How To Offset Some of the Postage Increase
by Don Libey
Amidst the many elements of the postage increase that are unclear, one thing is crystal clear: You will pay substantially more. How do we deal with this dismal reality? At the outset, continue to express your outrage to the USPS, Board of Governors and the Postal Rate Commission. There is still time to make your case. Also, support the Association for Postal Commerce (PostCom) and Gene Del Polito's advocacy on behalf of mailers. Gene has been telling us this would happen for years and has been the lone voice and sole source of intelligence. Do not give up and give in. These are Churchillian times and we must never, never quit.
Two things, however, will do far more harm than good. The first is an emotional, knee-jerk reaction to cut circulation quantities and move online. The catalog is still responsible for upwards of 80 percent of your sales in one way or another. What is needed is a careful analysis of the true reality of the postage increase.
As of this writing, I am hearing from CEOs that the average postage increase is anywhere from 20 percent to 30 percent, perhaps most often about 26 percent. On an advertising budget with postage being 7.9 percent of sales (pre-increase), a 26 percent increase in postage will result in postage expense increasing to about 10 percent of sales. This in turn decreases contribution to overhead and profit by about 12 percent. Earnings (EBIT) are lowered by about 36 percent. This is a serious effect.
The second thing that will be harmful long term is pulling back from investment prospecting. The bulk of our new customer acquisition still comes from mailing catalogs. True, the catalog has become more of an advertising medium and less of a channel, but it still is the primary deliverer of new customers. Stop mailing prospect catalogs and you stop growing.
So, where do we get the needed savings to shore up our earnings? There may be a few places to look.
Non-Productive Mailings
I often can find 10 to 20 percent non-productive catalog mailings in almost any circulation plan. Usually this leakage results from too many unknowns. Key code capture is poor; source of orders is unknown; allocation of unknowns is sloppy or ignored; catalogs are being “blanket mailed” without segmentation by even basic recency, frequency and monetary value, and the result is all customers receive 20 catalogs a year. In reality, maybe only 10 percent of the customer list should be getting the maximum number and perhaps 10 percent (the non-performing customers) should only get one catalog. Whatever the number may be, it must be driven by accurate information and most of our catalog companies have at least the potential of a 20 percent increase in accuracy and optimal frequency of mailings.
Another non-productive mailing black hole is address hygiene. Even after 25 years of NCOA and database management techniques, we still have anywhere from 6 to 12 percent undeliverable addresses. If 8 percent of your catalogs are undeliverable, correcting that problem would likely recoup most of the postage increase you have to pay.
A third non-productive catalog sink hole is “old customers.” For years, I have challenged catalog CEOs and owners as to the validity of retaining customers on the house list who have not purchased in three, four or five years. These are no longer customers; at best, they may be reasonably qualified prospects. Get rid of non-buying, old customers. Half the time they are kept on the house list simply to make the business look good. All they are doing for you is leaking cash into the drain.
A fourth source of leakage is catalog mailings to inquirers. Many catalog companies mail non-buying catalog requesters for three years; not a few even longer. Purge inquirers who don't buy sooner rather than later. When I ask CEOs how long they mail non-buying catalog inquirers, the usual answer is, “I don't know.” Well, if you have 3,000 of these and you send them 5 catalogs a year at $1 each, that's $15,000 that you are leaking.
Mail Smarter
This does not mean to shift more mailings into membership co-ops; in fact, it may mean decreasing membership co-op mailings in favor of getting back to list testing and identifying sources of names that you control.
In response to Mike Tuohy's March 9th article in DMNews, I would offer that not only have my initial questions about Abacus and similar membership co-ops presented back in my DMNews article of August 14, 2006 never been answered, but the loss of list rental income in membership co-ops becomes an extremely important issue when catalogers are suddenly faced with crippling postage increases.
If we are to continue expanding the percentage of co-op mailings in our circulation plans, we need to ask the following questions and actually get the answers:
- Who, specifically, is using membership co-ops successfully? Are there really only a small number of large mailers who fit this model?
- What are the short- and long-term response and yield results?
- How long do members participate, and why do they stay or leave?
- Can you show me a uniform suite of metrics that fairly compares the results of the membership co-op versus the list-specific co-op or traditional list rental?
- How well did the member companies perform prior to and after joining the membership co-ops? This would be an “oranges and oranges” EBIT, repeat purchase measurement and customer lifetime value calculation.
