Musician’s Friend Inc., one of the largest direct marketers of music gear, will test in the first week of July how much incremental revenue a catalog brings to the Internet.
The Medford, OR, company will drop the July catalog in the mail, testing responses of two same-size groups of Internet-only buyers from its house files. One group will get the catalog, and the other group will not.
“We see a correlation every time we mail catalogs, we get a major surge in Internet business,” said Robert Eastman, CEO of Musician’s Friend. “We want to check the downstream revenue to see how much incremental revenue the catalog brings versus the group that didn’t get the catalog.”
The 168-page catalog is being sent to 50,000 buyers of musiciansfriend.com. Another 50,000 Internet-only buyers will not receive it. However, both will continue to get the same online promotions.
A regular book and part of the company’s monthly mailing, the catalog sells a staple array of Musician’s Friend products catering to performing bands, including equipment for recording studios, guitarists, keyboard players, bass players, drummers and disc jockeys, as well as downloads, books and videos.
Eastman said the test also was prompted by a serious threat facing catalogers.
“They’re starting to see their catalog responses drop steadily, catalog by catalog, and they’re going to have to answer the question, ‘Is that incremental business coming back on the Internet or is my catalog becoming ineffective?'” Eastman said. “That’s the big question we’ve been asking ourselves. We see negative comps [comparisons of same-catalog sales] against last year with the catalog. You have to ask yourself: Is my catalog doing poorly or is it driving lots of business to another medium that’s not getting the credit for it?”
While the company’s buyer file grows, the Internet is steadily accounting for more business. Its file of customers that have bought during the past 24 months numbers 600,000, of which 100,000 are Internet-only, 150,000 catalog and the rest ordering over both channels.
“We have determined that Internet buyers, when we mail them a catalog, respond very poorly over the phone compared to a regular catalog buyer,” Eastman said. “So the question is, how much revenue is that catalog driving to the Internet? That is the unknown factor that we’re going to get a number for.”
By contrast, when online-only customers of Musician’s Friend receive catalogs, in-home weekend sales on the Internet spike.
“We also ask people if they’re using the catalog while placing the order,” Eastman said. “We’re looking at 20 percent of orders coming over the Internet at any given time that can be driven from the catalog. But when a catalog cycle starts, it can run up into the 40-plus percent range.”
This first quarter, Internet sales accounted for 44 percent of combined business, up from 26 percent in the year-ago period. Owned by offline retailer Guitar Center Inc. since May 1999, Musician’s Friend last year posted revenue of $133.3 million.
“We still maintain and mail the catalogs to all buyers, whether they place their orders over the phone or through the mail or the Internet,” Eastman said. “We have not taken our buyer file and said, ‘Oh, these are Internet buyers; they don’t need a catalog, they buy over the Internet.'”
The company’s emphasis on this stance is demonstrated on the musiciansfriend.com site. Almost the entire top half of the home page is devoted to encouraging visitor requests for a catalog.
Eastman said the catalog acts as an impulse tool for consumers.
“They didn’t really know they needed something when they got a catalog at home,” he said. “It’s kind of how catalog shopping goes. [For Musician’s Friend], it’s an activation program to get people back to the Internet.”
Though Eastman would not disclose the average order size over the two channels, he said orders from the Internet were 10 percent lower than from the catalog.
But there is a larger issue. In the early stages of the Internet’s development, any business from that channel was incremental to sales from the catalog. But as the Internet gained acceptability as a purchasing channel, catalog buyers starting moving online.
Besides, Musician’s Friend’s target audience has taken to the Internet like a duck to water.
“Part of that stems from the fact that musicians have Internet connections with high activity,” Eastman said, “because of all the music on the Internet – all this pirating of the music, your MP3.coms of the world. Musicians are on the Internet, so, I think, we’ve got a target audience that’s probably ahead of the curve in terms of online usage.”
Still, like any multi-channel retailer, Musician’s Friend is intent on lowering its customer acquisition costs.
“We try to average around $40 acquisition costs [per customer],” Eastman said. “We don’t like to cross $40 across both channels. We find it hard to find places on the Internet to acquire customers, but we do find the ones we acquire from the catalog seem to be easily converted to Internet buyers.”