Don’t Spare That Tree

As e-commerce continues to shake off the hype that marked its debut, the web is finding its place among retail channels. Instead of nosing stores aside as once predicted, for example, web sites are seeing some of their greatest return in working in tandem with store operations. And while there was once talk of the web shrinking or replacing catalog circulation, retailers with a strong catalog base have instead leveraged that expertise into web success.

Now, some pure-play web retailers hope to work that angle from the other side and borrow the proven strength of the catalog channel to help build web sales. Among them, Altrec.com and BackcountryStore.com launched their first catalogs last year in time for the holidays. TShirtKing.com, an online retailer of licensed and other t-shirts, expects to roll out its initial catalog this spring. EBags Inc. released its first catalog 18 months ago and even mega-chain Home Depot Inc. last year issued a catalog with the intention of driving customers to its web site.

Surprisingly, after early buzz about how the web would reach customers without the production and shipping cost of a catalog, it’s an effort to reduce what’s become the increasingly pricey cost of acquiring customers online that’s driving TShirtKing’s foray into paper catalogs. “Pay for click has gotten so expensive that sending anything from a postcard to a small catalog starts becoming more cost effective,” says TShirtKing.com president Bill Broadbent.

Brand positioning

At Altrec and BackcountryStore, adding catalogs is about brand positioning and building brand strength. But these are not your mother’s phonebook-sized catalogs. “Publishing a 200-page catalog is fine if you’re a cataloger, but a bad idea if you’re an Internet company,” says Altrec.com CEO Mike Morford. “Where catalogs are moving today is toward being a sample of what’s available online. That’s optimal because the book size doesn’t need to be as large or the mailing frequency as often. Yet the customer is still walking away with something tangible.”

BackcountryStore.com was curious about catalogs long before it had the numbers to support one. “You’ve got a fixed design cost in addition to your other costs, so you need a list that’s big enough before it gets interesting,” says vice president of business development John Bresee. Discovering this summer that the house list had reached 125,000, Bresee researched catalog response rates, assembled a spreadsheet for costs, and found that for the first time, the numbers might just work.

Broadbent recalls that not long ago, TShirtKing.com paid virtually nothing for its traffic because it got a healthy stream of it from natural search. But that was before paid keywords, paid inclusion and paid direct feeds. “Our standings aren’t what they used to be in natural search,” he says. “We now pay for almost half of our traffic. We used to pay for almost none of it. We think that cost can be improved with offline sales.”

To test that theory, TShirtKing plans to issue its first-ever catalogs in the spring and summer, to segmented customer lists of 50,000 for each mailing. They’ll follow an initial test mailing to about 5,000 on the house list. The lists will be drawn according to purchase history, with the first 8- to 10-page catalog, featuring about 200 of the company’s 2,000 products, targeting a younger audience with music-related and humorous t-shirts. The second catalog, targeting a different audience, will feature more lifestyle-oriented t-shirt messages, and the performance of each catalog will be tested against the other.

The catalogs will align with the web site, displaying items in the same category in which they’re to be found online, and underscoring the point that additional inventory beyond what’s in the catalog is available online.

Tracking performance

To track catalog performance, catalog prices will initially be slightly cheaper than those on the web site. The catalog will provide a code for each item that shoppers can use to get the listed catalog price when placing an order online. “That will allow us to see how many people go from the catalog to the web site to order,” says Broadbent. He anticipates that catalog orders will be larger on average than online orders, based on input from other catalogers, something he’ll help along by selecting for catalog promotion products that tend to make the best margins and move the most quickly.

One thing TShirtKing hasn’t figured out is how to track pass-along sales from new customers who are not on the house list and who order from catalogs borrowed from friends—admittedly a bit frustrating, says Broadbent, since customers’ requests for something to take to school or work is part of what sparked catalog plans.

To reduce costs, TShirtKing is shooting product images for the catalogs in-house and working with a local printer on production. The catalog is supporting a web site upgrade as well, as TShirtKing plans to re-shoot all 2,000 SKUS, not just those immediately destined for the catalogs. It also will add product descriptions to the site as they’re written for the catalogs, which it hasn’t previously done. “Most catalogers would gasp that we don’t have product descriptions already, but on the web site we haven’t really needed to,” says Broadbent. “As new products come in we’ll write descriptions for every one of them.”

Broadbent says he’ll consider the catalogs a success if the cost of customer acquisition via catalogs equals or is less than his cost of online. He estimates that cost at $2 to $3 using search and other pay-per-click marketing, with some campaigns of shorter duration going as high as $6. “If this even comes close to what we are paying to acquire new customers online, we’ll just keep tweaking it,” he says. “I have confidence in catalogs. T-shirts are a good catalog item, and a lot of our customers have been asking for them.”

Already paid for

IRCE 2008 Conference Multi-Media CD-ROM

At Altrec.com, CEO Morford already has a reason to feel confident about his move into catalogs: Sales from its first two catalogs, mailed in October and November, have already paid for the cost of producing and shipping them.

