Catalog Creative - The RFMP Way (2,685 words)

by Jack Schmid and Lois Boyle

Everyone who has spent any time producing catalogs knows that the process is truly a blend of right brain and left brain activity. In other words, there is almost no aspect of direct marketing that combines creative (the right brain side) and the analytical and numbers (the left brain side) quite like cataloging.

Getting creative-types, writers, designers, photographers and even color separators and printers to understand the left brain aspects of cataloging is a definite stretch. This is not to say that the number crunchers are much better at being well versed on what makes brilliant catalog design.

Many times, it's a standoff between the creatives and analysts—there is a mutual tolerance, but little interest in learning much about the other side. From years of catalog consulting experience, we can tell you that the better each side can appreciate and learn what drives success on the other, the better the results that can follow.

RFMP

What a funny title for this article. What is a RFMP anyway? If you're in circulation or responsible for your catalog's customer database, these are common terms. They refer to customer database information:

R = Recency

F = Frequency

M = Monetary

P = Product Category

Together this information is used to segment the customer list and determine such things as:

• Which customers receive what mailings?

• Which customers get an extra mailing each season?

• Who might be a candidate for a special, product-specific solo mailing?

• Who needs reactivation?

• Which customers need special offers to motivate them to action?

RFMP is but one technique that the left brainers use to help segment lists and generally improve mailing results from catalog to catalog. It is only one of many analytical techniques like LTV (lifetime value), cost to acquire a customer, break-even analysis, "squinch" (square inch analysis) and literally dozens of economic ratios used to measure the operational and financial health of a catalog.

Sometimes analysts add another letter to the acronym to make it RFMPS. The "S" stands for seasonality, and it is a technique that looks at the annual buying pattern of customers. Every catalog's customer base has certain buying patterns and habits. It is different for business catalogs than consumer. Some customers only buy at holiday time, regardless of how many catalogs are mailed during the year. Others will buy throughout the year. By tracking seasonal buying patterns, a smart circulation analyst can target mailings during the time customers regularly make purchases.

A Tasteful Case Study

Now, let's put this general information into practical use with a case study. Say you are the head of the creative team for the Really Good Food Catalog Company. You have been handed the following RFM segmentation chart by the database people and a break-even analysis by the circulation staff telling you that you need the following:

• $2 sales per catalog for a variable break-even (0 percent cover, no overhead or profit).

• $3 sales per catalog for a 7 percent break-even (covering variable costs and overhead).

• $4.50 sales per catalog for a 17 percent break-even (covering variable costs and overhead) and producing a 10-percent profit (earnings before earnings and tax).

What do you do now? As a creative-type, you have now been given more information than you probably ever wanted. You have been charged with changing the creative for each of the newly defined segments and to "fatten the calf." However, creative alone will not cut the mustard. Before your head is offered on a platter, marketing objectives must be clearly outlined with special offers and incentives with the key players (marketing and merchandise managers).

It is important to note that the most successful vehicle for eliciting change in your customer is with the hors d'ouvres—or your cover. The cover is the first thing your customer sees; it has the chance to get any message across quickly. Covers are fairly inexpensive to change and can be dressed up with dot whacks and outer wraps. And don't forget that the back cover has nearly the same impact as the front.

Remember your number one goal with each of these segments: You are trying to get your customer to behave in a certain way. In the beginning you can only hypothesize what will make them respond. Testing two or three ideas is always a good idea to learn as much as you can, quickly. Here are a few ideas to "fatten up" your bottom line.

CREME DE' LA CREME

This first segment (shown on the chart in white) includes all of your customers that bring in over $10 a book. Because they have ordered from you frequently in the past nine months, they are considered your very best customers and happen to be extremely profitable. Will they continue to "come to dinner" on a frequent basis? Certainly not if you don't invite them. Many of the following suggestions may seem expensive and time consuming, but really—how can you afford not to spend the money? Let's take a look at a few methods that will keep them coming back.

