PRESIDENT'S CORNER There is a temptation in such uncertain times to cut back on marketing expense and reduce circulation. Unfortunately, if such reductions are not carefully reasoned, they can actually accelerate financial decline. This decline results from the fact that most direct marketers have built an organization to manage current sales levels. When sales fall, it is very difficult, if not impossible, to shrink non-marketing expenses at the same rate as sales are contracting. There is a real reluctance to lay off staff—and when the workforce is reduced, it is usually at the lower levels, not the supervisors or management that been promoted or recruited at great expense. It is virtually impossible to take back all those salary increases that were given in good times. Many expenses, such as rent, are locked into leases and contracts. Given these realities, one must proceed with much caution in doing anything that will aggravate a reduction of sales. In reducing circulation, you should apply several tests… Read on…FEATURE ARTICLE Without the opacity that was typical of our former Fed Chairman’s statements before Congress, Greenspan summarized Schumpeter’s idea quite succinctly: “A market economy will incessantly revitalize itself from within by scrapping old and failing businesses and then reallocating resources to newer, more productive ones.” Certainly, with regards to the advertising industry as a whole, the events of the past year show that creative destruction is not only occurring, it is hastening. Here are just a few of the highlights...CASE STUDY CIRCULATION TIP CREATIVE TIP MULTICHANNEL TIP CLIENT HIGHLIGHT—DISCOUNT DANCE SUPPLY EMPLOYEE SPOTLIGHT—TRACI KRALL AFFILIATE FOCUS—AFMS LOGISTICS MANAGEMENT NEWS BRIEF
PRESIDENT'S CORNER Almost daily we are bombarded by talk of a recession or conjecture that we are already in a recession. There is ample evidence that many consumers are cutting back if one believes the data reported on the news. From my vantage point, looking at the sales of our clients, it appears that if this is a recession, it is very uneven—with certain merchandise and price categories suffering while a few seem to be thriving. Nevertheless, it is a period for all of us to be cautious. There is a temptation in such uncertain times to cut back on marketing expense and reduce circulation. Unfortunately, if such reductions are not carefully reasoned, they can actually accelerate financial decline. This decline results from the fact that most direct marketers have built an organization to manage current sales levels. When sales fall, it is very difficult, if not impossible, to shrink non-marketing expenses at the same rate as sales are contracting. There is a real reluctance to lay off staff—and when the workforce is reduced, it is usually at the lower levels, not the supervisors or management that been promoted or recruited at great expense. It is virtually impossible to take back all those salary increases that were given in good times. Many expenses, such as rent, are locked into leases and contracts. Given these realities, one must proceed with much caution in doing anything that will cause a reduction of sales. In reducing circulation, you should apply several tests. First, if you are mailing catalogs that are being mailed at a loss but are justified because they meet an acceptable "cost of customer acquisition" under a lifetime value model, you should consider raising what was previously the acceptable response level. It is very likely that if your response rates fall due to a recessionary economy, that the lifetime value of your customers will also fall, changing the equation. It is also likely that many of the lists or prospect segments that were borderline will now fall below the acceptable criteria. It is never permissible to mail any piece where the cost of acquisition will exceed an acceptable portion of the lifetime value of the customer, that which is usually achieved during the first 12 months on file. Second, it is rarely in your interest to reduce prospecting circulation if it is producing an immediate profit, no matter how little. Any contribution to profit is better than no contribution to profit—and new customers translate to future viability. Examine every list and segment that you normally mail and only consider eliminating those where there is a better than even chance they will fall below "incremental breakeven.” Of course, you will have to second guess how you think segments will perform given the changing economic climate. Just remember, there is equal danger in being too conservative if your sales are going to fall as a result. If your sales have been growing under your past circulation levels, it is easier to raise the bar for acceptable response to a level that simply slows or flattens growth. Just be certain that you use an "iron fist" to control expense growth throughout the company. Sometimes an organization is like a freight train that is difficult to slow—expectations for new hiring, continued salary increases, and the newest system must be tempered. LENSER can assist in determining appropriate levels of circulation. We can perform the necessary analysis and provide a "second opinion" if you currently have an internal marketing staff. If LENSER is performing your circulation management, the projections we have completed for 2008 sales and circulation levels provide an excellent tool that can be updated based on current response rates and changing economic expectations. Again, given the continued talk of recession, which unfortunately can become a self-fulfilling prophecy, it is wise to be cautious. However, exhibit equal caution in reducing marketing expense if sales will fall as a result. And, if you determine that marketing expense must be reduced even at the expense of sales, be prepared to be equally ruthless in the reduction of expense throughout the entire organization. In my letter next month, I will address other ways of reacting to tough times—or good times—making sure that all the key fundamentals of your business's financial formula are optimal.FEATURE ARTICLE While reading Alan Greenspan’s “The Age of Turbulence” this past week, I was reminded of the economist Joseph Schumpeter, who, in 1942, popularized, in Greenspan’s view, one of the central dynamics of capitalism: creative destruction. Without the opacity that was typical of our former Fed Chairman’s statements before Congress, Greenspan summarized Schumpeter’s idea quite succinctly: “A market economy will incessantly revitalize itself from within by scrapping old and failing businesses and then reallocating resources to newer, more productive ones.” Certainly, with regards to the advertising industry as a whole, the events of the past year show that creative destruction is not only occurring, it is hastening. Below are just a few of the highlights:
