Many catalogers perform some kind of square inch analysis to evaluate absolute and relative item sales and profitability. Most analyses focus on individual item, page and merchandise category performance.
By limiting their scope to these factors, catalogers won’t uncover potentially valuable creative or merchandising sales patterns that, if recognized, should lead to even more successful product selection and presentation choices.
Here are my suggestions for improving SQUINCH analyses to ensure they produce a maximum amount of accurate, useful information.
Though it’s easier to perform a SQUINCH analysis if an average cost of goods is used and order processing and fulfillment costs are ignored, these simplifying assumptions can hide important differences. At a minimum, subtract each item’s actual cost from net sales. If merchandise returns are substantial, show each item’s return percentage as well.
Also consider fulfillment. These are costs associated with receiving, picking, packing and shipping orders, handling returns, credit card discounts, bad debt and customer service. Though it is less work to apply a single fulfillment cost percent or cost per item, use instead a combination of fixed and variable expense (e.g., 2.5 percent of sales plus $5 per item) or several different amounts based on handling characteristics.
For example, use one amount for average-to-handle items, another for items especially hard to handle, store or process, and a third for products that are easy to handle, cheap to ship, etc. Factor item fulfillment cost up to reflect expenses created by returns. The easiest way to do this is to base fulfillment on gross, not net, item sales.
Lastly, subtract costs associated with the space each item occupies from its contribution net of product and fulfillment costs. To determine cost per square inch, divide total attributable catalog expense (postage, printing, lists, merge/purge and an allocation for fixed creative expenses like models, photography and copy writing) by the number of square inches devoted to product sales. This ensures each item absorbs its proportion of the cost for such non-selling space as covers, order forms or indices.
Once item profitability has been calculated accurately, it’s time to look beyond traditional merchandise category for insights. Though there are no universal alternatives, every catalog can create multiple categories based on their product mix. Some more common approaches include:
· How long has the item been offered for sale (i.e., is it new to the catalog, appeared in two to five previous issues or been there for years)?
· Sort items by price and create ranges to see which perform best and to check for gaps. If items are commonly put on sale, group savings into ranges based on percent off to determine how discounts affect sales and profits.
· If items can appeal to one or another demographic group, code products with their demographic affinity and analyze sales by these attributes.
· If different quality levels are offered, code items as good, better or best.
· In which room of a home is the item most likely to be used?
· Is an item most likely purchased for personal, household or non-household (e.g., gift) use?
· Does the item carry a house brand, a well-known brand, a lesser brand or no brand?
This list is not exhaustive. Seek additional approaches based on your catalog’s product characteristics. Though there isn’t a universal list of characteristics for judging the effect of product presentation on sales, here are some common options. Here, too, it pays to develop other factors based on your catalog’s presentation style:
· Percentage of a page or number of square inches. This analysis is akin to price point. Sort items by this value and create ranges to determine which prove more or less productive.
· Presentation style. This is typically defined by how products appear visually (e.g., single item, group shot, with or without background).
· Use of models (i.e., presence of a human figure and/or a specific model).
· Use of words or logos such as “sale,” “exclusive” or “new.”
Implementing these additional approaches to square inch analysis is not difficult once item sales data and a space allocation are captured on a spreadsheet. Alternatives like space or price point require nothing beyond a sort and set up into ranges. Others call only for straightforward decisions regarding item characteristics. Recognize that some items don’t fit into a categorization scheme. Lump these into a “not applicable” group.
Though many analyses performed on suggested product or presentation characteristics will not produce meaningful insights, if only a few highlight a major problem, opportunity or gap, the extra time spent on data entry and analysis will have been well spent.
Catalogers should act on detailed item sales information not only by featuring or eliminating the best and worst as most already do, but by giving buyers and creatives insights to help them find more winning products and presentation styles and avoid losing ones.
