February 10, 2010
There is often reluctance to fix a machine that’s not broken. But when the machine is wasteful, minor tweaks can bring greater efficiency without sacrificing performance.
See how a menswear retailer brought their catalog circulation issues under control, realized huge savings, and invested in customer acquisition. Includes six lessons from their experiences.
Like almost every marketer last year, Scott Drayer, Director, Marketing, Paul Fredrick, and his team had to focus on cutting costs without sacrificing performance.
The professional menswear retailer relied heavily on catalogs to reach customers, so the team looked for savings in that channel. They analyzed customer data to identify segments that could receive fewer catalog mailings without depressing sales. As a result, they’ve saved almost 30% on catalog spending, with some customers receiving up to 50% fewer mailings per year.
The team then invested the savings in customer acquisition, lifting acquisition rates by more than 20%. And, according to Drayer, they still have some money left over to offset the effects of the recession.
Here are the six lessons Drayer’s team learned by cutting back on catalog mailings and investing elsewhere:
Lesson #1. Overcirculation is an opportunity
Drayer’s team sent a large amount of catalogs -- up to 10 per quarter for some customers.
"We need to be there communicating with our customer the day he goes into his closet and finds one shirt with a coffee stain, another missing a button, and without any shirts to wear," Drayer says. "He’s not shopping. He’s filling a need."
This strategy worked when times were good, but when the recession hit, the team worried about costs. They had never conducted a detailed analysis of customer data to estimate how often catalogs should be mailed, so they knew that if the process found ways to reduce catalog frequency, it presented a tremendous savings opportunity.
Lesson #2. Strong customer data is required
In order to estimate how customers would respond to fewer mailings, the team needed a significant sample of customer data to analyze -- about four to five years of purchase history.
Information vital to this effort included:
o Data maintained on a customer level
o Purchase channel
o Advertising channel that drove the sale
o Advertising combinations that reached the customer before the sale
Drayer’s team was diligent about capturing and storing data, but they were less adept at analyzing it for trends and insights.
Lesson #3. Use an analyst
Since they did not have one in-house, the team needed to hire a specialist to analyze data, look for trends and make recommendations.
The analyst’s role was to spend three to four weeks looking at the data to identify customer segments that would perform equally well if sent fewer catalogs, and to recommend appropriate reductions in frequency for each segment.
The team identified three customer segments that relied on catalogs to differing degrees when making a purchase:
- Catalog customers
These customers typically ordered products over the phone from a catalog. The data clearly showed that catalogs drove their sales. The team did not want to decrease mailings to this group.
"The whole point is that the people [who respond] best to catalogs are still going to be getting them," Drayer says.
- Transitional customers
These customers were likely former catalog customers who showed a growing propensity to order products through other channels, such as the website. These customers represented a moderate opportunity for decreased mailings.
- Loyal online customers
The final group of customers would likely continue to order from Paul Fredrick with a sharp decrease in catalogs. These loyal customers often purchased through the website, and provided the strongest opportunity for decreased mailings.
Lesson #4. Accept some risk
The hardest part of this effort was accepting "the possibility that it didn’t work and you just cost yourself a lot of money," Drayer says.
Drayer was convinced that potential benefits greatly outweighed possible drawbacks, and decided to move forward with the effort. He has no regrets.
"Our results have been more than favorable. It was worth the effort, most definitely."
Lesson #5. Hedge your bets
Although the team had confidence in their analysis, they did not want to overexpose themselves.
They tested some of the analyst’s suggestions, cutting catalog frequency by 25% and 50% for certain segments, even though the analyst suggested cutting catalogs by up to 75% for some groups.
"We played it a little more safe than sorry," Drayer says.
Continued monitoring of sales data will determine whether the team can further cut frequency for some segments, Drayer says.
Lesson #6. Reinvest in acquisition
The team saw substantial savings in its catalog mailings with negligible impacts on performance. They used some of this money to offset recession-based setbacks. But they invested the majority in customer acquisition.
Catalog savings alone have helped the team:
o Test television and radio advertising
o Expand paid search marketing
o Launch a retargeted banner advertising effort
o Invest in testing software for their website
Useful links related to this article
Going Green: How to Transition Catalog Users to Email & Lift Conversions 19%
Kevin Hillstrom: Helped the team identify customers for fewer catalogs