Develop a loyalty program that rewards customers for their orders. Catalogers often make the mistake of thinking they don't need a loyalty program for those individuals that are already profitable. Absolutely wrong! These individuals know that they are good customers and already want to be a member of your club. Not to recognize them is foolish. Loyalty programs come in a variety of flavors and should be considered no matter what industry your are in. Whether it be dollars off on special gifts or perks, be creative in how you reward your customers for being so dependable.

Thank your customers! Because you know this a group of good customers and they know they are as well, how insulted do you think they become when you don't thank them? Creatively, this can happen in several different ways. Instead of sending a generic acknowledgment of thanks in the shipped package, how about a special personalized thank you card from the president or the individual that took the order? Why not produce a cover that actually says thank you in a very loud way? Sure, it may look ungainly, but quite honestly, nouveau cuisine never did much for my appetite.

Know what your customers like. If your database captures information about product category, why not produce covers that represent products that your customers will most typically buy? Recognizing your customers' needs and wants with a few cover changes is not that expensive. If you have an apparel catalog and there is a group of individuals that only buys shoes from you—develop a shoe cover. There may be a point where it makes sense to develop a specialty catalog or a solo package that only sells that particular product line. For example, Ross Simon will mail a Wedgewood offer to those individuals that typically buy that line of china. Omaha Steaks is the master at changing its mailing formats. While catalogs are used at holiday time, solo mailings are used the rest of the year.

Recognize your customers. Personalizing your catalog with the customer's name is a wonderful way to talk to him or her one-on-one. Once again, many catalogers make the mistake of using this technique only on prospects and old buyers. It is worth a test to talk to your customers by name, letting them know what's new and special. New technologies are constantly being developed to make personalization better and less expensive. Another technique for making your catalog customer focused is to put customers on the cover. Children's Wear Digest has contests in which customers' kids actually model clothes on the front cover. Cushman Fruit places snapshots of its customers right on the cover.

Make your customer's job easier. Many food catalogers have developed what we call a "relationship" package. This is a mailing that goes out in an envelope that includes a catalog and a list of gift recipients. This is incredibly convenient to the customer and very profitable to the cataloger. However, there are two mistakes that relationship packages make. The first is producing a confusing package. Remember that you are trying to make it easy for your customer to buy your products as gifts. Sometimes production challenges get in the way of producing clean, easy-to-use gift lists. The second mistake is not mailing your relationship package more than once. Change the creative enough to get the customers' attention and send it again—at least to your very best buyers.

Communicate often. Sending multiple catalogs in a season will always pay off. Varying the catalog can become cumbersome and challenging; the easiest way is to change a set number of outer pages. Remember that your best sellers should continue to be placed on your hot selling pages (front and back inside covers). More importantly, make sure that all of your covers look distinctly different. Many art directors make the mistake of creating covers that thematically go together. This will work as long as each cover looks different. Using bright colors for the background will always stand out as being distinct. Remember the goal is to let the customer know that each catalog is different.

MEAT AND POTATOES

This, too, is a very profitable segment and probably generates the largest percentage of overall income. The Meat and Potatoes group (denoted by yellow in the chart) generates between $3 and $10 a book. While this looks great on the bottom line, wouldn't it be nice to move them to them up to "Creme de' la Creme," at over $10 a book? Regardless, what you don't do for this important segment could impede the status quo.

Test all of the above. All of the techniques described for the Creme de' la Creme segment should be tested for this segment as well. Always test the number of times you can send a catalog and remain profitable. For the individuals who are most profitable (in this case, anyone who is generating $4.50 a catalog), a loyalty and relationship program should be implemented.

Identify favorites. Once again, if you have specific segments of customers that are interested in a particular category of products (or perhaps that is all they buy), you may want to serve them their favorites. A simple technique is to add a dot whack that directs customers to the pages where they can find products they are most interested in or announce a new product within that category. For instance, the Pfaelzer Brothers catalog added a dot whack (a sticker placed on the cover) to announce a new beef product. For its beef buyers, I am sure this was a welcome addition.

