Strategy: A Primer in the Basics of Catalog Circulation

A circulation strategy accounts for up to 70 percent of any mailing’s success. No doubt, we can all use a refresher when it comes to circulation planning and execution based on the importance of getting it right. So, this month, I felt it appropriate to review the basics and factors that are critical to any mailing campaign’s success.

Consider the following key elements: housefile selections, prospecting and plan execution.

Housefile Selections

Balance mailings to your housefile with the desired level of prospecting. About half of your circulation should be going to your housefile. Most catalogers use some form of recency, frequency, monetary (RFM) value classification, which flags all customers with a three-place identifier based on the recency, frequency and total monetary value of their previous purchases. The data are based on customer information in your housefile.

Identify Unprofitable Mailings

A 3-D RFM designator cube, divided into levels along the recency, frequency and monetary axes, is useful for locating each customer within a “cell” relative to other customers. Each customer’s name resides in a given cell according to similar purchasing characteristics to allow you to identify which cells contribute the most to your profit and overhead expenses, while helping you set a catalog mailing schedule.

To maximize revenue per catalog (RPC) mailed, send catalogs to customers within designated cells. RFM analysis can help your company minimize the waste of direct selling dollars by identifying unprofitable mailings to less frequent and inactive customers.

Here are the critical steps to take when planning your housefile selections.

Step 1. Take the basic mailing information at the segment level: quantity mailed, orders received and gross sales for the year prior to the one you’re planning. Calculate the performance measures — percent response, average order and dollars per book.

Step 2. Quantify any changes to your programs, such as page counts, density and promotional offers, in terms of a percent increase or percent decrease. Apply these changes to the percent response and average order, as each would affect that measure.

Step 3. Estimate the number of names you’ll have in each RFM segment for each mailing.

Step 4. Using your company’s expense ratios and data you’ll operate under for this plan, calculate either the RPC break-even figure or the contribution to profit and overhead that each of those segments would achieve.

Step 5. Review all forecasted data. Look for two things: segments that should be eliminated and segments you probably could mail to more deeply. Eliminate all the segments you meant to drop.

Prospecting

Prospect list continuations should comprise 60 percent of the total circulation going to prospects and 40 percent of new tests. Prospect tests should contain a good sample of out-of-category lists as well. On finding an out-of-category, workable market to prospect to, you’ll increase the ability to grow your business.

Testing “new” lists and expanding the prospecting universe are critical to any circulation plan. Here are several things to look for when testing a new list:

How actively is the mailer prospecting? When you test a list for the first time, determine the list owner’s six-month file size as a percentage of its 12-month file size. If its six-month file size is greater than half of its total 12-month buyer file, the list owner is prospecting and adding new names to its own housefile.

How well is the list maintained?
Make sure the files you use are updated and are run through the proper hygiene regularly.

What list selections are available?
Find out what selections the list owner makes available so you can drill down on specific ones.

Test lists that are out of category.
To expand your prospecting universe, find lists that work for your offer; these lists don’t necessarily need to be in your particular product category. This is a key consideration if you want to grow your business beyond the normal limitations of your primary market.

What other mailers are using the list?
Knowing this will give you an idea of how the list works for other mailers in your market. You can request usage on your continuations in order to develop your own test ideas.

How did the file net out in the merge?
If you’re mailing a list in your own product category, expect to net out of the merge at a similar rate to those lists you use on a continuing basis.

What if a test works?
When retesting a given list, gradually increase the number of names you take as you roll out. Resist the temptation to more than double the number of names you rent each time. Read the results of the retest before you test it again — the results may not hold up.

Plan Execution

Once you make your housefile selections and determine your prospect lists, execute your circulation plan. Written instructions always should be given to your service bureau, which defines how the merge will be run. You run a merge primarily to identify and eliminate dupes from your mail file. A merge identifies two types of dupes: between files (known as interfile duplicates) and within a file (known as intrafile duplicates).

Here are a few rules to consider when executing a mail plan:

• Always put your housefile (your customers) in the top priority with the best-performing RFM groups at the top of the priority and the lower-
performing RFM cells at the bottom.■
• Sometimes you’ll only mail or re-mail a portion of your housefile. If the dupes within the housefile are random, you might drop a record that actually is from the higher RFM priority. By prioritizing your housefile, you’ll be sure to mail the best performers.
• Assign your housefile buyers to the same family groups so dupes within the housefile will be considered intrafile dupes. You’ll know what multis created to the housefile also will have appeared on a list other than the housefile.
• Save the rental multis for reuse later. When there are dupes on the file, the merge can assign the surviving record randomly across all lists or based on a defined priority by list.

There’s a lot to circulation planning. Mailing by RFM, selecting the right prospect lists and executing your mail plan properly are all critical factors. Spend the up-front time required to do the proper planning, and the results will speak for themselves.

Stephen R. Lett is president of Lett Direct Inc., a catalog consulting firm that specializes in circulation planning, forecasting and analysis. Contact: (302) 537-0375 or via e-mail at www.lettdirect.com.