Preparing for the 2006 Postage Increase? Here are Two Missteps to Avoid

Postage rates are expected to increase from 13 percent to 20 percent in 2006, marking the first increase since mid-2002. It’s important to spend the next 12 months preparing to absorb this increase. Don’t wait until the increase is in effect before deciding what to do. Now is the time to begin making adjustments.

Often catalogers make cuts in the wrong places. Their intentions are good, but the actions taken aren’t always the best in the long run. Here are two actions not to take when preparing for the postage increase.

1. Don’t stop mailing to Web-only buyers.
When you look at your source code report, it may appear that results from Web-only buyers fall considerably below breakeven. Even the results from the most recent Web buyers may not look too exciting. It’s logical to conclude, then, that you should stop mailing such buyers to save money. But in recent matchback studies, Web-only buyers are performing at more than acceptable levels.

For most catalogs, Web buyers rank in the bottom 10 cells for housefile when reported by key code. But after doing a matchback, they rank in the top 10 cells. The clearest example of this is in a recent holiday mailing we did. There were no Web cells in the top five when ranked. But after the matchback, there were three in the top five.

Web buyers are very strong responders. They get a catalog, order on the Web, and yet there’s no way to trace them. The bottom line: We know Web buyers respond to the catalog, and we know the catalog is a big driver of traffic to the Web.

Early this year we did a split test and created a hold-out panel. We found it absolutely paid to mail Web buyers a catalog. We created two panels of roughly 25,000 names. One panel was mailed seven times, the other only once. The net contribution for the seven-time group was $169,089 compared with the one-time group of $109,318. The Web buyers who were mailed all seven times generated a contribution to profit and overhead (after all selling expenses) of $169,089.

Meanwhile, Web buyers who were mailed only once generated a contribution of $109,318. The additional six mailings to the Web buyers generated another $59,772 in profit contribution.

2. Don’t reduce pages.
Pages (i.e., more merchandise) increase the amount of revenue generated per catalog mailed. Rule of thumb: Revenue per catalog mailed will increase at one half the percentage increase in page count. Assuming there’s plenty of good merchandise to sell, adding pages makes good economic sense. Adding pages while making certain the paper and press manufacturing are efficient can lower your incremental break-even point while increasing revenue.

Your goal should be to add pages to the catalog as economically as possible. To do that, be aware of the weight minimum for the Standard A postal rate. A catalog weighing less than 3.3 ounces can be mailed at the minimum postage rate (assuming the U.S. Postal Service doesn’t change this weight requirement). A catalog weighing more must be mailed at the pound rate, thus increasing the unit cost of postage. Try to maximize page count without increasing postage costs when you can. Once you’re required to mail at the pound rate, using the right paper and page count combination can help minimize the increase.

These are two tactics to avoid. For a list of 10 steps to take when preparing for the increase, please see Stephen Lett’s Strategy column,”Prepare for the Upcoming Postage Rate Increase,” in the January issue of Catalog Success magazine.

To reach Mr. Lett, e-mail him via his Web site www.lettdirect.com, or call (302) 537-0375.

The editors of Idea Factory apologize for an error in the Dec. 7 issue. You can reach Bill Nicolai, author of “Maximize Sales with a Complementary Catalog/Web Relationship,” at bill@lenser.com. The e-mail address listed was incorrect.