Strategy Alternative Prospecting Methods (1,424 words)

by Stephen R. Lett

It is no surprise that catalogers rely primarily on the use of outside rented names to grow their housefiles—the most proven and fastest way to generate new buyers.

But there are other cost-effective prospecting methods that can be used to supplement traditional ways of generating new buyers. It's easy to stick with using outside rented names and cooperative databases for new buyers. Why should a cataloger consider alternative methods that take time to set-up and cost money to implement?

Increase the Prospecting Universe

Through the use of alternative prospecting methods, a cataloger can identify and attract a wider variety of prospects not always found on an outside rented list. In other words, the use of alternative media can generate new mail-order buyers. The cataloger is afforded the opportunity to go beyond current multi-buyer pools to generate new buyers.

Lifetime Value May be Greater

The lifetime value of a new buyer generated from an alternative prospecting method can be greater than a new buyer generated from a rented list. Obviously this is not always the case, but the point is that various methods of prospecting do yield differences in the lifetime value of the acquired buyer. It's not always the initial conversion rate that should be considered but the value of the name over time.

Reduce Cost Per New Buyer

Alternative ways to prospect can reduce the cost to acquire a new buyer. How much the cataloger can afford to spend for a new buyer depends to a large degree on the lifetime value of the name being acquired (see above).

For example, a cataloger might be able to spend more up front to obtain a new buyer providing there's a reasonable payback time (i.e., less than 12 months). We tend to rush judgment regarding results from the initial campaign without considering how much a new buyer will return in time.

Small- and mid-sized catalog companies generally depend on cooperative databases for prospecting. These yield excellent results, and the cost per thousand to rent these names is relatively low compared to the cost for direct response lists. Some catalogers use these databases 100 percent of the time.

In addition to these cooperative databases, outside prospect lists should be used for these reasons:

• Universe Issue—Additional lists are needed for growth beyond the one or two highly indexed segments offered by co-ops.

• List Selectivity—With some models, the cataloger is working in an unknown environment with no control over R-F-M selects.

• "Fresh" Names—There's a need for fresh, new names that individual outside lists can supply. Although cooperative databases are updated, member companies may not send their file updates as frequently as they should.

What's more, co-ops only select multi-buyers, while individual outside lists include the single or one-time buyers who also can be good prospects.

• Performance Issue—Modeled names normally perform as well as or a bit better than a cataloger's best outside prospect lists. The performance will tend to decline after the first few highly indexed segments. The top segments are the real winners while more outside lists will be needed for continued growth.

In addition to using non-traditional lists (i.e., compiled names) for prospecting, there are other types of alternate media that can be effective for some catalogers. Pricing for alternative media is much more negotiable than standard list-rental pricing. Discounts may be given for volume commitments, provided the broker or mailer makes the request. Here are nine alternative media sources to consider:

1. Magazine Space Advertising—There are mass media publications and vertical markets, or very targeted publications. With fractional-page space ads, catalogers can tap into new buyer markets and increase their prospecting universe by going beyond the typical rented lists of proven mail-order buyers.

The two types of space ads are off-the-page selling ads and inquiry-generating ads. Inquiry ads require the prospect to call or write for a free catalog. The catalog request is fulfilled, and the prospect can then place an order.

This process is considered a two-step, space-ad program. Free catalog offers and this two-step approach can generate new buyers cost effectively as long as catalogers fulfill the inquiries within a 24-hour period.

The lifetime value of buyers acquired from an inquiry space ad can be long because they've taken the time and trouble to request catalogs. Buyers had a sincere interest in the catalog being offered and made a conscious decision to make the initial request.

Off-the-page space-ad buyers tend not to buy on impulse making them good prospects for future mailings of catalogs with similar merchandise. Catalogers usually can mail them often (three times or more) successfully at an incremental profit.

2. Bind-in and Blow-in Programs— Inserts promoting offers can be placed directly into a catalog. A blow-in is "loose," and a bind-in is stapled into the catalog. The cost ranges from $30 to $35 per thousand.

3. Card Pack Mailings— Card decks are packets of business reply postcards that are mailed to a specific target audience. About 20 or more cards are stacked in deck form and mailed Standard A to prospects. The costs can vary from $20 to $35 per thousand. B-to-B mailers often use card packs.

4.Free-Standing Inserts— These are cooperative, full-color, multi-page fliers featuring coupons, refunds, sweepstakes and other promotional offers that are distributed in Sunday newspapers. They reach the mass markets with a low cost of $4 to $8 per thousand.

5.Package-Insert Programs—Through a package-insert program, offers can be distributed through another company's outgoing packages. Such programs are a good way to generate catalog inquiries and/or to promote e-commerce business. I like package-insert programs because they go to proven mail-order buyers. Costs range from $50 to $65 per thousand (plus the cost of the printed piece).

6. Co-op Mailings—A co-op is a non-competitive group of companies whose ads are mailed together in an envelope to help reduce costs. Typically, there are 20 to 30 individual pieces in a co-op mailing package. There are some demographic and geographic selections available to the mailer. With regard to co-ops, it is important to know the list source of the prospect names being mailed. Costs vary from $10 to $40 per thousand.

7. Statement Programs—A statement-stuffer or insert program is where a cataloger's promotional offer rides along in the billing statement of another company. Inserts are distributed via banks, retail, oil companies, utility companies, cable TV companies and others.

Statements are mailed first class and carry an implied endorsement from the carrier. Because of weight restrictions, a typical statement program will include only one or two outside inserts, which minimizes competition within the envelope. Costs run from $20 to $40 per thousand.

8. Take Ones—These are offered to shoppers usually at consumer information centers in supermarkets. Inserts are placed in the display, and consumers are drawn to topics of interest. Costs range from $2.50 to $10 per thousand.

9. Ride alongs—Some companies will allow other compies to advertise in the mailing they make to their own customers. Ride-along promotional inserts generally are poly-bagged and carried on the outside of the vehicle. Costs range from $40 to $70 per thousand.

It costs money to prospect. Very few catalogers can prospect above the incremental break-even point. Catalogers won't see a profit from that buyer until he or she purchases multiple times. The goal should be to generate new buyers with the most lifetime values at the lowest possible costs. This can be achieved only through testing.

Any business, catalog or not, must acquire new buyers if it wants to remain in business. Even if catalogers don't want to grow their businesses, they need to continue to add new buyers to their housefiles in order to remain even with the previous year's business. In other words, their housefiles have a certain attrition rate.

To keep business from spiraling down, catalogers need to prospect. Only a certain percentage of existing customers will purchase again.

Customers stop buying for myriad reasons, most of which are out of a cataloger's control. It's important to prospect. But, it's even more important to do so cost effectively to protect the bottom line.

Stephen R. Lett is president of Lett Direct Inc., a catalog consulting firm specializing in marketing, circulation planning, forecasting and analysis. Lett spent the first 25 years of his career with leading catalog companies, both business-to-business and consumer. He also is on the faculty at Indiana University where he teaches direct marketing at the MBA level. He can be reached at (317) 844-8228 or by e-mail at slett@lettdirect.com.