Dive Into a New Product Category

Introduction

In this, our annual special report on merchandising, you’ll learn strategies on generating new product concepts from scratch. It’s a process that is part art, part science: from knowing when to listen to your hunches to understanding how to test products on the page.

You’ll also learn six steps to successfully taking a plunge into a new merchandise category. And we’ve uncovered some best practices you can use to get your product vendors to deliver merchandise on time and on spec, and ultimately how to improve your day-to-day relations with product vendors.

Lastly, you’ll meet one of your colleagues, Doreen Carstens, vice president of merchandising and creative for Miles Kimball’s four catalog titles. No doubt her words will ring true to you: “The search for new products each year is an uphill climb that we have to keep making over and over. It’s a never-ending challenge.” You’ll learn how she expertly tackles that climb.

Dive Into a New Product Category

Let’s say you have a hunch about a new product category that might work for your catalog. What do you do?

The best proof that you have a winner in the form of a new product idea is to test it in your catalog, of course. But testing sometimes requires going on nothing more than a really good hunch, says Kathy Revello, president of Kathy Revello Associates, a merchandising consultancy in Sunnyvale, Calif.

Revello’s experience includes posts at Federated Department Stores, Gump’s, Good Catalog Co. and the former Panache catalog. She recalls one incident while at Panache: She was using props (e.g., rugs, furniture) to showcase the tabletop and party-related items for sale; but she soon found that people wanted to buy the props. “I learned not to waste catalog space showing items we didn’t sell,” she notes, “Plus, all the informal customer requests for the props led us to think there were further product opportunities there.”

Therein lies the first step toward finding a new product category:

1. Follow your hunches, which usually come from one of two places, says Phil Minix, senior vice president of catalog and tours marketing at Reiman Publishing, Greendale, Wis., which produces the Country Store catalog. “First, you have your core offerings — and then you have this hunch about a fringe offering that’s shown a lot of life.

“A second way to discover a new product hunch is to look at the market,” he continues. “If you see a lot of products in a particular category at trade shows and in magazines, give them a test in your catalog.”

Both Minix and Revello say that in the catalog world, using focus groups and surveys is a process that usually doesn’t yield helpful information, especially for smaller to medium-sized companies. The problem, says Revello, is that people tend to not always be truthful. “They sometimes fill out the form the way they want to appear and not the way they’d act in real situations. I think it’s always better to go with your hunches, and then test items on the page,” she says.

Ashton Harrison, president and co-owner of lighting supplies catalog Shades Of Light, Richmond, Va., offers this suggestion: “Go with your best buyer’s gut feel. [Then] research the field. Find an expert and hire that person as a consultant to hold your hand through product development.”

Next, decide what competitive advantage you can offer. “This is the most critical factor for success,” she notes. “Define your focus, and stick with it.” That’s how Harrison took her business from just lighting products to launching two new catalogs: Rugs Under Foot, started in 2002, and Curtains on Call, launched in 2003.

Interestingly, she adds, “When we decided to add curtains, we ran a focus group, and the feedback we got was almost opposite from sales results. So buyers’ gut feel may be the best guide for new product areas and ideas.”

2. Choose items that are brand-consistent. “Even when testing a totally new category, you want it to look and feel like your brand,” says Revello. Also consider pricing, because it, too, has to be consistent with your catalog’s strategy.

Most importantly, check the margin factor. Tabletop products can have a low margin, Revello notes, while textiles as a category, may have a higher margin. “If you add a higher-margin product to your line, you can sell less in volume and still have it do well,” she says.

While it’s all right to stray a little from your core offerings, Revello says the new product category has to be related to what you already offer. “It’s a big leap to go from bedding to food — but not such a big leap to go from partyware to food,” she explains.

3. When testing new products on the page, give them ample space. Once you have your new product ideas, Revello feels you must allow a new category at least two to four pages in the catalog to give it a decent shot at success. “Make enough of a statement with the new line — show enough of it — to demonstrate you have an assortment you believe in.”

Minix agrees, adding that once you decide to test a product category, you really have to be in it. “If you’ve never sold footwear, for example, do a spread or state in some way that you’re making a commitment to the product line.”

