Works Hard for the Money

The paper catalog has been around seemingly forever in retail, and the advent of the e-commerce channel, against some early predictions, has done little to dim its prospects for remaining a fixture in how consumers shop and buy. Instead, smart retailers are now looking for ways to combine web and catalog strategies in the knowledge that by working in tandem, each channel can make the other stronger.

One such retailer exploring tighter integration between web and catalog is Lillian Vernon Corp., which is working to develop a deeper cross-channel view of customers following a recent move to a new, more facile customer database. “We’re trying to understand the value of a customer coming in through the web channel through search or some other means vs. coming in online or on the phone through a catalog mailing,” says John Buleza, vice president of marketing.

While retailers thrash out such numbers, what’s clear already is that catalogs are continuing to thrive in the Internet age. Though some retailers in the first surge of online retailing were quick to paint catalogs as the equivalent of a horse and buggy on its way to extinction, in fact, catalog circulation is up in recent years, even as the volume of retail sales transacted online has continued to climb. According to recent findings from Forrester Research Inc., 39% of multi-channel retailers surveyed say they have increased the number of customer segments to which they mail catalogs.

Why so? Though the notion of simply cutting catalog circulation in an economy move as more customers shop on the web is tempting to retailers, that can be a short-sighted strategy. For many retailers with a web site, the catalog is a prospecting tool and a way to reach new customers—Forrester’s data shows. 39% of retailers surveyed focus catalogs specifically on customer acquisition.

Dangerous cuts
Attempts by multi-channel retailers to cut back on catalog mailings to save on production and mailing costs haven’t generally benefited those retailers. “Cut back on catalog mailings and you will do a disservice to your year-over-year comparable sales, your e-commerce sales and your total sales,” says Forrester analyst Sucharita Mulpuru.

Early on, Internet-only retailers realized the online channel wasn’t driving in droves of customers to new sites. “A catalog was a much cheaper way to reach out to more customers than building a bricks-and-mortar store, so you had companies like Red Envelope start catalogs very early,” Mulpuru says.

RedEnvelope since has been joined by e-retailers such as Backcountry.com, Altrec.com and eBags.com. Home Décor Products Inc. is the latest web retailer hoping to borrow the proven strength of the catalog channel to help acquire customers and build web sales. CEO Mike Golden calls the first paper catalog the company launched last year one of the most successful marketing initiatives the retailer has ever undertaken.

Web-based retailers such as Backcountry.com use their paper catalogs as a way to draw existing customers back to their web site. Not only does a catalog drop remind its best customers a seasonal assortment is in, it gives Backcountry a way to reach out to past customers who haven’t opted into e-mail who otherwise can’t be contacted. “It’s a customer reactivation tool,” says vice president of marketing Dustin Robertson.

By the same token, multi-channel retailers should know their sites’ best use isn’t as a stand-in for catalog mailings or vice-versa. “People should definitely realize catalogs and web sites work together,” Mulpuru says. “Online can do things even a store can’t do, like present content and more extensive advice, and details on a product 24-7. You can go online, see alternative views, and see what people have said about a product. But the catalog is the equivalent of a store window,” she says. “It draws you in.”

Backcountry’s catalog operation looks to blend the best of the two channels by using data gleaned from analysis of online sales to inform its catalog strategy. After experimenting with an initial catalog in November 2003, a self-developed effort, it hired catalog consultants for 2005 and began to appreciate how much it still had to learn about the catalog business.

Based on the catalog metrics of recency, frequency and monetary value, the consultants told Backcountry that a portion of its house list, for example, was “pure gold,” according to Robertson. No matter how often they were contacted, these customers placed orders in response. Accepting this intelligence initially with some skepticism, Robertson said over the course of the year Backcountry came to see the consultants had been right. “It was absolutely true. There is a good chunk of people who have bought recently and spent a lot who are very responsive to any offer you send them,” he says.

For a year, with the guidance of the consulting firm, Backcountry tried everything a traditional paper catalog company would do, mailing about 3.5 million catalogs in seven mailings and experimenting with page count, at one point boosting its initial 24-page catalog up to 42 pages.

