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Libey Incorporated
Economic Outlook
Secrets of the Catalog Master
Vol. MMVII No. 2 March 2007
(Continued--page 3)
Business to Business Growth by Medium
The following highlights a variety of business to business media and the compounded projected annual growth for each through 2009. Perhaps this will assist you in focusing on possible growth initiatives and logical allocations of marketing resources.
| Media
|
Projected Annual Growth Through 2009
|
| Catalog
|
4.6%
|
| Non-catalog (envelope/flyer)
|
6.2%
|
| Telemarketing
|
5.5%
|
| Internet
|
11.6%
|
| Email
|
11.6%
|
| Insert media
|
6.2%
|
What I think this indicates is that you have a need to rationalize your media by triangulating dollars, response and projected growth. The key is to get to your logical annual growth and logical media. While these are broad industry numbers, your numbers will likely be very different. The point: Do you know? Does your marketing team know?
The other thing that becomes very clear is that we are still and will remain a list-based industry for the future. Don’t lose sight of the value of a name versus the value of a search term. We do business with people.
I believe the next 2-3 years will require a far more analytic and accurate determination of where marketing dollars are to be spent. We are in the very early years of gaining experience with multiple channels. Previously, we only had to rationalize mail and telephone, by and large. Now, we have added online, email, search, and other media to the mix. Most companies do not, as yet, have a solid grasp on the relationship between these expenditures and are exploring how to measure and plan for future optimal advertising allocations.
Catalog Production 2007-2020
The paper industry experiences exceptionally long lead times for manufacturing paper capacity and constantly studies demand for catalogs very carefully. In my experience they are the best “crystal ball gazers” to predict the future of the catalog. Here are their numbers for all catalogs expressed in Thousands Short Tons.
| Year
|
Total Catalog Paper Consumption
|
| 2007
|
3,876,000
|
| 2008
|
3,973,000
|
| 2010
|
4,136,000
|
| 2015
|
4,749,000
|
| 2020
|
5,232,000
|
Conclusion: This is a compounded 35 percent increase over 13 years. The paper industry is expecting catalog growth to continue to grow at these rates the intermediate future. Cheaper grades and lighter weight grades of paper will be used by catalogers, a shift from coated #4 and #5 grades. What this tells us is the next 15 years have a strong catalog component to the multichannel industry.
Perhaps you have found the various benchmarks and comparisons throughout this issue to be of interest and of some help to evaluating where you are relative to other companies. All of these are, as I have stated, different for every company; only you can determine where you should be, but these are reasonable indicators on a map for you to read and use as you see fit.
Ecommerce Systems
Netconcepts
Reasonableness has to be considered in all systems purchases, especially those for ecommerce platforms and search engine optimization. For me, the definition of reasonableness is whether something will work and is priced somewhere below the cost of a small nation. In full disclosure, I have no relationship of any kind with the company mentioned; I just like its premise and its reputation.
Netconcepts has been around about 12 years now. Located in Madison, Wisconsin, they number among their clients companies such as Northern Tool + Equipment, Cabela’s, Home Shopping Network, REI, Discovery Communications, Inc. and many others. None of these are small operations; most are complex with lots of SKUs.
Netconcepts has two primary ecommerce entry-level products: GarvityStream for search engine optimization; and GravityMarket, a suite of open source code-based solutions for the ecommerce platform.
I am a believer in open source code. It is not proprietary. It’s not “owned” by somebody. The code is not stored in someone’s garage.
I am also a believer in reasonable cost. The entry price for the search engine optimization package is about $8,000. The entry price for the ecommerce platform is about $25,000. Kind of like buying a Ford Focus and a Ford 500. Reasonable.
GravityMarket is a suite that enables merchants to set up a shopping cart, offer gift certificates, feature select products, optimize search engine marketing and offer up best sellers. Netconcepts is expanding the capacity for GravityMarket to help retailers improve their web site, as well as their online marketing and merchandising across all sales channels, thereby helping shoppers make more informed purchasing decisions.
GravityStream, the SEO package, helps catalogers build a more keyword friendly site search engine and a stronger online brand identity. It can also assist in improving customer loyalty through an intuitive and user friendly shopping experience. GravityStream can create more effective cross- and up-sell strategies, such as programming the shopping cart to bring up best-selling items once a product is placed in the cart, along with add-ons and gift cards. It’s also Web 2.0 technology.