Hot Potatoes

Let's discuss this important sub-segment. These are individuals within the Meat and Potatoes group that have ordered once within the last 30 days (see the navy blue box within the chart). Statistically, we know that if we can get them to quickly order again, their attrition rate remains low. These "hot potatoes" should be communicated to quickly. Try a special welcome cover that includes a special discount on their very next order. Eddie Bauer tips on a simple card that says welcome and offers 20-percent off their next order.

PB&J

Ahh, comfort food. Tasty but not overly healthful. Same with this customer segment that is only producing between $2 and $3 per catalog (see green segment in chart). They are barely profitable—but not dramatically healthful to the bottom line. What's mostly keeping them from high profitability is a lack of frequency and a low average order. Let's take a look at how we might move this segment up the food chain.

Increasing frequency is a perfect scenario in which a loyalty program should be introduced and tested. Because you have (hopefully) already developed a program for your better segments, the cost to test this segment should be affordable. Bounce-back offers within a shipped package work, but only if they creatively stand out in the box. Instead of just sending a catalog, why not add a bright cover wrap that shouts out a deadline-driven offer.

Increasing the AOV (average order value) will also help move the PB&J's to the next level. Work with your merchandisers to create bundled product offerings and "two for's" (quantity discounts). Most customers see themselves as savvy shoppers and will always look for the deal. Most importantly, though, call out this offer in the catalog with either type, a special icon, color tinted boxes or anything that will direct the readers attention to the special offer.

Careful placement and presentation of price points is another way to increase the AOV (and this works for all segments). Higher priced items that are also good sellers should get premium space in terms of location and square inches. If you give too much attention to inexpensively priced items, you will likely drag down your average order.

Special offers will sometimes help increase the AOV. Free shipping, free certificates, gifts and discounts can be tied into a dollar amount (i.e. free shipping on orders of $75 or more). The challenge is to make sure this offer stands out. It is not always enough to just add an ordinary dot whack. Make sure the dot whack, or sticker, is large enough and stands out with color or graphics.

LEFTOVERS

These are customers that need to be heated or spiced up to make them palatable (or profitable). Producing only $1 to $2 per book brings this segment (shown in pink on the chart) below the break-even point. But because they have demonstrated potential in the past, it is worth trying to dig these customers out of the freezer and conjure up what could possibly be gourmet food. Recency seems to be the biggest factor in keeping these customers from being profitable. So how we can make these leftovers more palatable?

Let them know they're missed. We have all seen this treatment carried out in a variety of methods. One of our favorites is a cover wrap created by New Pig Corp. that pokes fun at itself as to why the customer hasn't ordered recently. Cover wraps that are bright and cleverly presented with a strong offer will definitely get attention. If this segment does not respond to your very best effort, then it probably never will. Other treatments worth testing include a specific cover treatment, a colorful dot whack or a tip-on card. While more expensive, a cover change will give you the biggest response. All established catalogers have thousands of names in this segment that have the potential of being resurrected.

NOT FIT FOR THE DOG

Need we say more? There comes a time when cleaning any fridge, that as hard as it may be, the food is no longer any good. Throw it out! In our Really Good Food Catalog Company we have decided not to send even one catalog to these individuals (shown in blue on the chart). Yes, they ordered in the past, but it's been a very long time. Through lifetime value calculations, we know that these individuals will never make money for us and need to be thrown into the garbage disposal. It is just as important to know what to do with your customers as what not to do!

EXPIRATION DATE

One other segment that is worth looking at on a RFM chart is the segment of customers that have not ordered in 12 months or less (see red box within chart). Statistically we have found that this group will die off quickly if you do not get them to order quickly. These individuals are well worth saving! The same offers and creative treatments that you might use for your "leftover" segment should also be implemented here with one exception. You can spend more money to keep them as customers since they are already profitable.

We wish you good eating and good creating—the RFMP way!

JACK SCHMID is president and LOIS BOYLE is senior vice president of J. Schmid & Associates in Shawnee Mission, KS. They can be reached at (913) 385-0220.