Not everything recommended by the consultants, with deep roots in the catalog world, adapted well for this online retailer, however. Backcountry tried other established catalog practices, such as using catalogs for prospecting, which ultimately proved too expensive for the return generated. The cost of buying lists from Powder and other magazines targeting its audience pushed the cost of acquiring a new customer up from $25 to $30, for example, in contrast to the estimated $10 it costs Backcountry to acquire a new customer online.

Big mail
The catalog consultants also advised against smaller-scale mailings such as postcards and fliers, saying any mailing should put as much of a company’s store in front of customers as possible. “But with 25,000 products we never were going to get everything into the book, and we never were going to pick exactly what people were going to buy. The reality is 80% of what people buy is not in the catalog,” Robertson says.

In fact, the fliers proved effective, cheap and quick at getting people to visit the site—which is stacked with not only more products but more content about them, with the goal of providing all the information customers need to make a purchase decision without contacting the call center.

“We kept thinking, and now believe, that the catalog is a tool to drive people to the site,” Robertson says. “So it needs to be entertaining and represent the brand well, and ultimately drive people to visit Backcountry.com.” Robertson adds with about 20% of the house list now identified as the sweet spot for catalog mailings—an increase from 10% of the list last year—Backcountry will add dedicated staff for the catalog operation, now established as a permanent part of its direct marketing operation.

“It becomes very simple. You mail a catalog to this part of your list and it will pay back at a very high ROI every time,” Robertson says.

If catalogs are new territory for an Internet retailer such as Backcountry, they’re familiar country for established cataloger Lillian Vernon, whose challenge was not pioneering paper mailings but coordinating the strategy of its newer web site with its long-established catalog operation.

Lillian Vernon now does about 17 catalog mailings a year, a slight reduction from prior years that Buleza says is due to a streamlining of the company’s focus rather than a greater number of customers coming online. Sales coming in via the catalog and call center now are approximately even.

Coordinating web and catalog strategy is enabling the company to cut back in places where the web can step in with no diminution in sales. For example, Lillian Vernon had planned to mail a clearance catalog right after the 2006 holiday season and also scheduled a catalog with new merchandise to go out in January.

Let’s get together
The company decided to consolidate the two planned catalog mailings, with an insert of 36 pages of clearance merchandise in the regular new merchandise catalog planned for early in the new year. Lillian Vernon’s e-commerce group’s role was to pave the way for the clearance items with a marketing e-mail that preceded by a few days the combined catalog drop.

“We were able to eliminate a book we would have had to produce and mail and save a lot of money—and the strategy worked great,” Buleza says.

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Backcountry.com experienced similar success when coordinating e-mail campaigns with its catalog drops. Robertson says Backcountry sees an increase in click-through rates and conversion if it times an e-mail campaign for just after it mails a catalog. “It’s probably that if the brand is fresh in people’s mind because they just saw it in the catalog they are more responsive to opening the e-mail,” he says.

Lillian Vernon also is looking at how its web and catalog marketing efforts can be combined to offset a strategic decision at the corporate level that moves the company’s promotional strategy away from a previous focus on free shipping. While the catalog has a longer lead time and shelf life, the web as a more nimble medium can be used to communicate updated information about promotions, products and services to customers in real time as new situations develop, Buleza notes.

One example is cut-off dates for holiday delivery that had been published in the paper catalog at the start of the season. As the holiday approached, order processing was running so smoothly that Lillian Vernon decided it could extend the original cut-off date by two days, an announcement it made on the web site and via e-mail. “It was a great way to communicate to our customers that they still had time,” Buleza said. “We couldn’t do that in the catalog.”

Lillian Vernon expects to gain more insights into how to best coordinate catalog and web strategies following its recent move to Catalog Vision, a data processing service for the catalog direct marketing industry that’s a unit of InfoUSA Services Group. It’s providing Lillian Vernon a single view of customers across channels via match-backs of customers’ web and catalog behavior. While the data were available from its previous database vendor, the retailer had to process requests for reports through the vendor. The new database puts that capacity directly into the hands of business managers at Lillian Vernon, Buleza explains.

“We see the catalog as an important part of the mix, and we’re measuring through match-back and other types of analysis how much web business is connected to the catalog,” he says.

Given the postage rate increase announced for this month, Buleza also is looking to the data to continue to refine catalog and web strategies down the road. “Companies may use data they have to tailor messaging in catalogs—and the page count, especially if they are thinking of right-sizing their investment in that contact stream to what customers support,” he says.