How do these high-level trends in advertising relate to those we are witnessing in multichannel retailing? Will traditional catalogers soon see the ROI for print advertising decline in much the same way that publishers have of late? More to the point, are multichannel retailers participating in a similarly-themed “creative destruction,” in terms of the media used to display and sell their wares? Yes, creative destruction is occurring. I doubt many of you would argue with me on this point. Yes, the rate of change is accelerating. Agreed, this is relative to each business, but, as a whole, the herd is gathering speed, and the event may soon be classified as a stampede. For multichannel retailers that currently allocate a significant portion of their marketing budgets to print advertising, I predict that by 2018 these companies, assuming they still exist, will have a far more equitable distribution of their marketing budgets between print and internet advertising, if not leaning in favor of the internet. Whether or not you agree with my bearish sentiments regarding the likelihood of print advertising maintaining current return on investment metrics, we can agree on this qualitative statement: the internet, both as a medium in which to advertise and as a platform on which to develop software systems that automate the product research, price comparison, order entry, fulfillment and customer service process, is an application that deserves the moniker of “killer.” This particular pattern of progress and obsolescence does not, however, suggest an end to the popularity of direct-to-consumer marketing. Quite to the contrary, in fact; direct marketing, as a percentage of total retail sales, will continue to grow. The wholesale / bricks-and-mortar retail model is alive and well, but it is a time-tested, efficient and mature business model. Database driven, direct-to-consumer marketing is, in many respects, still in adolescence—the commercialization of the internet in the mid- to late-1990s was a sort-of pubescent stage, for lack of a better term, for the database marketing industry. To borrow a few more of Alan Greenspan’s words, we are still dealing with the “irrational exuberance” of market investors reallocating massive amounts of capital away from tried-and-true technologies to those focused on the internet. Just look at the valuation measures of the publicly-traded survivors of the dot.com demise (e.g., Amazon, eBay, Yahoo! and Google) and how they compare to their offline counterparts—there is still a significant premium factored in to the value of companies utilizing and mastering the internet as a mass communications medium. It is not ironic that among the short list of survivors are firms that specialize in providing internet services (and, more importantly, metrics to measure the effectiveness of services rendered) to—you guessed it—direct marketers.Frank Romano, best known as the editor of International Paper’s Pocket Pal and for authoring many reports and books concerning on-demand digital printing, offered this toast to mark the 564th birthday of the print medium:
I do not take issue with Romano’s statements—I would, however, amend one of his statements slightly: “…cannot yet achieve with pixels on a screen the look and feel of ink on paper.” Aesthetically speaking, reading words and seeing images printed on paper—whether it is the gospel according to Nikos Kazantzakis or the latest Design Within Reach catalog—are still easier on the eye. Technological advances in the decade ahead, though, will likely bring to market e-book materials and devices, like Amazon’s Kindle, that challenge Romano’s notion that the medium, as opposed to the content, is the message. In the end, I believe, the printed advertisement is not a sacred cow. What is still sacred, however, is the unique selling proposition. In his December 1, 2007, Multichannel Merchant Magazine article titled, “The elusive impulse factor,” famed curmudgeon Herschell Gordon Lewis called out catalogers for “slavish adherence to style”:
Am I predicting that all print advertising will dry up, and that we will only ever receive product offers on our favorite PDA device? Certainly not. Is a printed catalog’s raison d’être, for an increasing number of multichannel retailers, becoming less compelling? Herschell seems to suggest that it is, primarily because merchants and copywriters are applying antiquated selling techniques. I agree, but I think the reasons are more complex and varied than Herschell states. Indeed, the “creative destruction” currently underway with regards to how direct-to-consumer retailers most effectively and efficiently bring new products and services to market may, in somewhat short order, relegate the traditional print catalog to the dustbin of history. Along the way, I am certain, good merchants, teamed with progressive, cutting-edge marketers, will exploit the next best vehicle. In closing, I want to emphasize one key point: I am predicting the eventual demise of the printed catalog, not cataloging in general, or, for that matter, database driven, direct-to-consumer retailing. Following is a short list of tips to execute and trends to watch as print advertising gives way to internet and other digital forms of advertising:
