Thanks to new funding from a private equity firm and better response rates in recent months, direct marketing company Cigars International expects to double its sales volume in the next four to five years.
Keith Meier founded Cigars International in 1996. The Bethlehem, PA, company mails eight 48-page catalogs annually, reaching a total of 400,000 recipients, along with another four catalogs to 50,000 of its best customers.
Nearly half of each mailing, excluding the total sent to the best customers, goes to prospects. Sales volume last year was $20 million to $25 million.
Meier got the company up and running without outside funding eight years ago. But going from a $25-million-a-year business to a $50 million one won't be easy. On July 13, private equity firm Svoboda, Collins LLC of Chicago announced its investment.
“We've added an investor to help grow the company more effectively and faster,” he said. “With an equity partner, we can evaluate and take advantage of acquisition opportunities, which we couldn't do before.”
Meier's company will consider acquiring other direct marketers of cigars as well as complementary lifestyle products and unrelated specialty items. Acquisitions will not occur until 2005.
The company also owns two Web sites — cigarsinternational.com and cigarbid.com, an auction site that is essentially an eBay for cigars — along with a retail store in Bethlehem and a fulfillment business that drop ships for third parties.
One lesson the company has learned is that some customers buy cigars from Cigars International only for Christmas or Father's Day. Seasonal buyers have been identified and now get catalogs only twice a year. This approach saves money and ensures that these customers aren't driven off by receiving too many catalogs.
Because cigars are specialty products, targeting specific demographics works only to an extent, Meier said.
As a result, the company has worked in recent years to develop ways to prospect other than through renting mailing lists. It increasingly generates leads through ads in magazines and other media touting boxes of cigars that are discounted up to 65 percent off the retail price.
The company recently placed an ad in U.S. News & World Report for 10 brand-name cigars for $10 per box. Though the company takes a significant loss on these orders, each ad can generate up to 1,000 new customers, Meier said.
The success of this strategy has prompted Cigars International to invest more of its resources in space ads this year.
The company also uses package insert programs to generate leads. It has a deal with a hat company to include a promotional piece for Cigars International with all orders.
The company occasionally rents lists related to activities such as hunting and fishing that provide crossover with cigar smokers.