Not bad: open source code; solid company; good clients; reasonable cost. Probably worth looking at. Plus, there is just something good about companies that are based in Madison, Wisconsin. Madison is a center of Midwestern direct marketing and the talent and work ethic in Madison is special. Also (and not trying to be a snob or anything) Madison and, indeed, the Midwest, has a lot of very bright and innovative people.
Systems Spending
Overall in the catalog and online direct marketing industry, technology replacements or upgrades for 2007 are broadly estimated to be as follows:
| Replacement Priority
|
Percent Catalogs
|
| Ecommerce platform
|
42%
|
| Order entry/management system
|
34%
|
| Site search system
|
42%
|
| Web analytics package
|
30%
|
| Website performance monitoring
|
25%
|
| Shopping cart package
|
30%
|
Interestingly, given the costs and the talent required to make these replacements and to upgrade online technologies, only about 30 percent of the catalog and online companies plan to hire outside vendors to assist them with the technology projects or use outside third-party vendors. That means that about 70 percent of the catalog and online companies are choosing to handle their technology implementation internally.
Similarly, online marketing is a significant cost center, yet only about 30 percent of the catalog and online companies use a third party vendor for managing their search programs. Roughly 70 percent run these initiatives in-house.
It would appear, as the industry matures and gains sophistication, we believe that we can do it better for less cost in-house than as an outsourced function.
The China Connection
Undoubtedly you saw DMNews’ announcement about FedEx:
DMNews; March 2, 2007: FedEx Corp.'s FedEx Express unit has completed the purchase of Tianjin Datian W. Group Co. Ltd.'s 50 percent share of the FedEx-DTW International Priority express joint venture and DTW Group's domestic express network in China for about $400 million in cash. Memphis-based FedEx said China continues to be one of the fastest-growing markets in the express industry and a key to its international growth and profitability. The acquisition will allow the company to solidify its leading position and ensure its global customers continued access to China. As a result of the acquisition, FedEx will employ more than 6,000 people in China. DTW Group will continue to operate international freight forwarding, general cargo transport and merchandise distribution businesses.
Now, let’s think about what this means. FedEx is a global brand with, I believe, the largest fleet of airplanes of any earthly entity; larger even than the U.S. Air Force. FedEx has a huge stake in distribution in China. FedEx specializes in moving “stuff” in boxes from point A to point B.
The article above states, “The acquisition will allow the company to solidify its leading position and ensure its global customers continued access to China.” What it doesn’t say, but what is implicit in the acquisition is that ‘The acquisition will allow the company to solidify its leading position and assure its Chinese customers access to the global market.’
In short, I have been saying for about a year that we have been slowly but relentlessly teaching China about direct marketing. When they learn to become catalog and online merchants, selling and fulfilling ones and twos rather than container loads, we will have a formidable competitor with a price structure that will make even Wal-Mart go all nuts.
What lies behind this is an inevitable market force that will not allow for the costly double movement of a good from point A (China) to point B (your warehouse in Atlanta) and then from Point B to Point C (an end-consumer in California). Trucking the product across country twice is not efficient.
When China is able to sell the same product online—at China’s cost to produce—and ship it directly to the end consumer, the U.S. merchant has a new competitor. What we possess now is the barrier to entry: direct marketing and online marketing knowledge and assets (lists, niche markets, customer base). Perhaps it is time for us to be a bit more possessive of our knowledge.
It looks to me like FedEx has hedged its future bets and is setting itself up to be the package delivery company of record for the new China direct marketing industry. You heard it here first.
A Final Word
If business for you softened in the first quarter, don’t go getting all crazy and cutting back and reducing mailings and prospecting. It seems to have softened for a lot of companies and my guess is that the weird weather had as much to do with it as the state of the economy.
Every time we see a dip—whether due to disasters, weather, anthrax scares or whatever—the meek rush to pull back and they spend the next two years trying to catch up. Sorry, but the meek do not inherit the earth.
Don’t panic. Use solid logic and common sense and manage the business rationally with a consistent but growth-oriented look to the future.
If you look at the very long view—say, 1970 to today—you see a business that has “octdupled” its size. If we had not invested and pushed the edges, we would be where we were then. It will expand. It will grow. It will be ten times larger in another 30 years and none of us will be around. But, pulling back . . .? “There’s no pulling back in baseball!”
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