Digital Clues Demystify the Conundrum of Catalogs
By Dan McKone, [email protected]
More than 12.5 billion catalogs are mailed out to U.S. homes each year. But has their effectiveness waned as more customers head online? Are catalogs reliable money-makers or have they just become an inefficient necessity eating away at your bottom line? The answer probably lies somewhere in the middle.
To get to the heart of the matter requires detective work to analyze your customers’ behavior. Traditional catalog distribution algorithms were based on building a book first and then figuring out who in the customer file should get one. This always results in costly over-mailing, and entire organizations are formed to continually analyze and tinker with recency, frequency and spend models to better identify where the money is wasted. Like advertising, it’s really, really hard to predict which part of your budget you don’t need and since the whole exercise appears to be positive ROI, the temptation (rationally) is to overcompensate rather than risk a devastating top-line impact.
But how much higher could that ROI be if you could eliminate the negative marginal contributors? A more cost-effective solution requires a tailored, customer-centric approach, following digital clues to dictate not only who should receive information, but when and how. These clues are grouped and assigned to different categories of customers, each of which have a defined set of characteristics that necessitate a distinctive approach.
Profiling your way to a more effective spend
One of the traits of the most successful retail brands is their ability to narrowly define their core customer archetype and to rigorously understand the detailed behavior of both the core and key secondary customer types. Using a similar form of behavioral segmentation, a retailer can methodically reduce paper spending where it will have the least impact on sales – with its most digitally engaged consumers. The challenge is identifying who this digitally engaged group actually is. The investigation must begin with pulling the clues – what L.E.K. calls digital behavioral signals ™ – that are being tracked to rate a customer’s level of online engagement. These clues will vary for every organization, but sometimes can be found in even commonly watched metrics like email click-through rates, site dwell time or subscription behavior. Signals like these can be correlated with whether the customer received the catalog and their reaction – i.e., did they make a purchase? What type? Clearly, these things must be tracked over time and compared against other indicators. However, even a methodical discovery process can pay excellent dividends to those willing (and with the right know-how) to perform a formal investigation.
Closing the Case
The intention is not to eliminate catalogs; we expect they will remain an effective vehicle for stimulating sales among some customer groups for a long time to come. For example, a poll by the National Retail Federation reported that more than a third of consumers said they would seek ideas from catalogs over the most recent holiday season last year.
However, there is a major opportunity in identifying the right marketing media mix for different categories of customers. A catalog mailer has a different role and level of importance among different customer segments. For some, it may be used as the primary method for sales. For others, catalogs may complement digital sales efforts by driving some type of action to the website. And, as the analysis above points out, there is a growing minority of customers who can, dare I say, be eliminated from a number of traditional mailings without much of an impact at all. The goal is to engage with customers in the most effective way and use a more selective, systematic approach to cost-cutting marketing vehicles. As customer behaviors and preferences continue to evolve, it’s important to establish a system for tracking those changes and testing new ideas to inform more rational decisions about where to make marketing investments.
Dan McKone is a VP in L.E.K. Consulting’s Retail Practice, and head of L.E.K.’s Customer Experience and Loyalty Practice. He can be reached at [email protected].