People call me a Luddite because I do not own a TV. Why do I need one when I can watch Cliff Richard and Dr. Hook music videos (from the early 1980s, no less) on demand, free of charge, on YouTube while I write a LENSER Newsletter feature? You may question my taste in pop music, but I doubt you question my logic. Similarly, you should not underestimate the changing media consumption habits of your loyal customers. Enjoy slaying the sacred cow!CASE STUDY While zip modeling is not new to the direct marketer, it remains a data-based tool that requires in-the-mail validation, and The Great Rate Increase was as good a time as any for many retailers to test zip modeling. In one such case, our prospecting circulation was dominated by the cooperative databases (as it often is) and we extracted interesting, if not unfamiliar, data from our testing. First, we used a zip model to identify a list of “Super” zips. These zip codes were the most highly penetrated by existing customers, and fit a demographic profile consistent with our best buyers. Then we analyzed our sources of prospecting names to see how effective they were at finding names in those zip codes. What we found, as depicted in the chart below, is that even the weakest cooperative model names had more prospects in our best zip codes than any individual list that was available for rental. While that augured well for cooperative database performance compared to those outside lists, we also noted that an overwhelming majority of names even in the best cooperative database segment were not in our top zip string (62%).
We did not change our front end cooperative database selection strategy based on these findings. Instead, when we put the catalogs in the mail, we tracked the coop prospects two ways:
What we found in this case, as we often do, is that a prospect’s direct shopping habits are more meaningful than where they live. The first chart below shows that among the cooperative database names we mailed, those in the Super Zip range behaved no differently than those not located in those zips.
On the other hand, if we received a name from multiple sources and flagged that name in the merge, we created an extremely meaningful segmentation variable. The next chart shows this effect, which in this example is on the order of a 30% difference in performance relative to the average. We are not showing the results of those low-penetration marginal rental lists here, but we can report that they were extremely weak. Demography drove the selection of a few test lists, and even in our best zip codes those lists delivered unacceptable results. The notion that customer behavior can be more predictive than customer location is not new to us here at LENSER, but we were impressed by the clarity of this example. There are several conclusions we draw from these results in addition to those outlined above:
CIRCULATION TIP I have heard this theme several times over the past few weeks with many clients asking, “Can we reduce our catalog mailings and rely on emails to keep in touch with our customers?” We’ve all asked these questions in the past; however before making such risky changes to your contact strategy, there are additional questions that come to mind: How do emails alter the behavior of our customers? Are we training customers by sending out promotional offers on a weekly basis to wait for email promotions before placing their orders? Does the email remind customers that they intended to place an order and drive them back into the catalog—or does the email alone spark the desire to place the order? How do you treat email transactions in a matchback? There are many different opinions and approaches out there and most of these questions will not be easily answered. I receive 5 or 6 emails a week from some catalog companies while there are pure play dot com companies that send out only a few targeted emails a month. The overall impact of sending emails to the house file has been a hotly debated topic among direct marketers for years. Let’s say that X Catalog Company has decided to decrease the number of catalog contacts sent to buyers during the Spring Season from 6 down to 5 and hopes that email contacts would continue to drive sales at the same or higher level. This strategy would obviously save a great deal in expenses, but how can we measure the impact on sales? In addition to the standard segmentation, we can add an email address flag to the records in the merge for a season and code them differently. For example, if you have 50,000 0-24 Month buyers on file, and opt-in email addresses for 30,000 of them, we can split the total universe into three groups and watch their behavior both at a promotional level and at a customer level for a season—or longer. In this scenario, we have the group of 20,000 customers without an email address (Group A), and two groups, divided randomly, of 15,000 each (Groups B and C) of customers with valid email addresses who have opted-in to receive email from us. Please note that we must keep these groups constant throughout the season. When gathering results at the promotion level, business rules must allow email orders to be matched back to mailed promotions, or email results must be included in the totals. Promotional results can be compared to total results, at a customer level, throughout the season in order to determine the overall impact of the shift in contact strategy. There are several difficulties to developing a perfect test strategy as it is nearly impossible to isolate only one variable for testing. However, performing analysis both at a promotional level and at a customer level over a longer time period can boost your confidence in making shifts in your contact strategy, as opposed to your acting merely on intuition alone.CREATIVE TIP What do you do to make your very, very best customers feel appreciated? Considering how much they purchase, and how you spend almost nothing to bring them back again, probably not enough. Often these customers are rewarded by more catalogs in their mailbox and/or more promotional emails. This is good for you—but how can you make them feel like this is good for them, too? What can you do to keep these loyal folks from feeling like you’re “hitting on them” again and again, rather than rewarding their loyalty?