And when it comes to creative, don’t hesitate to play up the new category, Minix adds. If appropriate, use a colored band on the pages featuring the new items, or put a burst on the cover announcing the new product category. At the very least, he says, place the new items together on an attractive spread or in a grouping.

4. In testing, allow enough cycle time. Once you commit, give the category a chance. Says Minix, “You need a bit of an iron stomach; you may have to fund that category’s development for a few seasons to give it a chance.”

For example, if you’re expanding into footwear, know that customers may need to see the new items in one or two catalogs before they’re ready to try them. Revello agrees and offers an example from her days at Panache: “We decided to test food. But nobody knew us for food. So we had to make a commitment to do it again, so shoppers would see it more than once on the pages of the catalog.”

Once you’ve shown a new product line for a season or two, you’ll have a better sense of how it’s selling, she notes.

5. Use caution when it comes to list strategy. A word of warning about list rentals when it comes to new product tests: It can get a little tricky if your marketing department is testing different customer lists at the same time you’re testing new products. That’s why your circulation staffers must be brought into the loop on all major merchandise changes.

Says Minix, “Give them a heads up if you’re testing new product categories. Response might be boosted simply because a new item worked well on a test list segment. But what if it sold well to only that particular list? The next time the product could bomb if you don’t rent that list again.”

In a similar vein, Revello shares this story: “At Good Catalog, we tried to add some apparel to the mix. It didn’t do well. It wasn’t that the merchandise was no good. We didn’t go to an apparel catalog customer. We weren’t mailing to apparel lists. It would’ve been a very expensive test — a major commitment — to not only be testing a new product category but also a new list segment.”

The lesson learned: When you must go outside of your list universe to make the new product idea work, reconsider if it’s worth testing. There may be other products closer to the needs of your core customer that you can test first.

6. Use the Web to test products when and if it’s appropriate for your catalog and audience. If the Web comprises a high percentage of your sales, you probably can dabble with new products online, says Minix. The challenge: While the opportunity cost is low (because you’re not paying for printing and mailing), people browse through catalogs more than they do Web sites. So you have to place the new products on your Web site where they’ll be easily seen.

Minix recalls one surprise incident: “We also have a company cooking school, and while the Internet typically is not a very large part of our business, we put an item from that school — a glass bucket with trifle server — on our Web site. It blew us away with the response it got.” So testing products on your site may be worth a try in certain market segments.

Of course, all these new product rules don’t hold true in every case. For example, on questions related to branding and consistency, Minix says he’s recently had an interesting twist occur at Reiman’s Country Store catalog. “We found through Abacus reports that our customers also tend to buy low-ticket jewelry — not the type of product we’d typically carry in our catalog.”

He worked with jewelry supplier Seta Corp. to devise a mini-assortment of jewelry at a good price point that would appeal to the demographic of older female shoppers who also like Reiman’s traditional, country-themed items.

Minix is anxious to see how the jewelry does in upcoming mailings. “We decided to step outside our normal merchandise and see if our customers would buy these kinds of items from us. Sometimes, you never know until you try.”

Get the Goods

How to establish vendor compliance for product manufacturing.

No doubt you dread the staff calls that begin with: “Our vendor did not send us …” or, “Our vendor sent us instead …”. Getting product manufacturing vendors to comply with your specifications sometimes can be a challenge.

To solve such issues, build a solid partnership with your suppliers and provide for clear two-way communications.

First step: Be specific in what you want, says George Mollo, president of GJM Associates, a Nanuet, N.Y.-based catalog consultancy. “State your requests plainly, such as, ‘Here are the necessary measurements and fabrication.’ You’re the buyer, and you must specify your requirements for production.”

But Mollo and others agree that beyond that, a certain number of vendor-compliance rules and policies must be stated and enforced in order to make the merchandise manufacturing process operate smoothly.

