week, and 53% of that time was being spent online (Odyssey, L.P., Homefront study)