At a time when you’re probably feeling inundated with paper price hikes, postage increases, and so many other decisions that will cost money, you are perhaps thinking that this is a concept you want to set aside for a better day. But when you have a top-tier customer like that, now is a better day to tell them you really appreciate their patronage. And, just as I’ve told you about Talbot’s key fob gift to me, they’ll tell dozens of others who will begin thinking of you as someone they want to shop with, too.MULTICHANNEL TIP It is important to make the checkout process as easy as possible. By using catalog quick shop functionality, consumers are not confused or side-tracked by the site navigation or other products. Catalog quick shop sales can be further increased through relevant and personalized cross-sell recommendations on the shopping cart page. The following are two examples of catalog quick shop pages. In the Title Nine example, several item numbers can be entered at a time in the same box. In addition, the catalog keycode is solicited. While this is not essential with the use of matchback analysis, it is helpful in developing catalog order curves and predicting an accurate completion percentage early in a catalog life.
Once a customer enters her selection, she can select the size, color, and quantity and confirm price before adding the selection to her shopping cart. Notice that Title Nine automatically offered up the current sale price for the item instead of the printed catalog price. This boosts a customer’s confidence that Title Nine will give her the best price available, no matter what channel she uses. With Burpee’s catalog quick shop feature, multiple items and quantities can be entered at once on a single screen. In the case of seed orders, there are many line items per order which drove this layout.
This makes it very quick and easy for Burpee customers to place their orders on-line. A quick review of your average line items per order will help guide you in deciding how many quick order boxes should be presented for your catalog quick shop order screen. CLIENT HIGHLIGHT—DISCOUNT DANCE SUPPLY As years passed, their two children, Brian and Rhonda, became very involved in the business. In fact, they were practically raised running the store. Rhonda had interests in costume creation, where Brian focused on operations, and when Brian turned 20, he branched out and opened another store in Mission Viejo, California. Linda and Ted left the business to their children. Brian, an entrepreneur, received a Land’s End catalog one day and thought it would be a great idea to start his own catalog—Discount Dance Supply. In 1990, while sitting at his Apple computer, he created the first Discount Dance Supply catalog. It had no images, just a list of products. Brian started his direct-to-consumer business by prospecting to lists of dance studios. He rigged up a special bell to the Discount Dance Supply catalog phone, which was located at the back of his retail store. Whenever this phone rang, he would drop whatever he was doing and fulfill the order. Over the years, Rhonda turned her costume design talents to creating Discount Dance Supply’s own Natalie brand of dance apparel, now well known among professional dancers. Natalie leotards, tights, skirts, warm-ups and performance wear are top of the line in quality, style and design, yet affordable to aspiring young artists. Today, Discount Dance Supply is the leader in supplying dance apparel for all types and levels of dancers, from the littlest ballerina to the top professionals, from jazz and tap to salsa and hip hop. Their product offering has greatly expanded over the years, too, to cover the basic necessities, the full spectrum of dance shoes, even accessories that meet the most esoteric needs of the dancer and performer—including a deluxe mobile changing room! Brian believes the cornerstones of success enjoyed by this successful family business are their knowledge of dance, a commitment to service, and the reputation they have built in the dance community. To learn more about Discount Dance Supply, and to see their fabulous line of dance apparel, accessories, and essentials, please visit www.discountdance.com.EMPLOYEE SPOTLIGHT—TRACI KRALL Traci interviewed with Trish Iribarne in LENSER’s List Services Division. “Trish gave me the rundown on List Services and Catalog Marketing, opening my eyes to a whole new industry,” says Traci. “I was hooked.” Traci has been with LENSER now since 2005, but during the last three years, Traci’s role has changed. “I began at LENSER in the List Services department—processing list orders, fulfilling count requests and clearances, contacting list owners, handling billing—doing just about everything required for successfully completing a list order,” she laughs. “It was very interesting, but I knew that I