B-to-B Cataloging: Are You Right Sized?

Not long ago, an art director for a “big book” cataloger asked me to critique her work, a catalog the size of a large metropolitan phone directory. Paging through, I asked what kind of sales analysis was performed on the merchandise, because the catalog promoted more than 30,000 unique SKUs. She replied none. The marketing department couldn’t hire more staff, and no one had time.

Urging her to do something about that, I warned her that her company could end up building a new warehouse to store a lot of SKUs that aren’t selling.

She reached toward me, gripped the catalog in her right hand and flipped it to the back cover. There, proudly featured, was an aerial photograph of the company’s new 100,000-square-foot warehouse expansion. Too late!

As we reviewed the catalog spreads, it not only became obvious that pages and pages of product weren’t selling, but also that entire sections of the catalog had minimal sales. The company couldn’t afford to employ a single merchandise analyst, but could afford a million-dollar warehouse expansion and the additional staff to run it.

These situations occur when product continually is added to a catalog but no items are cut, except for discontinued merchandise. As time passes, these catalogs can grow to the point where they seem to take on lives of their own. Too often the only people making a profit from these extra pages are printers.

So what should this cataloger have done before constructing a new building to house products that weren’t selling? Although the obvious answer is to analyze its sales, in this cataloger’s defense, the question of how to go about studying 30,000 SKUs can appear daunting.

The Big Book Challenge

If you have a catalog of more than 300 pages, you probably can’t run a full square-inch analysis, measuring and assigning advertising space to each product. But you still can produce meaningful reports that guide your merchandise selection, pagination and ultimately your page count. The key is determining the goal of your analysis. In this case, you want to determine which categories potentially could be expanded and which likely should be reduced in terms of page count.

The metric that provides a quick overview to reach this objective is your sales-to-space ratio, a simple metric that compares a merchandise category’s percentage of sales to its percentage of advertising space. Ideally, the percentage and contribution of a category’s sales will meet or exceed its percentage of advertising space in the catalog. Here’s the formula:
Category sales/total sales / Category pages/total pages

Fortunately, most big book catalogers organize their catalogs by merchandise category, often with color-coded pages. So, counting a merchandise category’s pages is a straightforward task.

Example: In Chart A (below), Category A nets $100,000 in sales, and the entire catalog nets $1 million. It took 100 pages in a 1,000-page catalog. The formula would be ($100,000/$1,000,000) / (100 pages/1,000 pages). In this case, the sales to space ratio for the formula is 1.

Now, I’ll say Category B netted $50,000 on $1 million in total catalog sales, and it also took 100 pages out of a 1,000-page catalog. The formula is ($50,000/$1,000,000) / (100 pages/1,000 pages). The ratio is now .5. On the other hand, if Category C netted $500,000 out of a total $1 million in sales while using 100 pages of a 1,000-page catalog, its sales-to-space ratio would be five.

If a category’s sales-to-space ratio is one, the category is balanced in terms of its sales to space, such as in the example with Category A. However, for Category B the sales-to-space ratio is .5, well below one. This is problematic, because Category B isn’t carrying its weight in sales compared to its advertising space. On the other hand, Category C is relatively strong, producing five times the sales compared to its portion of advertising space.

This ratio easily is converted to a contribution-to-space ratio by using your contribution for each category instead of your net sales — or to a margin-to-space ratio following the same principle. This formula conversion is helpful if you have a category that has high net sales but a low margin, or vice versa. The same ranges outlined in the accompanying charts still apply, but you’re now analyzing contribution or margin rather than net sales.

Chart B (below) gives the general rules of thumb regarding sales-to-space metrics. Typically, if a category’s metric falls between .9 and 1.1, the category is balanced in terms of the amount of space it gets in the book. If a category scores above 1.1, it’s a stronger producing category in terms of the amount of space it’s receiving. If a category scores less than .9, it’s weaker in terms of sales compared to space and likely should be evaluated to determine whether its space can be reduced.

How to Use the Metric

If your goal is to reduce your per-unit advertising cost by reducing page count in your catalog, start by identifying those categories that score less than .9 in the sales-to-space ratio. Reducing space in stronger categories likely would have an adverse effect on sales. But by focusing on weaker performing categories in terms of their sales-to-space ratio, you can both trim product and reduce page count while not adversely affecting sales for your catalog as a whole.

In these examples, we assume you have categories that score less than .9 for their sales-to-space ratio. If all the categories in your big book score higher, congratulations!

n Dig. After you’ve identified categories that should receive less space, dig a little deeper into each one. At this point, you may need to apply direct promotional costs to these products in the traditional square-inch technique. Often with big book catalogs, many of the products receive a similar amount of space — sometimes measured in column inches — so the space calculations will be less time consuming than with a consumer catalog. However, this step often is unnecessary.

n Sort. In Microsoft Excel or another spreadsheet program, take each category’s sales data and sort product sales from greatest to least. The products in these under-performing categories often approximate the 80/20 rule, in that 20 percent of the category’s products produce 80 percent of its sales. Though these percentages may not hold up exactly, the question is whether a minority of the products produce the majority of the sales. It often becomes very clear where to start trimming product, which directly translates into space cuts and pages reduction.

A word of caution: When running this sales analysis, include your Internet sales with your catalog sales. Having performed numerous matchbacks of untracked Internet orders, I believe it’s usually safe to say that between 50 percent and 80 percent of these untracked orders result from the catalog mailing.

n If you need it, keep it. Of course, big book catalogers often have built their brand identities around the concept of being the one-stop shop for all their customers’ needs. If this is your marketing position, you still can maintain these poor-selling SKUs on your Web site and prominently refer to the additional products in the appropriate category within the printed catalog. Though you won’t reduce your warehouse space, you’ll reduce your advertising.

By working through underperforming categories in this fashion, you can reduce page count by complete signatures of 32, 64 or more pages. Of course, there’s more to big book merchandise analysis. But, this simple step often is one of the most effective ways to get a handle on burgeoning page count and work toward right sizing your catalog. «

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