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Libey Incorporated
Economic Outlook
Secrets of the Catalog Master
Vol. MMVII No. 2
March 2007
March 2007
Cherry Hill, New Jersey
Des Moines, Iowa
Donald R.
Libey, Editor
What’s Good?
by Donald R. Libey
In this issue I will attempt to comment on what is good about the future of catalogs. As we rush to embrace multichannel evolution, let’s not lose sight of what got us here and what sustains upwards of 80 percent of our businesses.
Good is Relative
Because we are so close to the daily Sturm und Drang, we seldom see all of the good things that surround our businesses. Some become focused on the bad things; some seem almost oblivious to both; a few lead from a position of positivism.
Good is a relative concept; it describes different things for different people. I know several veteran circulation pros who think a 2 percent prospecting response rate is “good,” and they are right, for their company and circumstances; for others it might be a 4 percent response. We try to benchmark metrics and analytics that will prove our performance is good, but there is no all-around definition of good; it varies for every company and across every channel and product line. Clients always want me to benchmark specific areas of performance and, when I give them industry norms, they immediately refute those norms and say their business is different. Of course, it is. What is difficult to understand is that the idea of good performance is relative only to your business and its unique performance history. The key is to get to the point where you know what is good and what is bad, where you can objectively evaluate good from bad as it uniquely applies to your business. At the end of all analyses is one ultimate question: Is there adequate profit?
Catalog Good
Even though more and more catalogers now define their business as “multichannel” rather than “cataloger,” the primary element that makes the paper catalog good is control. You control the catalog circulation, not Google or Yahoo. You do. You say how many and at what cost. You pick and choose—proactively—who will receive your catalog. You control the offer and the price. Search engine marketing controls you. It tends to dictate the rules and—sometimes one might think—the results. Search term auctions and bids have you at their mercy. It’s “pay to play” and there’s no guarantee. Not so with the paper catalog. When you carefully construct a prospecting plan based on known performance of known cells from known lists from known merchants, you have a basis of tested knowledge through which you control your efforts and your expenditures. Search is still a bit of the Wild West frontier without absolute metrics; and let’s be straight forward: metrics is how we got where we are. For my money, control is affordable in the form of a paper catalog with a tested mail plan to top performing lists.
The second thing about good catalogs is the fact that they do create online sales; at least 70-80 percent of the online sales begin with the paper catalog catalyst. That seems to be an innate attribute of catalog and the purchasing process. They are also good at bringing people into retail settings, whether industrial supplies or office products, or computer peripherals. Catalogs are truly catalytic. I’m not sure I’m ready to give that up in favor of Google entirely.
The third fascinating thing about catalog goodness is the simplicity. It isn’t difficult to put them together and track them. There’s really not a lot of ambiguity about catalog performance. Oh, I know, they’re old fashioned and don’t have a lot of “neo-channel” appeal anymore, but I can usually track the absolute source of about 85 percent of the orders at almost no cost for the knowledge. And, if I can drive those orders well-enough, I can keep upwards of 60 percent of those people who will buy from another catalog and another catalog and another catalog. With all the popular “speak” about being “channel agnostic” I really don’t mind customers who prefer to buy from catalogs over and over. Let’s see . . . we’re really good at order entry and fulfillment and service . . . the products are good . . . the price is right . . . so . . . all I have to do is keep sending interesting catalogs with new stuff and the customer stays happy. Maybe . . . just maybe that is what is keeping that buyer from running off with a Google search competitor, or switching to a product aggregator, or a dodgy “net gnat.” Maybe it’s the old familiar catalog that is a touchstone of reliability and trust. Maybe the catalog actually drives retention.
Catalog Cost
I suppose I am a heretic—especially this month after the USPS catalog postage rate revelation that seems to have caught the entire industry off guard—but with what other media can you make a lingering sales call and get people to browse your store for less than $.70 a pop? Only with a paper catalog. Even if half the cost is to deliver it from Wisconsin to California, the postage is cheap. And it really isn’t about the postage cost anyway; it’s really about both the response rate and the sales per catalog, and those are really about the quality of the merchandising.
What is concerning, is that a $.70 catalog from one cataloger can do well and a $.70 catalog from another does poorly. The postage is the same. The paper is the same. The ink is the same. It’s all about the merchandising, and we have become lax, soft and sloppy in our merchandising skills. We thought it was all about databases marketing. Then we thought it was all about Abacus and co-ops. Then we thought it was all about search terms. NO. It has always been—and always will be—about the product, the offer and the customer’s needs at the moment.
