Strategy: Master the Analytics of Page Count

When I taught direct marketing at Indiana University, I told my students to write “merchandising” if they didn’t know the answer to a question so they could receive 50 percent credit. I wanted these second-year MBA students to know the importance of merchandising. But product selection and circulation determine the success of any catalog/Internet business. And knowing how many pages to circulate is my topic this month.

Specifically, I’ll explore the following:
• What basic criteria determine proper page count?
• What are the economics of adding pages?
• How can adding pages be a successful strategy in these difficult economic times?

Adding pages, and thereby selling more products to existing customers, is always a good strategy. The favorable relationship between page cost and actual returns per page generates a high return on investment. The cost to increase pages is approximately half the percentage increase in selling space. Increasing from 52 to 60 pages, for example, yields a 15.4 percent increase in square inches of selling space, yet the cost increase is approximately 7.4 percent.

Playing the Inches
Successfully adding pages means maintaining proper page density. Don’t devote more space to the items being added. And don’t give more space to existing products simply to fill more pages. To make the economics work, maintain proper density. If you typically put eight items on a page, maintain that same density on your added pages.

The idea of creating a smaller prospect book full of best-selling pickup items is appealing. You might think it saves money and in theory has little, if any, impact on performance. However, in practice, this usually isn’t the case. A catalog of best-sellers might perform so well that it counteracts the falloff due to a lower page count at first. But prospects tire of seeing pickups. When prospecting, you select many of the same names over and over. In fact, if you’re actively mailing prospects, some see your catalog as often as your housefile sees it. Therefore, it’s important to introduce new items to stimulate sales.

Whether you’re considering a smaller version of your catalog, including new and pickup items, or a “best of” book, you can use the rule of thumb (in reverse) to recognize that you’d generate half the percentage increase in pages in increased sales. For example, if you increase your page count by 10 percent, you’ll see sales increase roughly 5 percent. And just as you improve performance when you add pages, performance will decline if you reduce pages.

The impact of lower prospect performance carries through to future mailings. Over a 12-month period with mailing six times per year, the impact of a 48-page vs. an 80-page catalog, for example, is even more apparent.

5 Steps to Determine Page Count
1. Break down the product line into categories.
2. Determine the number of products that are available in each category.
3. Review the number of products within preset price ranges to uncover price point gaps.
4. Profile the 10 best products as a screening guide to determine what to add.
5. Profile the 10 worst products to know the types of items to avoid.

Use square-inch (or “squinch”) analysis to decide which items to retain, drop or add to the catalog. (For more on squinch analysis, see Mary Ann Kleinfelter’s feature story in this issue on page 31.) In a properly merchandised catalog, the 1⁄3-1⁄3-1⁄3 rule will apply. This means that approximately one-third of the items will always be the winners, a third will sell close to your square inch break-even criteria and a third will be the losers, which need to be replaced with new products.

Aside from the decision to add pages, about 30 percent of the products in a typical hard goods (i.e., gifts) catalog will be replaced each print cycle. If fewer than 30 percent of the pages lose money, consider adding more pages.

If more than 30 percent of the pages lose money, consider reducing the page count by eight pages. It’s a matter of balance. Just be careful you don’t have too many underperforming items as a percentage of the total number of unique products in the catalog.

Through this analysis, pay close attention to products carried over to the next book. Know when to drop items. Products that repeat tend to have a revenue drop-off of approximately 20 percent each time. If the descent is steeper, consider replacing the item.

The Last Bargain
Adding pages is a good deal; one of the few bargains left in this business. Additional pages (i.e., good quality merchandise) increase response and the revenue per catalog mailed. Overall, the economics of adding pages and more merchandise to your catalog helps grow the book’s sales. The chart on pg. 40 details total cost, including printing, paper and postage, and cost per page for the five page-count combinations shown. This chart also shows the percentage increase in selling space and costs using the 52-page catalog as the basis for comparison. So, going to 68 pages from 52 increases the selling space by 31 percent at a cost increase of only 15 percent. Again, the economics are in favor of adding pages.

With merchandising, it’s important to know the average price offered (APO) and average price sold (APS) of the products offered. If the APS is $31, that would indicate the catalog is selling lots of items in the $10 to $30 range. Too much selling space may be allocated to higher-ticket items that may not turn as quickly. It would seem this catalog has an opportunity to add more items in the $30 to $45 price range to increase the revenue per catalog mailed.

When analyzing the average units sold, we normally see 60 percent to 65 percent of the units sold falling below the average and 35 percent to 40 percent above. Use squinch analysis sorted by price point ranges to know how the book is assorted. Review price points vs. profitability.

Adding pages is a matter of “bottom-up” analysis. The biggest danger in cutting pages is the potential shrinkage of your housefile due to lower performance rates. Therefore, if you cut pages, you have to increase overall prospecting to maintain the level of new buyers. You have to mail lower-performing prospects, which brings down overall performance rates even further. If you do decide to mail a smaller prospect catalog, be sure to create a reliable test to gauge the long-term impact of your decision.

Stephen R. Lett is president of Lett Direct, a catalog consulting firm specializing in circ planning and forecasting. Reach him at (302) 539-7257 or at steve@lettdirect.com.