Balanced counsel is vital as catalog circulation grows

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According to the Dec. 4, 2006, edition of BusinessWeek, almost 2.6 billion more catalogs were mailed in 2005 than in 2002. That would be 19.2 billion catalogs sent in 2005 versus 16.6 billion sent in 2002.

In November, the granddaddy of online retailers, Amazon.com, mailed millions of a 48-page "At Home for the Holidays" catalog.

Hold the show! Catalogs? The dinosaur of direct marketing? Indeed, a few years ago the catalog's demise was widely accepted as being only a matter of time, a sure victim of the online tsunami.

Given this upbeat report of catalog rebirth, the future of the list industry's catalog sector is brighter than ever. Likewise, the need to provide balanced, objective and seasoned catalog circulation planning advice will be increasingly the coin of the realm.

You will note that I emphasize the importance of a list broker's balanced perspective and experience in the provision of effective prospecting and retention strategies to catalogers.

Most catalogers agree this is what they want from their list broker. Yet, in actuality, an increasing number of consumer and business-to-business (BTB)catalogers are following prospecting practices that reward simplicity, savings and higher response rates at the expense of long-term customer value.

This drift from objective prospecting discipline is almost exclusively the result of the rise of transactional membership cooperative databases.

The consumer and BTB membership coop databases include customer addresses and transactions submitted by "member" catalogers. Hundreds of catalogs participate and through the interaction of the record matching process, catalog multibuyers are identified and flagged.

The membership database is, for all intents and purposes, a depository of "super" multi-buyers. Members extract names using a response model or by demographics.

Since this is an environment of "super" multis, many member participants often enjoy good response rates in the higher deciles and, thus, find these names a productive additional source of prospects.

Because there is no list owner to pay, prices for membership coop names are somewhat lower than catalog buyer lists. It can greatly simplify the list selection process to call the membership coop and have them send the top two or three deciles to the printer.

Died and gone to heaven are the circulation managers who can point to lower list costs, good response rates, thereby earning kudos (and bonuses) from their superiors, while at the same time simplifying their lives.

The debate about membership coops versus list-specific, core continuation prospecting strategies begins with questions about the long-term value of customers culled from large pools of super multi-buyers.

The debate is more complex when you consider the marked differences between buying behaviors in the consumer and BTB catalog markets.

As a specialist in BTB catalogs, let me share some thoughts about this divide. The two BTB membership coops, B2BBase and Abacus, can be a productive source of incremental names and thus should be tested thoroughly for their ability to become a part of the objective, list-specific core continuation prospecting program of the cataloger.

That said, in my experience over 20 years, the highest response rates and the lowest acquisition costs usually come from very small companies that deliver little or no long-term profit. The BTB membership coops are heavily front-loaded with these high-response, low-value companies.

Unfortunately, some catalogs unknowingly create incentives that work against the ideal of acquiring high-value customers. These are typically companies that bonus circulation managers who produce a) an increase in response rate b) a lower average list cost or c) a hybrid calculation such as a lower cost to acquire a new customer.

Note that none of these metrics provide an incentive for acquiring the type of loyal, long-term customer upon which great companies are built. Incentive programs that reward short-term greed have a short-term impact.

I am reminded of the maxim of Goldman, Sachs & Co., unarguably the most profitable financial institution on earth: "Greedy? Yes, but long-term greedy."

Far and away, most catalog executives will tell you that their overarching prospecting goal is to recruit new customers that look like their best current customers. These are customers who buy with desirable RFM characteristics over a long period of time. The most successful catalogers will gladly pay a higher acquisition cost for these higher value customers.

Over the past few years, MeritDirect has engaged with a number of its business-to-business catalog clients who are interested in practicing the art of "long term greedy." We have developed analytical tools and processes that enable us to look back at many years of customer buying activity.

Buyers are aggregated and tracked back to their original purchase at the individual list or key code level. What is produced is a long-term P&L at a very granular level.

We have run variations of this type of analysis such as aggregating years of purchase activity by list type i.e. buyer list, subscriber list, compiled list, membership database list, inquiry list, etc. We have also studied long-term buyer behavior based upon demographic characteristics.

One of the most interesting buying patterns we have verified is, regardless of a catalog's product type, larger businesses produce many more high-value, long-term customers than do those with 10 or fewer heads.

These and other standards of "look back" and ongoing measurement allow us to develop circulation plans that yield more new customers who look like the mailer's best customers.

The tools and processes needed to help catalogers identify and accumulate more long-term valuable customers are available now. This capability to evaluate expensive prospecting investments gives catalogers an exceptional new methodology for constructing objective, list specific customer acquisition programs that will deliver on the promise of being "long-term greedy."

Of course, there will always be those catalogers for whom a shorter horizon exists and the use of tools that serve the needs of short-term greed may be appropriate.

Catalogs in decline, transition or owned by public companies, those for sale or those designed as branding or traffic generation tools are examples where an embrace of short-term metrics may be justified.

Now, in the heady days of a reborn catalog industry, every cataloger has a choice. You have available to you the tools and methods that will produce the outcome you desire. So what will it be? Are you short-term greedy? Or long-term greedy?

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