Building and Using a Business List (858 words)

by Jack Schmid

In the folklore of catalog history, there is a story that may be apocryphal, but fascinating just the same. It's a story of Harry and David, today's leader in the food-by-mail field. In the height of the great depression, Harry and David's fruit business faced impending doom. In a last ditch attempt to save the company, the owners presented their fruit baskets to businesses as a gift idea. The idea worked and the story goes that it not only saved the company from ruin, but helped focus Harry and David on a new course—mail order and cataloging to businesses and consumers.

The Food-By-Mail Market

There is a message in Harry and David's story for today's food and gift catalogers. Food mailers don't like to admit it, but they are not in the food business. They're in the gift business. Today this market segment, according to the "1997 Guide to Mail Order Sales" published by Marketing Logistics Inc., includes 620 different catalogs or direct marketers and produces revenues in excess of $1.76 billion. There are a number of major players, including Harry and David, Omaha Steaks, HoneyBaked Ham and Hershey Foods, whose names have become brands unto themselves. Every sub-segment—nuts, candy, fresh meat, baked goods—has its leaders. These food mailers have a number of things in common:

1. Their businesses are dramatically oriented to gift giving, especially in the fourth quarter of the year. The business is so seasonal, that someone has coined the phrase "5th quarter"—the period between Thanksgiving and Christmas—when an exceptionally high number of orders are processed.

2. There are a lot of small companies which are being consolidated.

3. Most prospecting is oriented to consumers, not business customers. Little attention is typically spent thinking or worrying about businesses, either prospecting for new ones or segmenting existing business customers from consumer customers.

4. Every company works hard to build and maintain any type of profitable business in the off-season. It's a peak and valley business.

5. Food is considered a "safe" gift for businesses and consumers because product is generally well accepted and tends to be lower priced. Food-by-mail companies typically do well in recessionary times.

There are several closely-related gift markets of a non-food nature that tend to have many of the same characteristics as food—flowers, wine and liquor and tobacco. While some of these sales are for self-consumption, a great deal of revenue comes from gift giving.

Re-thinking Business Customers

In the past two years, several food catalogers have undertaken an in-depth analysis of their databases in an attempt to segment their customers. The findings were remarkably consistent, but eye-opening. Here are some of the conclusions:

• Business names made up only a small portion of customers, always less than 20 percent.

• Business customers' average order value (AOV) was higher—by a factor of two to four times.

• Frequency of purchase on an annual basis was less for business customers than consumers.

• Business customers' lifetime value over three years was eight times to 10 times that of consumers. WOW! It appears that business customers are more loyal buyers and have higher numbers of units per order. Response rates typically are somewhat lower for businesses than their consumer counterparts, but they more than make up for it with higher AOV.

The bottom line: food and gift mailers need to re-think their new customer acquisition and customer contact strategy. To focus only on consumers in new name acquisition and re-mailing efforts is ignoring a significant, high-profit generating segment.

Six Strategies

Here are six strategies every food/gift mailer needs to put into action:

1. Analyze your buyer database. Study the differences between:

• business and consumer buyers

• self-purchase and gift givers

• holiday vs. off-season purchases.

2. Study lifetime value. Determine whether there are differences in the above groups.

3. Re-think your new customer acquisition strategies if the business buyers show strength.

4. Business gift recipients are a potential gold mine. If, on average, each business gift giver sends four gifts to other businesses, you have four new prospective buyers. If only two of the four use your catalog the following year, you have eight additional business prospects. Converting business gift recipients to buyers can become a full-time prospecting effort.

5. The condition and quality of the database is critical. If your tracking of customer purchase history is less effective than it should be, make improving it a high priority. You will not have good information from which to build lifetime value and differentiate between the segments listed above if your database and source code tracking is not up to speed.

6. Re-think your business buyer mailing or contact strategy. Instead of regarding these buyers as just another group of customers, move them to the top of the hierarchy or at least where they belong in terms of AOV.

Some experts have stated that marketing in the next decade will be highly database driven. In my opinion, we're already there.

Jack Schmid is president of J. Schmid & Associates, a catalog consulting firm in Shawnee Mission, KS. He can be reached at (913) 385-0220.