Measuring the Incremental Value of Catalog Mailings

A catalog's buyer file is the company's most valuable asset. In this omnichannel world, your catalog buyers are getting many layers of marketing messages from you. Buyers receive catalogs, emails, digital ads, paid search ads, etc., on a regular basis. Measuring the incremental sales and profits from catalog mailings is necessary in order to set the optimum housefile circulation.

Catalog marketing is a simple economic model: profits are maximized when you mail all circulation that exceeds your break-even point. However, knowing the incremental sales and profits that come from a catalog drop is complicated because your customers are receiving so many multichannel messages from you. Marketers are spending a lot of time and resources trying to determine how to allocate or attribute sales to the various marketing channels.

A reliable method to determine the incremental sales from housefile buyer segments is to run mail vs. no-mail tests. These tests enable you to measure the difference in sales to holdout panels by dividing housefile segments, mailing a portion of the list and not mailing another portion of the same segment, then measuring the difference in sales.

By comparing how the group receiving the catalog does vs. the holdout panel, you can see the effect the catalog has on sales. For the holdout test, withhold mailing the catalog so that the two groups receive all the other marketing messages. After running a holdout test, the response rates and dollars per catalog are compared in your matchback processing. For example, if the holdout group yields $1.00 in sales during the life of the catalog's order history and the group receiving the catalog yields $2.50 in sales, then the incremental lift is $1.50. With all other variables held constant, the incremental lift represents the sales that your catalog mailing added to the overall marketing mix.

Without mail vs. no-mail testing, it's difficult and arbitrary to understand the true incremental lift provided by catalog mailings. However, by using mail vs. no-mail testing, you can determine which of the RFM (recency, frequency, monetary) segments of your housefile mailings are above breakeven and get a reliable estimate of the incremental lift that catalog mailings to your house buyers provide.

How do you pick segments inside your housefile to test? Consider the following:

• Always test the marginal older segment of the housefile which is responding around breakeven. Knowing the incremental value of mailing to marginal housefile segments tells you the incremental sales coming from mailing to older house segments. If your break-even point is $1.50 per catalog, and an older segment will yield 50 cents even if you don't mail them a catalog, then you know that your breakeven sales are $2.00 when you look at the overall sales in your matchback reporting.
• Test newer house buyer segments which are responding well above breakeven. If the incremental sales from catalog mailings are substantially above breakeven, you may want to increase the frequency of mailing your best catalog buyers.
• Test those buyers who came to you from web channels or affiliate programs. These buyers may well respond poorly to incremental catalog mailings. It may dilute your results by keeping web buyers included in your traditional RFM segments.
• Test combining email with catalog mailings to both your housefile and prospecting circulation. The lift from email may allow you to expand your prospecting universe.
• Test mailing to previous prospects to better understand the sales that are coming from earlier mailings to the same prospects vs. the most recent mailings to the same prospects.
• Test marginal housefile segments over multiple mailings to understand how incremental sales decay over time when multiple catalog mailings are suppressed. This exercise will tell you how often you should be mailing your marginal segments.

Testing your catalog circulation with holdout panels allows you to measure precisely the incremental sales from putting catalogs in the mail. Understanding your incremental sales allows you to optimize your circulation to maximize profitability.

Omnichannel brands are flooded with data about sales coming from various marketing messages and contacts. Attributing sales is a universal problem for catalogers. Simple holdout tests are an invaluable measurement of the incremental value of catalog mailings. Make sure that you bake these tests into your catalog circulation plans.

Jim Coogan is the founder and president of Catalog Marketing Economics, a consulting firm focused on catalog circulation planning. Jim can be reached at jcoogan@earthlink.com.