Know Your Objectives Before You Mail
By Phil Minix
Breakthrough success comes from first developing an understanding of what your measures of success will be and then planning all of your efforts toward effecting those measures. For a catalog marketer, merchant, art director or operations manager, this means first understanding your owner's, company's or department's objectives. You can't begin to achieve success if you don't know your overall goals and the goal of each individual mailing.
If you aren't clear what the overall company objectives are, then make sure you press to find out. If these can't be articulated by anyone in the company, then there is some important work to be done. Are you trying to grow top line sales? Increase the size of the housefile? Increase profitability dollars or profitability percentage? A combination of all of them? Each of these objectives requires very different actions from the entire catalog team, and every department in the company can make an impact on the outcome.
Once you are aware of the corporate objectives, you can begin creating plans for how your department can support those objectives. Developing a plan before mailing will give you the tool you need to evaluate the success of that effort against your benchmark. It will also ensure that what you are about to undertake will, indeed, move you in the direction you are striving to go. And most importantly, creating your plans from the overall company objectives will ensure that everyone is acting in concert.
I have worked with clients who put together their catalog circulation plan, merchandise assortment and creative positioning without talking among departments and without a shared understanding of what they are trying to achieve. When they get results after the campaign, marketing might be pleased, yet merchandising might think the mailing was a disaster. This can be avoided by working together and working toward the same objectives.
There should be a pro-forma profit & loss (P&L) developed for each mailing so that the expectations of the mailing are clear. An actual P&L developed during post analysis should then be compared to the plan. I suggest to our clients that the P&L be done at the segment level so they will know which media codes and which offers are the most profitable. Building a segment-level P&L will also help you make sure that you have put together a mailing that will achieve your company goals.
As you see from our abbreviated P&L example, this catalog is planned to produce an overall amount per catalog of $3.41, which produces a profit of $157,394 or 11.3 percent of gross sales. However, if this contribution is not satisfactory to support your desired pre-tax profit for the business (or other established goals), then you need to tweak your plan and perhaps cut some prospecting. On the other hand, if the contribution is higher than needed, you might be walking away from the opportunity to add more new customers in this mailing, an opportunity that would make subsequent mailings much more productive.
Here are some specific examples of how proper planning and execution can be undertaken in each functional area to achieve a shared objective: increasing profitability.
Catalog and Internet Marketing Strategies
1. Reduce prospect circulation—mail only proven rental lists with past performance at or above your variable breakeven.
2. Don't mail so deeply to your housefile—mailing your worst recency, frequency, monetary (RFM) segments can be as costly as prospecting.
3. Increase the number of mailings to your best customers—mail another book at your best time of year to your top customers.
4. Cut back on high cost-per-customer acquisition methods: space ads, Internet banner ads, etc.
5. Decrease promotion activity and tie any promotions to high average order value (AOV)—make sure that any promotions you are doing are adding new customers at or above breakeven (use your P&L plan at the segment level) or are increasing profitability from current customers by increasing response or AOV more than the cost of the promotion.
6. Don't do any non-selling (brand) advertising—make sure that all of your advertising efforts are supporting a response vehicle.
Merchandising Strategies
1. Put high contribution items (profitable after the cost of their space) in the key catalog hot spots and spread hot spots.
2. Don't offer a high percentage, more than 25 percent, of new items. New items are costly and usually have a success rate of only around 33 percent. Make sure you have minimized this risk as much as possible. Keep in mind, however, that as you are mailing more customers and fewer prospects, new items become more important to keeping your catalog fresh.
3. Raise your threshold of success in your item analysis. Make sure that high-profit-percentage and high-profit-dollar items are given more weight than high-demand items.
4. Increase your margin. You should always try to get better margins by buying smarter, negotiating better, etc. You may even have room to raise prices.
5. Increase your AOV with specials, bundles, multiple item discounts, cross sells, etc.
Creative Strategies
1. Maximize the use of space. Try to make room for more items so that every page has a better chance of being profitable. Even if pages are cut, try to hang on to as many products as possible by being efficient with every last square inch.
2. Make sure that all high-profit items are given hero status with the right amount of space, call-outs or other attention grabbers.
3. Work with the merchants to improve your best selling items. Getting a 10-percent lift from your best items is not that difficult and will contribute much more to the bottom line than spending time on new or marginal items.
Operations Strategies
1. Increase your shipping and handling charges, especially at the low end of the shipping chart. This will bring in more revenue, and if done correctly, may deter small, unprofitable orders without affecting your profitable ones.
2. Enforce strict policies on not reducing or eliminating shipping charges to customers who complain, or paying for return shipping.
3. Use a lower-cost carrier, such as a USPS consolidator for outbound packages.
4. Upsell specials and close-outs on the phone. Remember that your marketing expense at the end of the order is $0 (all costs are already sunk). So, a typical company can reduce a product's selling price by 25 percent and still add the same contribution to the bottom line as a full-priced item during this stage of the sale. Use this knowledge to give really great deals on your upsells.
Remember, not all of these strategies may work with your brand and positioning. Be wise in choosing what to implement. There are different strategies for other objectives such as growing your housefile or growing your top line sales, but hopefully these examples have demonstrated the importance of everyone in your company working together to achieve common objectives, once you know what those objectives are.
Phil Minix is executive vice president and general manager of J. Schmid & Associates. He can be reached at (913) 236-2408 or at philm@jschmid.com.
paper Analysis: This abbreviated sample profit and loss statement helps catalogers analyze each campaign based on audience, product, offer, merchandise and response.
- People:
- Minix