Tom Guschke, managing principal at Keogh Consulting, Palm Beach Gardens, Fla., suggests you institute the following four categories of compliance policies for product vendors:

1. physical rules and guidelines regarding packaging standards, and shipment accuracy, integrity and timeliness; documentation accompanying the delivery, package/unit counts (master pack quantities), package sizes and weights, shipment modes (e.g., less than truckload, truckload, parcel);

2. labeling and marking guidelines for printed label and barcode formats, label placement, and legibility; unit/case/pallet identification requirements;

3. data communications policies regarding Advance Shipment Notices and invoicing; and

4. returns processes, authorizations, policies, tracking, and compliance provisions.

Catherine Cooper, president at Q4 Logistics, an Orange, Calif.-based firm that designs and implements warehousing, transportation, and supply chain solutions, notes she continually is surprised by how many catalog companies don’t have written policies for dealing with product vendors.

Build the Play Book

To keep track of, maintain, and ultimately enforce your policies and guidelines, devise a rule book for your vendors. Cooper says a cataloger’s rules and policies typically are spelled out in what’s called a Vendor Guide. The most important rules in the guide book usually are tied to the following areas:

-on-time product delivery;

-pricing;

-consistent case-pick quality;

-purchase order ship date;

-item information (e.g. dimensions, case quantity);

-barcoded and labeled boxes;

-value-added services (e.g., pre-ticketing); and

-inbound visibility via electronic data transfer (i.e., what’s coming and what’s in each box).

The reason some catalogers fail to have established Vendor Guides, says Cooper, is that when their companies were smaller, catalogers didn’t think they needed official written rules for vendors to follow. And now that their catalog companies have grown larger, executives don’t seem to have the time to craft such a document.

“In reality,” says Cooper, “if they consider the amount of time, money and energy wasted on resolving issues stemming from confusion or misinterpretation of rules, catalogers really don’t have time not to [devise Vendor Guides].”

At a catalog, Cooper continues, “Anyone who is directly tied to vendor compliance should have a good understanding of the rules and policies in the Vendor Guide.”

To this end, Guschke says, your rule book must be an integral part of your receiving and vendor compliance audit program. “Each organizational unit that touches the vendor-compliance activities has to know the rules, so there’s a clear communication between you and your vendors.”

Administer Vendor Relations

How should those rules be administered and by whom? Cooper suggests that a cross-functional team — never just one department — should be in charge. “The rules should be developed in concert with operations, insisted upon by the buyers, and administered by the inventory control group,” she notes.

Guschke recommends setting up an organizational unit with specific responsibilities to administer and monitor vendor compliance on a daily basis, most frequently as a component of the logistics/distribution function. Also, he says, a multidepartmental compliance team — with reps from buying/merchandising, distribution, legal, inventory management and finance — can be set up to establish policies, guidelines and criteria.

Another necessary part of the process of building good vendor relationships: on-site visits. “These are essential to review supplier policies, systems and processes; to discuss compliance requirements with a supplier’s operating staff; and to periodically review supplier-compliance audits,” says Guschke.

Many issues can be resolved with these site visits/tours when the operations staffers on both sides start talking, Cooper says. “Having vendors see your operations will help them understand the impact of not following the guidelines, and they’ll realize your rules aren’t arbitrary or inconsequential.”

And on the flip side, site visits to your vendors are especially helpful when vendors can’t comply with your rules. “Usually an alternative solution or compromise can be reached when the operations rep sees what options are available,” says Cooper. “These face-to-face interactions, even if they’re just hospitality tours, are helpful to strengthen relationships.”

When Rules Are Broken

What should happen when a vendor breaks the rules or fails to follow stated policy? Guschke recommends a stepped process. “First, send a written notice of non-compliance, then a notice of a chargeback. After x number of chargebacks, initiate a decertification process, ending with executive conversation and negotiation of compliance.”

But Cooper argues it’s the chargeback that’s the industry norm and usually will get more attention (read: better response) than other types of penalties.

Mollo says the industry-standard penalty levied against a vendor in cases where a minimal level of defects or poor quality is detected is 2 to 3 percent. Note: This applies to scenarios in which, after inspection, you find that just a few items in the product grouping are defective, but the lot as a whole still is acceptable.

But if the defects are what you’d call “unacceptable” — that is, there are too many damaged or poor quality products that can’t be repaired — then the items usually are returned to the vendor for a negotiated chargeback credit, Mollo explains.

