Connect the Dots
Few catalogers link their merchandise results to a thorough analysis and review of their sales results by segment. But doing so has many benefits.
What Are New Customers Buying?
Since growth through new-customer acquisition is the key goal of many catalog companies, concentrating on what contributes to those acquisitions is critical. One key area to focus on is the merchandise offering.
After you perform a square-inch analysis and begin selecting items for the next issue, take another look at your item performance. Run a report using both your order-level data and customer database to determine which items new customers purchased most often. Compare your new-customer data to your overall merchandise results.
Sometimes the items that are most effective at snagging new customers don’t actually earn their space when examined during a square-inch analysis.
With the above method, you can avoid the mistake of eliminating one of your best customer-acquistion methods.
Thwart the Cherry-Pickers
Once you have the link established between your customer database and transactional data, build several reports.
For example, look for items that, during a square-inch analysis, appear to be successful but actually may be doing more harm than good in the long-term. Some items in your assortment get cherry-picked by new customers who never buy again. In most customer-acquisition models, catalogers don’t make money on a customer until after his or her first purchase.
This reporting and analysis is a little more complicated, because you want to look at customer behavior over time. Look back at least a year at one-time buyers and the items they purchased. You may notice the same items showing up repeatedly.
What percentage of that merchandise was sold to one-time purchasers? If it’s more than 50 percent, consider dropping the item from your assortment. Even when the percentage was lower than 50, if the item attracted a large number of one-time buyers, consider if it really fits into your overall assortment and enhances your brand.
This problem usually occurs when the cherry-picked items are too dissimilar to your core merchandise selection. A buyer who responds to those particular items may never again be presented with enough similar merchandise to attract a second purchase. But by now he or she is on your housefile and getting catalogs.
Identify Disparities Between Prospects and Customers
If you can increase your prospecting results only slightly, you either can enjoy an improvement in your bottom line or reinvest the money in more prospecting.
Using the report on item results for prospects, determine if those results are different from those seen with your housefile. For example, are your top 20 items to prospects (in units) different from the top 20 items sold to those on your housefile? You’ll also want to know those results by product category and price point.
Units are the important measurement here, not dollars or profits; you’re interested in understanding demand (that is, response) to maximize customer-acquisition efforts.
Once you’ve identified the disparities in items sold to your housefile vs. prospects, you have several options, including the following:
• If the disparities are plentiful, consider producing a separate version of your catalog for prospects. This, of course, adds creative costs, and you need enough prospecting quantity to justify this action. But if those differences are widespread, it’s something worth testing.
• If the dissimilarities are many, but your prospecting quantities are lower, or you don’t want to incur the creative expense of a separate catalog version, consider a prospect version with different outer eight pages from the housefile’s version.
• If there are only a handful of differences and your quantities are on the low side, but the prospecting percentage of your mailing is more than 20 percent, exploit the differences in the key areas of a single catalog version. Since we know that catalog covers impact customers less than prospects, put the best prospect items on your cover.
• Likewise, we know there are other key hot spots throughout a catalog where the propensity for readership is higher. These also should contain items with the strongest pull among prospects.
Determine What Prompts High Lifetime Value
Knowing your best price points or product categories is as important to building and growing your catalog business as knowing your best customer segments and prospect rental lists. Know where to spend your merchandising efforts and how to continue improving the catalog with each issue.
Therefore, in addition to just looking at sales by category and price point, you’ll learn even more by looking at the lifetime value of customers by these same factors. You’ll need two to three years of transactional information to do this analysis.
Once you get the reporting from your system, you’ll be able to identify the categories and price points, and even price points within categories, that produce your best lifetime-value customers. Armed with these data, you can select repeated items based not only on how they performed in one catalog issue, but also on what kind of customers they’re attracting. If you have to choose between keeping one of two marginal items, these additional data may help you decide.
This information also can help your merchandise buyers when they’re out in the market looking for new items; they’ll know which price points and item categories have the propensity to produce better results.
Separate Merchandise Results by List Segments
This last opportunity is especially crucial in the ramp-up or growth phase of a new catalog: Make sure your merchandising team and marketing group are working together.
The critical element is ensuring that the merchandise results are separated by list segment. Knowing whether outside lists or housefile customers are driving the success of particular items will help you determine which items to keep based on what lists you’ll continue using.
For example, if your merchants see a certain item, small category of items or price points that look successful, their natural instinct will be to build around that success.
However, if rented lists that didn’t perform well overall (and won’t be continued) created that success, the results to those items in the next effort will suffer. You’ll have wasted considerable space in the next promotion and will incur a setback in your overall results.
With no communication, this cycle will continue, and the combination of the right offer to the right audience will never be achieved.
Likewise, if a certain item, category of items or price points look unfavorable overall to the merchandising group, the group may decide to eliminate them from future mailings.
However, customers on those lists that looked favorable may have been buying those items but only in small test quantities. As the circulation group rolls out those lists in the next effort (and finds similar lists), the products that were appealing to those groups will have been removed, and your results will suffer.
All of these opportunities highlight the dramatic improvements you can garner by linking your merchandise results to your circulation results and ensuring that your marketing and merchandising groups are working in concert.
Phil Minix is executive vice president and general manager of J. Schmid & Associates. He can be reached at (913) 236-2408 or at philm@jschmid.com.
Five Growth Opportunities
1. Find items that may have been dropped because they looked as if they weren’t performing, but actually were attracting a large number of new customers.
2. Find items that need to be dropped, because although they may have looked successful, they’re attracting customers who never buy again.
3. Improve new-customer acquisition by creating a prospect version of the catalog or using your best prospect items in key hot spots in the catalog.
4. Find key price points or product categories that attract the best customers as measured by lifetime value.
5. Make the correct merchandising changes in sync with circulation changes and vice versa.
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