Strategy: Circulation Planning

Circulation planning is not what it used to be for a variety of reasons. The Internet is having the largest impact on circ planning, but there are other factors that make circ planning more complicated and challenging. Today, more is left to interpretation than ever before.

This month, I’ll explore what’s new and changing in circ planning, concentrating on five major areas of change: source code tracing, sources of sales, cooperative databases, contact strategy and prospect universe limitations.

Source Code Tracing

The most significant change has to do with our ability, or lack thereof, to trace orders and sales to a specific key code. There’s a huge portion of non-traceable orders and sales today. Prior to the Internet, catalogers could trace 80 percent to a specific key code with a 20 percent unknown factor. Sounds pretty good, doesn’t it?

Today, however, catalogers are lucky to trace 40 percent to a specific key code; they have no idea where to credit the remaining 60 percent. The same 20 percent unknown factor remains, with another 40 percent of unknown orders and sales resulting from the Internet. That’s why matchbacks are a way of life today, and standard procedure for most catalog companies.

But, they’re not perfect. Therefore, tracing to a specific key code today is somewhat suspect and probably not quite as accurate. It takes longer and it’s more complicated to know for certain what key code to give credit for the sale. Matchbacks tend to favor the last or most recent mailings by giving credit to those housefile codes.

For example, a cataloger typically mails several times during the holiday gift-giving season with a last drop on or around Dec. 1. When a matchback is run for the holiday mailings, the last drop receives a disproportionate amount of the credit to specific key codes. Again, matchbacks aren’t perfect — you have to use some logic and common sense. The chart (above right) provides a good example. Before the matchback, the response per catalog (RPC) for the housefile was $1.44 per catalog mailed. After the matchback, the RPC increased 74.3 percent to $2.51 per book. Of the total dollars matched back, 72.2 percent were credited to the housefile. With this amount of lift and allocation, proper circ planning can’t be done without first doing a matchback. This adds an extra, time-consuming step to the process. You simply can’t know week-to-week results by source code until you match back the order file to the mail tapes.

I highly recommend doing matchbacks. If you’re not yet doing them, and you’re relying solely on what you can report on by key, mail your Web buyers. To a great degree, the catalog drives Web sales. I’ve seen Web buyer segments perform four to six times what they report on by key (after matchback). Web buyers tend to use the Internet to order and therefore, are less likely to use a source code. So, when using prematched results, if your performance cutoff is $1 per catalog for housefile and you have a Web segment that’s doing $.80 per book, you should mail it. That segment likely is doing at least $3 per catalog mailed.

Sources of Sales

There are more sources of sales today, another change that is affecting circ planning. While the catalog remains the largest driver of traffic to the Web, orders and sales now are coming from a variety of other places. Web-based affiliate programs, shopping sites like Amazon.com, FineGifts.com and YahooShopping.com, generate orders and sales aside from the catalog. Circ plans must take into consideration the origin of the buyer.

There are catalog buyers, a variety of Internet buyers, multichannel buyers, nonbuyers, etc. Knowing which groups to mail and how often makes circ planning more complex. Typically, 10 percent to 15 percent or more of orders or sales aren’t generated by the print catalog. Many of those shoppers are one-time buyers. Some continue to make purchases only from the Web site and aren’t influenced by the catalog. Mailing these buyers simply increases your direct selling expenses and the ratio that’s critical to profitability. The Internet shift is making it more difficult to plan.

Cooperative Databases

Co-op databases enhance circ planning and results, and have changed everything. They’ve enabled catalogers to prospect more cost-effectively. The results are better (for at least the top segments) and the cost per thousand prospect names is lower compared to other outside lists (unless, of course, the list is on exchange). Most mailers think co-ops provide names for prospecting purposes (up to 60 percent or more of all prospect names are selected from a co-op database), which of course, they do.

The co-ops provide many other value-added services and benefits. It’s important for catalogers to take advantage of these services when it comes to circ planning. For example, all circ plans should include the use of customer reactivation models, cross-member modeling, list optimization, etc. Although using these services requires extra time and more work, circ plans greatly are enhanced as a result.

Create a contact strategy that incorporates all methods of customer contact. It encompasses planning all of your contacts with the customer, e.g., special promotions on the Web, catalog mailings and e-mailings. By planning your e-mails to support your mailings and your Web specials, contact with your customers will be more meaningful and have greater impact.

Send E-mails Ahead of Time

Send e-mail announcements roughly five days before your catalog hits in-home, encouraging customers to look for the latest catalog that’ll arrive in just a couple days. Follow up with an e-mail that relates to the latest mailing — roughly 10 days after the expected in-home date. For example, if you had a promotion with the mailing, send a promotion reminder.

By doing this, you map out the flow of your contacts with your customers in a strategic, significant way. Also, consider different offers and promotions to different customers. For example, for one-time buyers, reactivation customers or prospects, you might offer a greater incentive to purchase. To your housefile, you might send more of a “thank you” type of promotion.

Growing a catalog business is becoming more difficult. One reason: prospect list universe limitations. Catalog housefiles haven’t been growing, which affects how many names are available for other catalogers to prospect to. Response rates to outside prospect lists have been declining for many catalog companies the past few years. In some cases, results to tried and true continuation lists are off by as much as 50 percent. The most significant reason we feel response rates are flat (or declining) is due to the lack of housefile growth. Last 12-month buyer file counts are flat and/or declining from year to year, a trend that’s not easy to reverse quickly or without cost to the list owner. Therefore, when you mail continuation lists, i.e., prospect lists you’ve used previously, you’re mailing many of the same names over and over again.

The same people who didn’t purchase before still aren’t purchasing today. And, those who did purchase are now on your housefile and duped out of the prospect lists you’re mailing, which lowers the response.

List Fatigue’s Impact

This is a simple case of list fatigue, which is most certainly impacting the response rates to outside lists. The cream is being scraped off the top, and many of those people who remain on the lists you’re using continue not to convert at the same response rate. To grow a file means the list owner has to prospect to marginal or less-productive outside lists. More modeling and outside list optimization is being done today as a way to expand the prospect universe and enhance results.

In the past, consumer mailers shied away from compiled lists — and to a lesser degree, subscriber lists. Today, these types of lists can be used more effectively, since the mail order buyers on these files can be identified by modeling through one of the co-ops.

On average, 40 percent of all sales are through (not from) the Internet. This has made source code tracking more difficult. It’s also increased the need for a customer contact strategy. RFM still is the backbone of all circ planning, but there are many other factors that must be considered today.

Stephen R. Lett is president of Lett Direct Inc., a catalog consulting firm specializing in circulation planning, forecasting and analysis. He is the author of “Strategic Catalog Marketing,” a Catalog Success book published by Target Marketing Group Publications. You can reach him at (302) 537-0375 or via his Web site www.lettdirect.com.