Should You Create a Spin-Off Catalog?

In an effort to grow their businesses, many catalogers look to create a spinoff as a way to get more pages in the mail, contact customers more frequently or in a different manner, or simply to get new customers.

The big catalogers such as L.L Bean and Lands’ End have handfuls of titles they’re mailing, so it often looks like it must be the right thing to do. And in fact, spinoffs can be very effective at increasing your revenue. However, they also can drain resources and create more costs that, in the end, reduce your pre-tax profit percentage instead of growing it.

Therefore, any spin-off effort shouldn’t be entered lightly. This month, I’ll look at types of spinoffs, the indicators for a potential spinoff opportunity, and ways to make one work for you.

Types of Spinoffs

There are different kinds of spinoffs, each holding the common thread of leveraging your current brand. If your current brand isn’t used effectively, it isn’t a spinoff, it’s just a new catalog.

• A product category spinoff, probably the most common type of spinoff, uses one strong product category to create a new offering by expanding on that single category.

Examples: Pottery Barn Bed & Bath, Eddie Bauer Home, and Lillian Vernon Gardening.

• A customer group spinoff creates another version of your catalog based on a group of customers that has a significant presence on your file but might be different from the other customers in the file. This group can be determined by selects such as age, lifestyle or gender. If you want to better target buyers you don’t currently have, you can make a different creative presentation and an edited (or enhanced) product selection within the same categories you already offer.

Examples: Pottery Barn Kids, Lands’ End Men’s and Talbots Kids.

• A new category makes use of one you believe has potential and is performing well in the marketplace, but doesn’t really fit within your current offering or positioning. If the category aligns well with your brand, you could spin off a new title for it.

Examples: Lands’ End Beyond Buttondowns, Lands’ End First Person, and Plow & Hearth Country Home.

When a Spinoff May Work

The following are potential signs that a spinoff might work for you.

• You have a productive and successful category that continually outperforms its space in the catalog and shows room for growth, while other categories continue to hold their own. Additionally, there’s a lot of available product in the marketplace that fits well with your brand.

This category also has favorable characteristics such as a good margin and low return rate. An expanded offering of it will give your buyers more choices and also should increase the average order value and response rate.

• You have disparate groups of customers (by demographics or purchase behavior) that buy different types of products across or within categories. Maybe the differences lie in item styling or price point. Or perhaps you get a lot of one-time buyers who pick a few items and never come back. If you can figure out how those cherry-picked items are similar, or what types of products appeal to certain groups of one-time buyers, you can leverage that into an offer that includes similar products in a separate catalog that’s appealing for repeat purchases.

• You have customers who don’t cross over into multiple categories. Therefore, you may be appealing to them only with one-fourth or one-third of your book. An expanded offering will give them more of what they like and will increase their frequency and value of purchases.

• You have customers who have significant mail-order activity in a category you’re currently not offering, and you feel you can present these products to your customers with your brand. However, be sure you’ll have credibility in these categories.

For example, a food mailer would have a hard time starting an apparel spinoff with its brand, even though a large percentage of its customers may buy apparel by mail. (You can find out what else your customers are buying from catalogs by getting marketing reports from Abacus or Z-24.)

After you determine you have the opportunity for a spinoff, evaluate your situation. The most important thing is that the spinoff increase your sales and profits enough to offset the additional costs and also leaves a nice return on your investment. If you’re not adding more pre-tax profit, but getting additional top-line sales, then your efforts haven’t been successful. In fact, you may be damaging your core business with time and focus exerted on the new effort.

Also, be sure the spinoff has the chance to be big enough to matter. This means you’ll want additional sales from your current customers (don’t just trade them into the spinoff) and also add new customers with each mailing.

If the universe of current customers who will respond is too small, you must rely on the spinoff to attract prospects. This can be achieved, but you need to know when you create the new offering whether you’re trying to snag new customers or just get additional responses from your current customer segments.

Create Your Spinoff

When developing the spinoff title, keep your essential brand elements consistent with the core book. Remember, most spinoffs are trying to get additional purchases (more per order or more orders per year) from current customer segments and therefore need to keep a consistent brand feel. Retain that connection with your customers so they know this new offer is from their old friend. It can be different; it just needs to fit.

Also be sure the product crossover with your core book isn’t too high. If you expect customers to respond to both efforts, have enough unique items in each one to garner that response. This will mean an increase in the number of SKUs in the warehouse, which means added costs and inventory investments. This is in addition to the extra creative, printing, paper and postage costs needed to get the new book in the mail.

If yours is a small- to medium-sized catalog, it’ll be difficult to be sure your employees don’t take their eyes off the book that still funds their paychecks. Plus, it’ll be hard to justify new staff for the spin-off book until you know it’s successful. The old “tried and true” book must not be overlooked during this time.

The pitfall to avoid: Ending up with a little more revenue than before, but not enough to cover the extra costs—especially the cost of the additional contact with your customers. If you’re sure the opportunity is ripe before you launch, you’ll mitigate the downside and establish a fresh new source of revenue for your company.

Phil Minix is the managing director of catalogs for Reiman Publications. You can reach him by e-mail at pminix@reimanpub.com.