Letter: Kmart Sure Has a Funny Way of Saying Thank You
On Feb. 22, I purchased three hose nozzles at Kmart, giving them $5.91 in revenue, plus tax. I happened to be driving by and needed to get these nozzles since we're experiencing a water shortage in the Northeast and these nozzles are required to comply with the restrictions. Only purchase I've made there in all of February, March, April and May.
Kmart then took my credit card number (I charge everything) and matched back to a credit card database somewhere and paid to obtain my name and address. Then, they mailed me a thank-you mailer with only one coupon in it: for Kodak film processing.
As noted in the article, all offers were for items priced the same for everyone, regardless of whether they got the mailer. In other words, there was nothing to prompt me to take an action of any type and no tracking mechanism to determine whether the mailing was effective.
I would speculate that the mailer, fully loaded for the database match and postage, cost Kmart at least 40 cents, maybe 35 cents or as high as 45 cents. So a bankrupt company spent $3.5 million to $4.5 million to send recent buyers, including one who had spent $5.91, a mailer thanking the buyers and providing virtually no incentive to come back to the store.
I sure hope that Kmart got Kodak to chip in for the mailing, maybe even pay for the whole thing if they were really good negotiators. Still, one has to wonder whether a bankrupt company could spend $4 million in a better way, like putting inventory on the shelves -- one of the main reasons that Kmart is in bankruptcy.
Kmart said, "The campaign is going to be effective in driving traffic to our locations. And we believe that it will be worth the price in the end." How much increased business at a very low profit margin does Kmart have to get to cover a $4 million expense? Let's assume they get 3 percent of the recipients (ridiculously high, I know) to come to the store. These 300,000 people spend $50 (a guess), on which Kmart has a 20 percent margin (another guess, in 2001 it was 17 percent; prior year it was 20 percent), and Kmart receives $3 million after paying for the merchandise but before all other costs - but it's not incremental because some portion of the customers would have come anyway.
If half of it is incremental (another guess), that's $1.5 million on an investment of $4 million, and they still have to pay SG&A costs, which run 20 percent of sales - of course those costs are there regardless of whether they do the incremental business. I don't see how this promotion makes sense for a financially sound company, much less a bankrupt one.
If the goal is to get repeated store visits, then produce an offer that gets me to come into the store, and make me feel special. And if you can, track the success of the campaign. But above all else, make the offer tremendously powerful.
Actually, I'm thinking of going back to the store to register for the chance to win a life-size Britney Spears stand-up cardboard poster (for my teen-age son). Oh, never mind, I can do that online.
Rick Isenberg, President, RBI Direct Marketing Consulting