When Should You Stop Mailing to a Customer?

As any experienced cataloger knows, it’s difficult to over-mail a housefile — at least certain segments of it — when mailing by recency, frequency and monetary (RFM) value. Catalogers generally want to maximize contribution to profit and overhead by leveraging their customer bases.

Customer-reactivation techniques make it possible to mail deeper and more often to your previous, or “older,” customers. This month, I’ll discuss some sound strategies for mailings to your own housefile.

To Customers

Consider this: Today’s circulation plans include fewer new-to-file names because catalogers rely more on reactivating older segments of their housefiles in order to grow their 12-month buyer files (or housefiles) instead of renting as many outside prospecting lists as they once did. Customer-reactivation programs and promotional offers are being used more to enable catalogers to mail deeper and more frequently to older segments of their own housefiles.

While a 12-month housefile will grow as a result, the quality of names being brought forward could be in question. For many merchants, it’s less expensive to reactivate a previous buyer than it is to prospect for a new one. For example, it can cost $100 per thousand (/M) to $150/M — or more — to rent an outside prospect list. This compares with the cost of having a cooperative database run a reactivation model on your older housefile names for $45/M to $55/M.

What’s more, many of these previous buyers are being brought forward by catalogers using aggressive promotional offers such as free shipping. The lifetime value (LTV) of older names that purchase again because of a promotion can be questionable. Compare the LTV of a buyer you reactivated vs. a new name added to your file. It might be worth the list investment to acquire a new buyer compared with reactivation of an older one. Or you might want to do both, but not at the exclusion of the other.

Let’s examine this a bit further: Assume your incremental break-even point is $1 per catalog mailed. This is the cut-off point for selecting prospect lists. But should you use the same criteria for mailing to your housefile? Everything can’t be incremental, or you’ll increment yourself into the poor house. Your housefile must cover your overhead expenses. When prospecting, try to cover your direct costs only. Your housefile needs to cover overhead expenses.

However, if you don’t mail to housefile segments that fall below your fully absorbed break-even point, you’re not maximizing contribution to profit and overhead. That is, you’d give up contribution dollars.

Therefore, I feel the same cut-off criteria should be used when selecting housefile segments to mail as you use when selecting prospect lists to mail. The incremental break-even point should be used for both. Use the calculation below:

Gross revenue – returns and allowances = net sales – cost of goods sold – direct selling expenses = breakeven point

So when should you stop mailing to your housefile? If your goal is to maximize contribution to profit and overhead, stop mailing to segments that perform below your incremental break-even point.

But I don’t recommend stopping there. Once you’ve selected all RFM segments at breakeven or better, run a customer-reactivation model with a cooperative database on the remainder of your housefile names. The co-ops will help you identify more names on your housefile that are worth re-mailing. Most likely, these names will perform as well or better than your best outside prospect lists. Through the use of customer-reactivation models, you can mail deeper to your housefile, bringing older names forward into a more recent RFM cell — something that was not possible prior to the advent of the co-ops.

To Your Housefile

A consumer cataloger typically mails to its housefile 11 times a year, while a business-to-business cataloger mails on average 15 times to its customers, according to The Direct Marketing Association’s “Statistical Fact Book 2004.” Of course not all segments of a housefile are mailed every time. More recent cells are mailed more frequently, and strict RFM guidelines should be followed.

Increasing the number of drops to your housefile doesn’t necessarily mean going back to press to print a new catalog. Catalog re-mails can be used cost effectively to generate additional business from your previous buyers. You can squeeze in another mailing to the best segments of your housefile.

Following are some ways to increase mailings to certain segments of your housefile:

- Bring in buyer records that came onto your file after your latest update (these are known as hotlines). They’ll comprise your best-performing segment. In some cases, it’s beneficial to do a late de-dupe after the main merge to get even more hotline buyers into the mailing.

- Then create an additional mailing to your hotline buyers. This works if you have a gap in mail dates. For example, if you have eight weeks between drops, create an additional mailing four weeks out, and send it to your best buyers. This is an opportunity to mail your hotlines again rather then waiting a full eight weeks. Also consider mailing your best RFM groups in addition to hotlines.

- Add a test drop during your best season. For example, if you’re a gift mailer, you may be able to mail more frequently during the holiday season. In some cases, you can squeeze in an additional drop that gets in-home two weeks before the holidays. With consumers ordering closer to need, we’ve found that late mailings are performing better every year.

When Re-mailing

Re-mails to your housefile can be used cost effectively without the added expense of producing a completely new catalog. Following are tips when devising re-mails:

- Change the cover. You don’t have to create a new catalog version to mail more drops. Most catalogers create multiple cover versions for repeat mailings and leave the body of the catalog unchanged.

- Re-paginate. If cover changes aren’t enough to create the results you’re looking for in a re-mail, consider repaginating the opening and closing pages (i.e., outside signature).

- Add more pages. The general rule for calculating the lift from adding pages: You’ll get half of the percentage lift in sales that you have in increased pages. So if your page count increases by 8 percent, you’ll see a lift in response rate of 4 percent. This is especially true if you have the merchandise to support the increase. If you don’t think you can add pages with strong merchandise, this calculation won’t hold true, and I wouldn’t suggest increasing pages. But if you have the merchandise and the expected increase in profit outweighs the increase in cost, then the additional pages are justified.

- Use dot-whacks and ink-jet messages on covers referencing special offers. Using a dot-whack label and promo on the re-mail can be used in lieu of changing covers.

- Send e-mail blasts. Use these to contact your best customers between regularly scheduled catalog mailings. Increase your customer contacts via e-mail, and offer an incentive to customers ordering on the Web.

Conclusion

Your customers are your most valuable business asset. Treat them well, and develop a contact strategy that enables you to communicate with them more frequently. Leverage your housefile to maximize contribution to profit and overhead.

Stephen R. Lett is president of Lett Direct, a catalog consulting firm specializing in circulation planning, forecasting and analysis. He can be reached at (302) 537-0375, or by e-mail via his Web site: www.lettdirect.com.