Strategy Why You Should Rent Your Customer List (1,130 words)

by Stephen R. Lett

Even today, there are still a number of catalog companies, particularly business-to-business mailers, who do not want to rent their file to other qualified mailers. These firms do not rent their buyer files to non-competitors, nor do they exchange names with other reputable firms.

Do these companies know something other catalogers don't know? Are they trying to protect their customers from mailbox clutter? Or are they missing out on list rental income—income that drops straight to the bottom line? Or are they paying more to acquire new buyers?

This month, I will discuss the benefits of renting a company's number-one asset: your valuable customer list.

According to a leading list-management company, approximately 10 percent (or less) of all consumer catalog companies and an estimated 25 percent of all business-to-business catalogers do not rent or exchange names with any outside company. Conversely, some companies will exchange names only with others whose list they wish to use. These companies make up about half of all consumer catalog companies that do not rent or exchange names. It used to be that a cataloger would have difficulty obtaining lists if it were not willing to rent its own file. This mindset has changed since companies are hungrier for list rental income to help their bottom line. But, there is no question that not renting or exchanging names can and does impact lists made available to you for prospecting.

The Rules Have Changed

If you are a consumer catalog company, I see no reason why you should not rent your housefile. For those of you who are business-to-business catalogers, the decision to rent or not to rent may be a more difficult one. When marketing to a business, the decision maker is more difficult to reach, therefore your own list could be more proprietary than someone else's. However, if the offer is non-competitive, why not rent? If the offer is more competitive, you might want to consider an exchange.

Let's consider the facts. There are an estimated 270 million people in the United States. According to The Direct Marketing Association (DMA), in 1999 there were approximately 192 million individual mail order buyers (including catalog shoppers) in this country. This compares with about 131.6 million mail order buyers just five years ago! The fact is, consumers love to shop by mail! And it shows. Many of these buyers have made purchases from catalogs, having originated from someone else's list.

Catalogs that do not rent their housefiles in more cases than not are only hurting themselves. The truth is, they are not protecting their customers from mailbox clutter. The fact is, they are missing out on extra income without risk. Twenty years ago, it may have made sense to "protect" your housefile but the rules have now changed. Today, trying to protect your customers from receiving other catalogs—including those from your direct competitors—would be like trying to protect a teenager from going to an R-rated movie. Sophisticated modeling techniques and the use of cooperative databases like Abacus and CircBase/Z-24 have changed the way catalogers do business. So has the Internet.

In study after study, it has been proved that a customer list used by others performs better for the list owner over time. The companies who have tested this have "flagged" names three ways—1) names to receive all list rental offers, 2) names to receive only non-competitive offers and 3) names to receive no outside offers. These tests are generally conducted over a two- or three-year period and the names are "frozen" over time. The results, in all cases, showed that the names receiving all offers, including the competitive offers, responded best to the offer of the cataloger using the rental list. The worst case from the studies I have seen shows no affect on the response rate to your own offer if you rent your file. In well over half the tests I am aware of, the names that are rented perform better! Conclusion: Active mail order buyers are worth their weight in gold.

If you are still not convinced that you should rent your customer list, consider the following points:

1. Look at the impact of cooperative databases, such as Abacus and CircBase/Z-24, on your housefile. According to its own latest updated figures, Abacus has a total of 91,829,656 total catalog buyer households on its file. The CircBase/Z-24 cooperative database has 65,821,697 net names on its file as of August 2000.

There is a strong probability that a high percentage of your customers are already on one or both of these cooperative databases. In fact, Abacus claims to have more than 95 percent of all 98 million households that buy from catalogs on its database already. Each time a cataloger joins the Abacus Alliance, only a very small percentage (1 percent to 5 percent) net new names are being added to the Alliance database.

2. Every year, The DMA receives about 75,000 requests from individuals to be taken off lists. These people are added to The DMA's suppression file. Sound like a lot? I'm told The DMA also processes up to 25,000 requests a year from people wanting to be added to lists. People love catalogs!

3. A mail order catalog buyer evidently enjoys the convenience of buying by mail. In some way, you may be doing your customer a favor by renting his name to a company that's making an offer he would like to receive.

4. A typical response rate to an outside rented name is 1 percent, therefore your risk of loss of income is minimal.

5. I have saved the bottom-line income you can generate from your file as the last benefit. As a rule of thumb, you should be able to generate, after commissions, an average of $50 to $125 for every thousand names on your 12-month buyer file. This depends, of course, on market segment, on your average order size and on the selectivity of your file.

Renting or exchanging names with competitors is common among consumer catalogers. Generally speaking, consumer food, apparel and hard goods categories do exchange names. Most often, the competitors you exchange with will be your best-performing prospect lists. If you can get good names, it is recommended that you exchange with your competitors. The rule I like to follow is this:

Only exchange with those companies when you can also benefit from using their customer list.

Exchanging names with competitors is not risky as long as you too can benefit from this reciprocal arrangement.

Stephen R. Lett is president of Lett Direct Inc., a catalog consulting firm. Lett 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.