The 30-page catalogs, which went out in each mailing to under 100,000 Altrec customers, all drawn from the house list, were a seasonal selection representing less than 10% of the products online, but in addition to the 800 number, the URL appeared on every two-page spread.

The catalogs also had a purpose beyond immediate sales at Altrec, which sells high-end, high-tech outdoor apparel and gear. “Internet companies are still working on building credibility among consumers,” says Morford. “A deciding factor in doing the catalogs was to establish more credibility with the consumer and to do brand positioning as to who we are and what authority we bring to the table.”

To keep costs down, Altrec used stock and manufacturers` photography when possible. In-house staff did any additional photography or photo manipulation; list management also was in-house. In addition, the company filtered catalog distribution to customers who showed the highest propensity to purchase. “We really went after as many safe bets as possible and kept risk factors low. That impacted catalog performance and it also impacted our expenses,” Morford says.

Altrec measured catalog performance by sending the catalog only to selected existing customers on whom it had purchase information and then checking their frequency of purchase after they received the catalogs. As in TShirtKing’s case, specific information on additional sales that may have come from catalogs that were passed on by customers of record to new customers wasn’t captured.

The second catalog, in November, produced 30% more sales than the first catalog. Though Altrec attributes part of that increase to seasonal factors, it considers the catalogs so successful they will become a regular part of the marketing effort with a minimum of four catalog mailings planned this year, Morford says.

Only a sample

Morford notes that smaller, lighter catalogs showing only a sample of inventory on the web site are a contemporary adaptation of traditional catalogs that suit the marketing needs of web retailers. “A pure-play Internet retailer is really a direct marketer just using the digital environment,” says Morford. “You have to look at what is the most frictionless way to reach the customer at the least expense. In our industry, big stores are high-risk expenditures with limited exposure. Catalogs could go either way, depending on how you build them and what list you market to. This is an area for us to grow in and understand what our competitors have done for years.”

At an estimated fixed cost of about $25,000 with an additional per-unit printing and distribution cost that totaled approximately $80,000, BackcountryStore.com’s 24-page catalog, representing about 180 of BackcountryStore’s 15,000 online items, has more than paid for itself in sales, says Bresee. The company credits the catalog for November and December sales numbers that far exceeded earlier projections. November sales were up 166% over last year and December sales figures, still preliminary, are up approximately 200% year over year. Through the year, sales were within 5% of projections every month. Projections for November were originally 126% over the previous year, leaving a 40-point difference Bresee attributes to the catalog that reached customers’ homes in mid-November. “We essentially gave credit for anything over our projections to the catalog,” he says.

With a house list of 125,000—small by catalog standards—BackcountryStore did little filtering other than validating addresses lest it shrink the list to a size too small to deliver meaningful results. While the company deems the catalog a success, that doesn’t mean there aren’t some bugs to be worked out. It will have to go back to the drawing board on a tracking mechanism that captures customers’ precise path from catalog to web site and call center. The catalog provided specific SKU numbers that would bring up that item’s page in a product search. But instead of using it, customers were more likely to simply go to the web site, look around and locate the item themselves.

While offering a discount for using such codes is one way to motivate shoppers to do so, BackcountryStore decided against that, in part because it didn’t want to give away the margin and in part because manufacturer price controls on many products don’t allow that kind of pricing flexibility, Bresee says. Nevertheless, he’s certain it was the catalog that provided the extra lift. In addition to the November and December sales figures—after the catalog shipped—topping earlier projections, he notes that the web site saw a major spike on Nov. 15, the day the catalog was scheduled for in-home delivery. BackcountyStore also gauged the catalog’s performance based on information from the call center, where agents asked customers for a catalog referral number.

A natural extension

Beyond sales, a key objective for the catalog was branding. Until now, the 6-year-old company has spent marketing dollars almost exclusively on trackable sales. “It was a big step for us to realize that as we grow, we need to be thinking larger and building this brand, not just chalking up sales,” Breese says.

A catalog seemed like a natural extension of the web site given BackcountryStore’s category: high-end, high-ticket outdoor gear. Bresee compares its catalog to the concept of an automobile brochure. “A $700 pair of skis is generally not the kind of thing that you spontaneously purchase. You want to stare at that picture, think about it. Getting those specs in the hands of someone—the length, the side cut, the core material—can really stoke that passion and finally make a customer think, ‘I’ve got to have it.’”

BackcountryStore plans three to four catalogs this year, with product selection based not only on what’s selling well online but what communicates the brand. That starts with the cover. The first catalog featured a skier so deep in power that only those familiar with the sport would immediately recognize what was depicted. “If you were not a skier, you’d wonder what you’re seeing. The goal was to raise enough of a question with people so the catalog would make it past the wastebasket by the door.” says Bresee. “Quite honestly, we’re rookies at catalogs. We guessed—and we think it worked.”

mary@verticalwebmedia.com