- What would the lost list rental income be and how much of my postage increase would be offset if I were earning rental income, and is the benefit greater than my loss?
Mailing smarter also includes using all of the appropriate modeling and database management sophistications and advanced circulation planning expertise that you can. You need to embrace your list brokerage and management firms as you have never done before. This is not the time to bend them for another 2 percent discount on your rentals. This is the time to pay them additional commissions for improving your customer acquisition, your house models, for optimizing your circulation plan, and for offsetting a portion of your postage increase.
Co-mailing is uber-smart. Perhaps it is time to move to an industry-wide co-mailing standard that achieves maximum Enhanced Carrier Route sortation for all catalog mailers. Both maximum co-mailing and entry at only Sectional Center Facilities can produce much-needed postage savings.
Mailing smarter revolves around metrics. And, I can state without reservation that the majority of catalogers still have along way to go in knowing their numbers. Twenty percent of your mailings are still “seat of the pants.” Get your numbers in order; understand who, when, why, how many, how often, and what it costs before you mail 200,000 catalogs.
Catalog Production
Postage can be partially offset by a number of production options. First, assure that you are working with the most efficient, advanced and leading-edge printer. You cannot afford to pay for inefficiencies of old manufacturing, poor data management, poor mail stream configuration, or limited pre-press sophistication. The truth is that the printing industry has consolidated and the economies of scale favor those who have made the investment. Also, printers are your representatives with the postage knowledge and programming. Make sure you are working with the best.
Catalog production also includes trim size reduction. You can save a lot of money on postage by shifting to a letter-size catalog, the “Slim Jim” for instance or the digest. But this changes response significantly. Any such move requires very careful modeling and financial projections. You can, however, move to short cut-off presses to save money. The 8 x 10.5 trim size may be a source of postage cash for you.
The short cut-off press uses fewer crewmembers and is, therefore, less expensive to operate on an hourly run-rate. Some advanced catalog printers, such as QuadGraphics, are reconfiguring their press rooms so that one crew can run two presses. Quad has even described configuring presses stacked two-high so that one crew (with some additions) could run more than two presses, perhaps three or four. This is the type of innovation that you must search for when evaluating print cost. Don't just automatically demand a discount; find innovative concepts that save you money without sacrificing quality.
Self-covers rather than a separate, heavier weight cover could save you money. And, of course, moving to a lighter weight paper and a lower whiteness and brightness paper will produce significant savings on postage.
I would also tend to believe that the bind-in order form (which has been slowly disappearing) is likely a thing of the past, given this ill-conceived postage increase.
Reducing page counts is also a viable tactic for reducing postage costs; however, there are serious implications for response and sales. You must carefully calculate what this means. If the catalog is to be downsized to become a web-driver, understand exactly what that means and what it entails, and how it will influence the business as a whole. Page count reduction and web product availability have to be carefully integrated. Implied in page reduction is absolute knowledge about product and transaction history. Taking a catalog from 128 pages to 64 pages is a very serious undertaking that requires total merchandising expertise and knowledge. Most of our catalogers don't have that level of understanding; merchandising has only in the past few years risen to prominence. Knowing exactly what products to feature in a web-driver catalog is difficult and demands analytic precision.
Conclusion
There are numerous other tactics to be evaluated in attempting to reduce the postage increase burden on our income statement. All of them would seem to be fair game for consideration. In my over 30 years in this industry, I have no seen such a crippling postage increase as the one we are faced with.
Whether it is put in place at the 20 to 40 percent increase levels we are seeing is to be determined. But, this I do know: nothing in this article will harm you. It is time to focus with laser intensity on the leaks that we all know exist. It is time to plug the holes and it is time for extreme efficiency.
And please continue voicing your concern. Send emails and fax your letters to Postal Chairman Miller's secretary at wendy.a.hocking@usps.gov and to Postmaster General Jack Potter at jpotter@usps.gov. Fax and send letters directly to the chairman of the board of governors, he Honorable James C. Miller III, Chairman, Board of Governors, U.S. Postal Service, 475 L'Enfant Plaza SW, Room 10300, Washington, DC 20260-1000. Phone: 202-268-4800; Fax: 202-268-5472. Also fax to The Honorable Dan G. Blair, Chairman, Postal Regulatory Commission at 202-789-6886.
Don Libey is president of Libey Incorporated, Cherry Hill, NJ. He can be reached at libey@libey.com
