Catalogers strategize for looming postal increase

With paper, postage and shipping costs all steadily inching upwards in recent years, many catalogers have become blasé about “another price increase.”

However, next month’s jump in postage costs is so significant – anywhere from 20 percent to upwards of 40 percent for catalogers – that the industry has been voicing its opposition to Washington in an unprecedented way. In addition, businesses are finding themselves looking under every rock for a few extra pennies.

“Because this happened, it made us do all those things we talked about for the last year,” said Joe Mediate, CEO of KooKoo Bear Kids, an Atlanta-based upscale catalog offering gifts and furniture for newborns and children.

Some of the strategies KooKoo Bear has put into place since the U.S. Postal Service approved the Postal Regulatory Commission’s rate increase on March 19 include co-mailing, decreasing the catalog’s paper weight and reducing the size of its catalog order form.

Because the March decision also included a request to reconsider the Standard Mail flat rate, some catalogers have been hoping that the PRC would lower the rate before the changes are scheduled to take place May 14. This seems unlikely, however, with the PRC’s April 6 move to grant more time to the Coalition of Catalog Mailers – a new group formed as a result of this recent postage increase – to file a motion to open the record for reconsideration of its recommendations for Standard Mail flat rates. It now appears that the best catalogers can hope for is that the postage increase will be lowered at a later date.

One effect that the postage increase is likely to have will be to make some multichannel merchants even more Web-centric.

“One of the things that is working in our favor is that our Internet business has been growing significantly for the past several years,” said Tim Lyons, a spokesman for J.C. Penney.

The way the company’s direct customers shop is now split evenly between its catalogs and the Internet. As a result, J.C. Penney, Plano, TX, is mailing fewer catalogs than it has in the past.

“We still send out a lot and it is important that we do, but [mailing fewer catalogs] has helped to offset some of the increase in the cost of mailing and we expect it will continue to do so,” Mr. Lyons said.

The story is similar at science kit cataloger Edmund Scientific, Tonawanda, NY. While the company expects to reduce its catalog circulation by 20 percent this fall as a result of the postage increase, catalog manager Tim Burns isn’t concerned about a similar reduction in the number of new customers.

“We’ve successfully transitioned a lot of our business to the Web over the past four years, which means we can successfully drive acquisitions using affiliates and search engine marketing,” Mr. Burns said.

Others are more wary of playing around with their circulation.

“I don’t know if decreasing circulation is the answer,” Mr. Mediate said. “The Web site is a good place for people to go and buy, but you can’t beat the catalog experience.”

Even though the 68 percent of the company’s sales now come from its Web site, he believes the KooKoo Bear catalog is what’s driving a lot of customers online.

However, the company will soon reduce the catalog’s page count and test new products more heavily on the site instead.

Some companies are even increasing prospecting this year.

“I’d pull back on page counts before I’d pull back on prospecting,” said Gary Lindsey, vice president of marketing at eToys Direct, Denver, CO.

My Twinn Doll will do twice the amount of prospecting during the fourth quarter of 2007 compared to last year, based on the success of a tiered-pricing promotion it ran last year. Since the company’s products are personalized, My Twinn Doll wanted to see what it could do to convince customers to purchase earlier.

“A lot of times, in the rush of the holidays, they forget to place an order and it gets too late,” Mr. Lindsey said.

The promotion offered customers $30 off the $129 price tag for orders placed by the end of September, $20 for orders placed by the end of October and $10 off orders placed by Thanksgiving. As a result, response rates increased 70 percent.

One cost-reducing strategy that a lot of catalogers are now investigating more seriously than ever before is co-mailing, which is the practice of bringing together catalogs of the same size early enough in the mailstream that they are eligible for lower bulk rates.

While KooKoo Bear has done co-mailing before, it didn’t happen regularly and when it did, it was always on KooKoo Bear’s schedule. After the recent postage increase, however, Mr. Mediate suddenly felt more flexible. “Now we’re on their schedule,” he said, adding that the company has seen a significant postage decrease as a result.

Finding a cataloger that ships at the same time is proving to be a bigger challenge for some.

“I haven’t successfully found any dance partners from outside the company,” Edmund Scientific’s Mr. Burns said.

There are a host of others ways that catalogers are tweaking their books to try to eke out some extra savings.

My Twinn Doll is testing product density per page to figure out “how to squeeze a little bit more out of each page,” Mr. Lindsey said.

KooKoo Bear has reduced the catalog paper’s weight enough to remove an ounce from the book but not enough that most people would notice, Mr. Mediate said. The order form inside the catalog has also been redesigned to take up half a page instead of two pages.

“We used to get between 10 and 15 percent of our orders by check, but now it is less than 1 percent,” Mr. Mediate said.

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