Positives and Negatives of a Netalog

It is with no small sense of trepidation that I offer some observations on being a Netaloger. As with any Internet retailing effort, the environment is changing so rapidly that wisdom gained one month may be outdated the next.

So far we have had the experience of only two Netalogs, sent out over the past six months, to draw upon. And yet, even that limited experience has yielded very interesting and, in some cases, surprising insights and revelations.

At gifts.com, our decision to launch a Netalog – that is, a printed catalog that supports our retailing Web site – was done in an attempt to find new ways to exploit and expand the reach of our Web site and to boost its profitability.

With a name like gifts.com, our site enjoyed an outstanding URL. But the Web site was operating as a stand-alone retailing channel and was being promoted by a multiplicity of media advertising – in print, radio and television – all aimed at building recognition and driving traffic to the site. That was a pretty expensive way to generate revenues.

In September 2000, we changed direction entirely.

First, we eliminated the media advertising, and instead of treating the site as if it were a destination portal, we partnered with other successful portals – such as Yahoo, Excite and AOL – thus putting our company at those locations where people were already shopping or might go if they wanted to find a place to shop.

Simultaneously, we decided to make gifts.com a multichannel marketer and created a Netalog to send to lists of targeted populations, much like any direct mail catalog.

In short order, we cut our losses by 80 percent and increased our revenues by more than 300 percent.

But we also found that there were many positives and negatives in making such a strategic shift.

Among the positives, one of the most striking was that the Netalog served as an excellent advertising vehicle for the site – many people who received the catalog went to the Web site to make their purchases.

At the same time, the Web site served as a way to extend the life of the Netalog – even after people had thrown it away, they remembered the URL and could easily go to the Web site when a new gift-buying opportunity arose.

Indeed, one of the greatest surprises was to find how many people who received the Netalog turned to the Web to make their purchases.

Normally, a catalog business that also has a Web site finds that about 10 percent to 15 percent of its orders come in over the Internet. But we were getting three to four times that amount.

We are still not sure why that happened. Maybe it is because the name itself, with its dot-com ending, makes people expect to make their purchases online.

We also discovered that our Netalog resulted in increased order size. Generally, the average size of a gifts.com order had been $50 to $75. But with the introduction of the Netalog, which highlighted more of our upscale merchandise, our average ticket – including both the Web-based orders and the catalog orders – rose instantly to more than $100.

So, the Netalog and the Web site, working together, clearly were having an effect on the size of the purchases we were seeing.

Part of that had to do with the nature of selling via a print catalog. The Internet just has not reached the point where merchandise presentation can rival that of a well-executed catalog.

In terms of the general attractiveness and luster of the photography, we can still make merchandise in a catalog look better than it does on a computer screen. That may change, of course, but it hasn’t yet.

We encountered some negatives, too.

One was that when you entice people to order on the Internet, it is easier for them to go comparison shopping and to lose the impulse nature of the catalog purchase. For those customers eager to find the lowest prices, we risk of losing some of that business.

We do not intend to compete on price. After all, so much retailing on the Web is still not rationally priced – there are still people basically giving their merchandise away, trying to build market share.

Of course, many of those e-tailers are rapidly going out of business. But until merchandise on the Web is priced for profitability, trying to compete on price is not a good way to succeed.

Similarly, when people come to our Web site from the Netalog, we are vulnerable to them downshifting their orders. Because our Netalog features only about 250 items and the Web site features 1,000, sometimes our customers find an adequate substitute product on our Web site at a lower price point.

Another negative was that it is harder to track where our online orders were originating. Many of our online customers do not input their Netalog ID number, so it becomes harder to determine how they came to us. Were they just Web surfing? Did they receive a Netalog?

We have to do a lot of extra sleuthing to figure it out. Though we eventually get a pretty good read on the information we need, it takes more weeks to do so, compared with average catalog customers. It is also harder to know which lists are the most successful and to quickly adjust our strategies accordingly.

However, the Netalog has allowed us to accomplish a great deal. Three things stand out.

First, we have found that it allows us to cast a more upscale aura to our site. This is both a result of the higher-quality presentation and the greater concentration of more upscale goods that we feature in the print catalog.

In fact, some of our luxury items are contractually excluded from online sale and can be purchased only by telephone.

Second, the Web site and the Netalog are complementary, appealing to somewhat different audiences and needs.

Those customers buying from the Netalog more often are buying for themselves or for close family members – like their spouses or children. This encourages the purchase of a higher-ticket item.

However, those customers who are keyed primarily to a gifts-oriented Web site often are buying for people at a greater distance, such as for friends and relatives like aunts and uncles and in-laws, and that is generally a lower-ticket item.

So, we have been pleased to learn how complementary the two channels have been and how the Netalog extends the range of our audience.

Finally, the Netalog has allowed our company to be much more cost-effective.

By enabling a large segment of our catalog customers to serve themselves via the Internet, we have cut out meaningful percentages from our costs.

That is why we have continued to make more and more improvements to our online service, adding such amenities as online checking of order and delivery status. The more we can encourage online purchases from our Netalog customers, the more we can shave our costs.

We do not expect all our catalog sales to happen online. Still, it is this cost-effectiveness that we are focusing on closely, as we build gifts.com into a successful multichannel marketer.

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