Also in your Vendor Guide, spell out the consequences of late deliveries. “Technically, if the merchandise is past the purchase order, or contract ship date, the cataloger can refuse the shipment,” Mollo explains. “However, most catalogers still need the merchandise and usually will charge back the vendor on a per-backorder basis.”

The key here, says Mollo, isn’t to create a line on your profit and loss statement for income from vendor chargebacks. Rather, it’s to establish a relationship in which the vendor notifies you in advance of potential delays. In this way, delivery flow and perhaps reduced purchase order quantities can be negotiated, rather than you and the vendor getting into a chargeback situation. The goal here is timely delivery so you can avoid backorders in the first place.

While all vendors should be required to follow the rules stated in your Vendor Guide, more leeway sometimes may be allowed to so-called “A”-level or best-regarded vendors. “One size does not fit all,” says Cooper. “The merchandise varies, the size of the vendor’s company varies, and shipping methods vary. So the rules and penalties should vary, too. The rules, quality sampling and penalties should be accurately applied to each vendor or small vendor groupings with similar characteristics.”

She adds that vendor gradings of A, B, C and D — based on total performance — can be useful and, they provide leverage in future negotiations.

Interview: A Passion for Products

There are no shortage of challenges for today’s catalog merchandising and creative professionals. To be successful they must: undergo a continual search for brand-relevant merchandise; learn how to profitably and efficiently use ever-changing merchandising data; stay updated on catalog creative trends and solutions; deliver on the company’s brand promise; and collaborate expertly with other corporate teams.

Doreen Carstens, vice president of merchandising and creative at Miles Kimball, Oshkosh, Wis., tackles these and other challenges every day in her work on the company’s four catalog titles: Miles Kimball, Miles Kimball Cards, Exposures and Home Market-place. The company sells gifts, cards, home décor and accessories, photo albums, and frames. She recently shared her hard-won insights and sound strategies with contributing writer Alicia Orr Suman.

Catalog Success: How did you get involved in merchandising?
Carstens: My career in retailing began during graduate school as a sales associate at Pottery Barn, and that’s where I had my first exposure to a company with a passion for products. I also worked in retail at Liz Claiborne as a store manager, and that’s another operation dedicated to both its products and customers. Both of those experiences set me up for the opportunity that came along next.

Nine years ago a position opened up as merchandise coordinator for the Exposures brand [part of Miles Kimball]. The job reported to the vice president of merchandising, but was really in effect a liaison between the merchandising/creative office in South Norwalk, Conn., and the Oshkosh, Wis., home office. I held that job for two years.

Then I moved into the Miles Kimball gift division as a buyer for kitchen and personal care items — a position I held for over three years, when [I became] merchandise manager for the Miles Kimball catalog and Just Between Us, which is no longer published.

Since then, I’ve taken on the vice president responsibility for all the catalog brands in Oshkosh.

CS: What’s your role at Miles Kimball today?
Carstens: I oversee both the merchandising and creative teams for our four catalog titles. In merchandising, the team consists of 18 individuals: three merchandise managers, and buyers and assistant buyers reporting to them.

In the creative services team, we have 19 people to produce the four catalog titles. We’re a fully functional creative department — from concept/design to production and prepress. We’re able to hand over complete files to our printer, which is great because we don’t ever have the pressure of outside agencies impacting our schedule and deadlines. If we decide to reshoot an iconic product, we can do that. If there’s a little piece of data that jumps out at us about a trend happening and we want to take advantage of it in some way, we can stop and make a change in the catalog.

CS: How do you stay focused on your company’s brand messaging as it relates to merchandising?
Carstens: We send blind surveys as well as report cards that have our identification on them.

We also rely on the industry for news about trends. We attend trade shows and have developed supplier relationships that help us stay informed about merchandise trends. All these steps help us select the right mix of products for each catalog brand.

CS: What are the biggest ongoing demands you face in your day-to-day job as a merchandiser?
Carstens: The search for new products each year is an uphill climb that we have to keep making over and over. It’s a never-ending challenge. If you look at all four catalog brands, we have to find 2,000 new brand-relevant products each year. It’s easy to talk about, but very challenging to execute.