So, if you want to compete with your $.70 paper catalog, invest in merchandising. It will benefit any channel you use.
Cost is relative. For a small catalog, it might be $.70. For a big catalog, it might be $2.70. It doesn’t matter because it is relative. Merchandising, however, is not relative. It is competitive and objective. We can all whinge and whine about tough online competition, or we can do something innovative, unique and fresh with products, offers and concepts. We can do something creative with photography rather than just using manufacturers’ pick-ups. We can tell a product story with fresh applications. If you want the $.70 to return more to your bottom line, give it something to work with.
Controlled Simplicity or Random Chaos
Stop for a day or two and take a good look around. We’re beginning to analyze systems that analyze systems that analyze. We have more data and bits and bobs than we’ve ever had before and frankly, from what I see, most multichannel marketers don’t know what to do with it all or what it all means. And we’ve got more third-party Internet and search vendors telling us to do even more analyses and to build even more models that we are slowly slipping into the ooze of the Great Grimpen Mire and will soon sink into the smothering oblivion of random chaos. And it’s really expensive.
But the catalog has the attraction of controlled, understood simplicity. It’s a steadying track in an otherwise uncharted online world. We know how to catalog. We know how to investment prospect for future growth and profits. We know how to paginate. We know how to create creative. We know how to get it into hands that want to hold it. And we do that pretty much all by ourselves.
No, I am not returning to my pre-1992 Luddite period. I understand the importance of the online evolution. I simply don’t want it to get too far out of control and destroy the needed balance of our—still—most significant and important channel: the catalog.
Look to the Smart Money for Channel Strategy
In differing countries, I see differing strategies and differing emphases. On two boards on which I serve, there are very smart, very wealthy, very strategic minds leading the way. These individuals would have to be among the very best minds in the multichannel/catalog industry. Both of these brilliant people are increasing their catalog circulation by as much as 40 percent in 2007. They figure 75 percent of those catalogs will drive online orders, and they really don’t care. The catalog is the best vehicle for obtaining customers and for retaining customers. They see paper catalogs as inexpensive, efficient, controllable and effective. They can turn on and off the spigot of circulation as they wish, and the demands of paper catalog merchandising makes them better merchants, regardless of the channel. These two brilliant people are investing in merchandising and circulation while all those around them are investing in multichannel complexity. They are also acquiring other businesses, customer lists, affiliates and catalogs.
The Plea for Balance
As we become increasingly immersed in social marketing, YouTube and MySpace, and the bottomless Google, this small article is, at its heart, a plea for balance. Keep your eyes on all of the multichannel milieu, but keep one eye totally on your catalog expansion, performance and circulation strategy. Avoid the Siren Song luring you fully to the shoals of the pure online world with its writhing chaos. There is safety, comfort and profit in the backwater of the paper catalog, there in the deep waters where the big fish feed and the haul is assured. At least for the intermediate future. Adapt slowly; it’s a Darwinian industry.
The Guideposts
Here area few ballpark guideposts to help you evaluate where you are relative to a broad cross-section of multichannel marketers. These are not absolute, but they are reasonable. Your individual performance will vary.
1. Business to Business Costs (percentage of net sales).
| Cost of goods sold
|
47.1%
|
| Gross margin
|
52.9%
|
| Marketing expenses (catalog)
|
22.5%
|
| Online expenses
|
6.0%
|
| Operating expenses
|
7.0%
|
| G&A expenses
|
10.5%
|
| Operating income
|
6.9%
|
| List rental income
|
1.0%
|
| Income (EBIT)
|
7.9%
|
Any one percent improvement in gross margin or any expense category produces significant benefit to EBIT. This is where there is good to be harvested from a good catalog business.
2. Business to business salaries (7+ years of experience).
| Marketing director
|
$100,000 to $125,000
|
| Merchandising director
|
$100,000 to $130,000
|
| Ecommerce director
|
$120,000 to $150,000
|
| Circulation director
|
$75,000 to $95,000
|
| Creative director
|
$90,000 to $110,000
|
Regional variances are common and may be above or below these salary ranges. This describes what good people are being paid this year.
3. Sales per employee.
This is my arbitrary benchmark for sales per employee based on a running score of the companies I review. This number has been increasing over the past 10 years due to productivity increases from systems. This is highly variable, however, and is determined by many factors. Yet, poor performing companies are usually below this number and excellent companies are usually above this number, often substantially. The key is knowing your company’s trend; only up is good.
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