Are SOHOs Bringing You Down?

AB-to-B catalog marketing staff had a problem. Its housefile count was experiencing double-digit growth, but its response numbers were shrinking. How can these two metric trends coexist?

Internet-savvy consumers, who often operate small, home-based businesses, buy product via this cataloger’s Web site. These small office/home office (SOHO) businesses didn’t need to repurchase the way this cataloger’s traditional business customers typically did. So, housefile response fell, while marketing expenses went up.

If you suspect this is happening to you, here’s how to fix the problem, improve your response and reduce marketing costs. Begin by analyzing your housefile for SOHOs and consumers. Then follow these steps:

1. Run address identification. Many B-to-B catalogers rely on one of two techniques to identify consumers and SOHOs on their file. Perhaps the most common technique is simply asking these customers about the nature of their business, although without follow-up questions, the responses can be misleading.

When you ask whether a purchase is for personal or business use, a SOHO will answer “business.” Without a follow-up question regarding the nature of the business, such as number of employees or some other enlightening piece of data, the customer may unintentionally mislead you. A straight consumer could easily fudge the answer, thinking you wouldn’t sell to individuals. Realize that self-reported data — customers’ answers to specific questions — often is unreliable.

2. Select the business name field of your database. This helps identify consumers, but hardly helps identify SOHOs because they often have business names.

Fortunately, you have some additional tools at your disposal. Your service bureau can run the U.S. Postal Service’s delivery sequence file (DSF) or a similar product against both your housefile and prospects to identify addresses as business or residential. You then can further segment each of your mail-file selects based on this identification and append the identification to your housefile for future use.

This strategy can help you determine whether SOHOs are a source for your declining response rates. First, identify by segment the number of residential addresses on your file to see whether they’re a potential problem. Then, compare responses between residential and business addresses and begin testing whether to mail the two segments with different frequency.

Before you pull SOHO or residential segments completely from your mailings, however, analyze those segments for pockets of response.

Analyze Purchase Behavior

3. Response predictors. Once you’ve identified SOHOs and consumers on your file, analyze their purchasing behavior in terms of average order, channel and product purchase.

For example, one cataloger identified that consumers at residential addresses who made their first purchase of less than $50 worth of product online didn’t warrant catalog mailings at all. These customers made an online search for a specific product they needed for a one-time purchase. Their transactions were profitable as long as the cataloger didn’t attempt to convert these customers to two-time buyers with a catalog mailing.

Another company identified several products that when solo-purchased by a residence, regardless of channel, indicated that the customer didn’t warrant a follow-up catalog mailing.

On the reverse side, you can use the same three factors to predict repeat purchases from one-time SOHOs and consumers. This strategy can work well when you have a profitable SOHO segment of your file.

Regardless of the factors you determine to be your predictors, you’ll want to test your conclusions before making a sweeping change to your mail plan.

4. Run a simple test. An easy test is to select the segment you believe doesn’t warrant a mailing and not mail a statistically significant random select from that group. By tracking the sales from the two groups — one mailed and the other not — you can begin determining whether to mail them less frequently or to pull them from your mailings altogether.

Just because customers may be SOHOs or consumers doesn’t mean they won’t repurchase from you.

Your prospecting lists likely are populated by both SOHOs and consumers. For straight list rentals, although such a select may be unavailable, you can stipulate that you only want business addresses. Passing the file against the USPS’s DSF and segmenting each list by type of address is a good first step if you suspect that residential addresses are lowering your response.

The co-op databases contain added modeling capabilities, identifying SOHOs for suppression or even for mailing — if specific types of SOHO businesses work for your product offering. But again, if you suspect SOHOs or consumers are problematic, the first step is identifying them and segmenting them in your mailings. By using the predictive and testing power of direct mail, you can determine with certainty how or whether to market to them in the future.

George Hague is senior marketing strategist at J. Schmid & Assocs. Inc., a catalog consulting firm in Mission, Kan. You can reach him at (913) 236-8988 or georgeh@jschmid.com.

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