wanted to do more.” Traci’s meticulous attention to detail and her accuracy with client billings caught the attention of Michelle Houston, VP of Client Services. “We needed that kind of keen talent on our newly formed Marketing Analytics team, so we drafted Traci from the List Services group. What a gem! She has been a tremendous asset to our Marketing Services group—and to our clients.” Prior to working at LENSER, Traci spent 6 years working for the manufacturer Hughes-JVC (division of JVC specializing in large screen projectors), where she supervised a Sales Administration team. Her department managed all facets of Sales and Warranty Order Processing for both domestic and international distributors. Traci also administered the Microsoft Access database for projector tracking. On her transition to LENSER, Traci says, “What was challenging about this environment was going from a company selling product to a company selling service—and how critical that service can be to our clients’ success.” “What I like best about LENSER is the intimacy of the company and the opportunity to learn, grow and advance. There is always an exciting, new challenge to face and new problems to solve,” remarks Traci. “I am back at school going for a BA in Strategic Management. With this, I would love to further my career with LENSER.” Outside of work and school, Traci enjoys learning and exploring, and has a love of physical activities such as yoga, biking, hiking, jogging, skiing and outdoor adventure—even skydiving and flying trapeze! She recently enrolled in more sedentary pursuits: a ceramics class and a sewing class, where she finished her first quilt. But that didn’t stop her from just completing her first half-marathon, too.To learn more about Traci Krall, please visit her bio. AFFILIATE FOCUS—AFMS LOGISTICS MANAGEMENT AFMS Logistics Management is the industry leader in negotiating competitive small parcel and freight contracts. Through their vast expertise, they are able to show companies of all sizes how to dramatically decrease shipping costs, raise profits and improve bottom lines. If your annual freight bill is $500K or more, they can give you the edge in the selection, negotiation, and auditing process. But how, you ask? The small package carrier-freight business is based on a “cost to serve” model—similar to what the USPS is striving toward—in that the more specific the work one must perform to deliver a package, the higher the surcharges. “There are hundreds of accessorial charges, basically extra charges, for everything from Air Residential Surcharges to Address Corrections, from DIM weights surcharges to Delivery Area Surcharge Commercial,” says David Humes, Managing Director for AFMS, “and every one of them is discountable. The bottom line is that with our contract compliance options, we can save you about 12 to 15 percent on your average freight bill of $500,000 to $3,000,000 annually, and it goes up from there. That’s not chump change.” By analyzing your options for warehousing, air freight, truck, rail, ground, small package, customs clearance, cargo insurance or ocean shipping, and providing cost comparisons, AFMS Logistics Management can help you focus on reducing and controlling the total door-to-door cost, both domestically and internationally. AFMS can also assist in reducing costs with special supply chain projects, such as site location studies, damage reduction analysis, technology optimization evaluations, international logistics consulting, European distribution, seasonal and promotional surge solutions, mode optimization studies, and special event management. With a team that includes former VP’s, Managers and Pricing Directors from UPS, FedEx and DHL, all of whom spent many years negotiating and crafting agreements on behalf of the carriers, it is no wonder that AFMS Logistics is masterful at demystifying the small freight carrier business. “One thing that our customers love about us is that we truly understand the ‘cost to serve’ model and can tell you exactly how much we can save you before you decide to work with us,” says Humes. “If you want to determine the real impact of this rate increase to your business, just call us for a client rate impact analysis. We’re here to help.” As we continue to widen our breadth of services, LENSER has identified and carefully screened key services to support its clients, representing the best in their particular area of expertise. As part of the LENSER promise, each of these companies will keep its fees competitive and “always go the extra mile” for LENSER clients. We have successfully partnered with AFMS Logistics Management to our clients’ direct benefit. To get in touch with David Humes at AFMS or any of our other affiliates, please contact Michele Salmon at 415-446-2511 oremail .NEWS BRIEF
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