Blair Corp. is another long-time cataloger using the power of the web to refine catalog strategy. The company, launched in 1910, still defines itself as a catalog house despite the web site it launched in 2001 because of its heritage and the demographics of its core customer—older women of low to moderate income. “She’s doing more shopping on the web, but it’s not as web-centric as what a lot of other companies might see,” says Jeff Parnell, vice president of marketing.

Parnell is careful to state the company wants customers to shop the channel of their choice. That said, the men’s, women’s and home catalogs that go to Blair customer segments almost every week now have a new task beyond sales: they’ve taken on a big part of the job of educating customers on the benefits of shopping Blair.com. For example, a recent home catalog had language pointing shoppers to “great decorating tips in our guide to window fashions on Blair.com.”

Enhanced zoom recently added to the site is played up in the catalogs, with the tip on catalog pages that Blair.com’s new online zoom provides visuals of even the tiniest details of stitching or fabric. Catalogs also promote customer product reviews, recently added to the web site from technology vendor Bazaarvoice Inc., with an invitation to customers to visit the site to share their own recommendations.

Oh behave
Blair continues to use catalogs as a way to prospect for new customers. The web fills out customer acquisition strategy with search and other online marketing that targets a younger audience as well as those simply more inclined to shop online. With a marketing database that provides a cross-channel view of customers, Blair is incorporating Internet behavioral data into how often and to whom it sends catalogs.

“How customers purchase online certainly can have an impact on how many catalogs they receive,” Parnell says. “Like a lot of catalogers, we are continually testing how the two channels relate. We haven’t taken a full plunge into dramatically cutting catalog circulation because the customer is a web shopper. But we’re experimenting.”

When web analytics capture online shoppers who appear to be solid catalog prospects, Blair sends them a catalog, just as it uses catalogs to promote its web site. “We are continually trying to create synergy,” Parnell says. “We realize significant opportunity resides in that multi-channel realm.”

Any early speculation among retailers and retail pundits that the web would bring paper catalogs to an end has evaporated: Catalogs not only are holding their own at multi-channel retailers, but formerly web-only retailers have moved to add catalogs to their lineup. If anything, the advent of the web has given catalogs new life with new roles such as a marketing vehicle pointing customers to the web, and by making them more cost-effective sales vehicles as merchants use web insights to target distribution and promotion.

For Internet retailers, catalog strategy today is “really about using catalogs to drive new customers,” Forrester’s Mulpuru says, “and to remind some of your best customers about the products that are there.”

mary@verticalwebmedia.com

A weighty issue

Recent postal rate increases will have an effect on catalog mailings, likely making catalogs smaller in size. That in turn will have a ripple effect on web sites—one more development in an evolutionary process that’s increasing the importance of a retailer’s online presence and turning catalogs into more of a web driver than a retail channel, says direct marketing consultant Don Libey of Libey Inc.

As catalogs continue to shift from a competing retail channel to a marketing and branding medium—a function of marketing evolution as well as ongoing postal rate increases—they’ll feature best-selling products, specials and other elements that will drive shoppers directly to a longing page that features the product and an offer, Libey says. That will hold true both in terms of new customer acquisition and customer retention, he adds.

So what does that mean for a retailer’s web site? “Web sites are going to have to understand the aftermath of the driving period,” Libey says. “As catalogs increasingly become web drivers, it’s not going to be enough to just get customers to the site—you have to get directly to the thing that is exciting the customer.”

Online retailers have time to increase the efficiency of those catalog-to-web connections. “This is not going to happen next week or next year or even in two years,” Libey says. Libey also cautions catalogers against “knee-jerk” reactions in shifting entirely online and abandoning prospect and customer mailings, noting industry statistics showing that 70% to 80% of online purchases are influenced at some point by a paper catalog. In fact, as catalogs become smaller and more narrowly focused, catalog mailings could increase, he says.

But that 70% to 80% figure is shrinking with time, he adds. “The postal rate increase is a watershed,” Libey adds. “The catalog will change, and the web has to meet how catalogs change and enhance that. I think we are going to see a tremendous allocation of dollars from other media into the online media. We are about to see the emergence of web 3.0, and within five years we will have a very different shopping scenario.”