CS: How do you select and source products?
Carstens: With four brands, it’s very important to have brand mission statements, product differentiators and brand manuals.

The product-selection process is different by brand. Each team has to understand what’s driving its business so it can design or purchase merchandise that will appeal to those customer segments. There’s a tremendous amount of analytical data available at the SKU and category level. Data can be used to determine merchandising decisions such as our key price points and which product lines should grow.

For example, we offer 95 percent exclusive products for Exposures, and 100 percent exclusives in the Miles Kimball gift card business. But for Miles Kimball gift catalog, the products tend not to be exclusive.

We’ll shop the housewares and gift shows looking for unique and appealing products. And we’ll give ideas to our suppliers and ask them for their ideas, too. It’s a real partnership with our merchandise vendors. They know us very well, and we rely on them for input and ideas.

With the Exposures catalog, we have tremendous relationships with suppliers in Italy, the United States and Asia. These relationships have been in place for close to 20 years.

Sometimes the ideas can come from the suppliers — maybe a new product, maybe they have a new manufacturing technique whereby we can offer a different price point.

But overall, 90 percent of new product ideas come from us here in Oshkosh. And looking for new categories and classifications is ongoing. We’ve had success with some new categories [in Exposures] — product development in nontraditional areas such as all-occasion cards, custom and commemorative products. These have joined Exposures’ albums and frames and are doing quite well. We hope with any new Exposures product introduction that it can be personalized, as many of our signature items can. And it needs to be something unique. Those are hallmarks of Exposures’ merchandise.

CS: Given your experience, what do you think are the keys to catalog merchandising success?

Carstens: I think it’s the following:
-understanding the needs, wants and expectations of the customer;
-delivering the brand promise across all channels by using strong analytical tools; and
-collaborating with marketing and creative on brand delivery.

CS: What do you see as your own greatest challenges for the future?
Carstens: Merchandising teams today have access to an increasing amount of information about customers and products. But we’ve only begun to tap into this data and its potential. Therein lies our greatest challenge: figuring out how to utilize the great data warehouses we have to answer merchandising questions that will help us run our business more efficiently and profitably.

Also, how can we utilize technology to build our catalog? Deciding what products go where and physically building the catalog each time out is a very labor-intensive process. There are software packages today that can help in automating parts of the production cycle that we still do largely by hand. Miles Kimball currently has a team researching this endeavor, and I look forward to their recommendations.

Alicia Orr Suman is a Philadelphia-area freelance writer and the founding editor of Catalog Success magazine.

The Psychology of Pricing

By Matt Griffin, associate editor, Catalog Success

Customers often are more sensitive to pricing cues — something that makes them believe they’re getting good deals — than they are to actual changes in product pricing, said Duncan Simester, professor at the Massachusetts Institute of Technology’s Sloan School and head of the Marketing Group at Sloan.

In his talk “Research Findings You Can Utilize” at the New England Mail Order Association conference held earlier this year in Cambridge, Mass., Simester offered some methods consumers use to gauge price.

1. Price familiarity. Customers know the prices of items they purchase frequently, and they’ll respond to changes in price for those items, buying more when the price goes down or complaining vocally if the price goes up, said Simester. Merchants gain pricing flexibility on products with which customers have difficulty becoming familiar (e.g., those that vary among retailers by design, quality or size).

2. Signpost items. “Customers use what they know about some items to make inferences about items about which they don’t know,” said Simester.

He offered the example of sporting goods retailers who often keep prices low on items like tennis balls. Customers have an idea of what a can of tennis balls should cost, because the product hasn’t changed measurably in recent years. If the cost of tennis balls is reasonable, customers assume the retailer’s tennis rackets or other products also are available for a good price, he said.

3. Sales promotions. While offering items on sale may increase your overall catalog sales, overusing such promotions will dilute their effectiveness in the long run.

4. The “9” effect. As you’d guess, customers react favorably when they see prices that end in ‘9,’ said Simester. In one example, a national women’s clothing catalog raised the price of a dress from $34 to $39, and sales jumped 33 percent, he pointed out. But when the price was raised from $34 to $44, there was no change in demand.