Over at my catalog business, Koeze Direct, we anticipate that the economics of mailing catalogs to strangers -- called catalog prospecting -- will continue to get worse and worse as costs rise and response rates -- the number of consumers who actually order -- continue to fall.
What won't go away is our need to find new customers. Like everyone else in the industry, we're hoping that search engine marketing (SEM), the combination of organic search (trying to get a high rank on search engine pages) and pay-per-click (PPC, buying ads that go with certain search terms), will replace prospecting as a source of new customers.
I fear, however, that Google is going to make that hard as they continue to attempt to make searching more personal by adding new features. Douglas MacMillan on the Tech Beat at Business Week writes about Google's new features:
Last Friday, Google quietly rolled out a feature which may have even greater impact on Web users — though many are unlikely to notice. With something the company calls Personalized Search, Google will start showing different search results for different users, depending on which links they have clicked the most in the past. In theory this means that eventually, a car lover and a zoologist typing “jaguar” into the search field will wind up with two different sets of search results.
Search tailored to individuals will no doubt make Google more useful. But what will it do to advertisers? Businesses that have spent years and millions of dollars optimizing their Web sites for search may find themselves gradually shoved out of the top 10 listings for choosy Web surfers who prefer non-commercial pages like Wikipedia and LinkedIn. Ultimately, businesses could decide to spend less money juicing their placement in “organic results” and more on the paid search ads from which Google derives the bulk of its revenues.
The problem for new customer acquisition is a little different. We need to get in front of people who aren't familiar with us. But if Google is sending folks back to the places they have already been, that will be harder and harder. PPC might be an alternative, but big brands with big budgets will probably rule that world in a way they haven't (yet) been able to in organic search.
I sense I have this problem with Google already, as they have many tools to use to "personalize" my results. I remember first using Google and thinking it was a crystal ball. But now it seems more like a mirror.
This morning I was greeted by emails from a few Koeze Direct customers asking about whether we were going to repeat some of our prior free shipping offers. A couple explicitly said, "Give me the free shipping, or I'll buy from someone else." I emailed back to say how sorry I was to lose them.
Like all direct marketers, Koeze Direct loses a certain number of customers every year. These customers need to be replaced with new ones, and that often requires making some sort of special offer to inspire prospective customers to give our products a try. We lose money on the first order, but we hope to land a loyal customer and make a profit in the future.
For several years now, a "free shipping" offer has been the #1 motivator for new orders in the direct marketing business, and we have tested these offers extensively. But such offers can only be successful if we retain those customers and they are willing to pay shipping going forward -- either in the form of shipping charges or in the form of higher prices for our products. (For more on this, see this post.)
What we are beginning to see is that free shipping has become an expectation from some customers. If this expectation becomes the norm, it will pose a huge challenge to the mail order business.
Yesterday I was reading the customer comment list for Koeze Direct for the week, and came across this comment: "You people make more money off shipping than the product."
Resistance to shipping and handling charges is growing among our customers, and I believe this is widespread. I also find it rather curious, first, because it is a real and valuable service that mail order and web retailers provide, and second because as more retailers move to so-called "free" shipping, transparency in product pricing will decrease, which is never good for consumers.
Just to set the record straight, however, Koeze Direct strives to break even on shipping. We collect more than we pay on some shipments, and less than we pay on others. This is because we charge freight off a simple chart based on value, and the actual cost of a shipment depends on weight, distance, and surcharges (for fuel, residential delivery, etc.). But our charges are usually less than you would pay to ship it yourself.
To give a concrete example: Koeze Direct charges $8.95 to ship a 30 oz. jar of cashews, which packed to ship weighs 6 pounds. Shipping that the cheapest way possible via UPS (basic ground, within a single UPS zone, to a commercial address) costs $7.90. But send it a bit further -- say St. Louis, Missouri -- and make it a residential address -- and the charge is $11.72. And, mind you, in the S+H charges Koeze provides the box and other packing materials, and they get the package into the shipper's hands (perhaps saving you a trip).
Because the products are heavy compared to most others, Koeze doesn't feel that they can make a profit on shipping and handling and stay competitive with folks who sell stuff that weighs less. But many, if not most, shippers do make a profit on their shipping operations. Personally, I don't think that is a bad thing. Lots of businesses provide a combination of products and services, and almost all attempt to make money on both. The example that leaps to mind is getting your car fixed. You pay the hourly service rate, plus the costs of the parts. The auto repair shop makes money on both.
I do think that the emphasis on "free" shipping is a bad thing in the long term for consumers. Free shipping isn't free. Customers are ultimately going to pay for this service, whether they pay in higher merchandise prices, or as an added charge, or in some other way. (As my father always says, "There ain't no free lunch.") What customers lose is the ability to compare prices as carefully when merchandise and services get blended into a single price, as they do with retailers who offer so-called "free" shipping.
Jeffrey Ball's "Power Shift" column in today's Wall Street Journal has a decent piece about the persistence of paper catalogs in the age of the web. The comments about this article are also worth reading.
This brings to mind a question that I'm frequently asked -- why do you send me so many catalogs? There are two answers to this question.
The first answer is that the technology for matching names and addresses is imperfect. That is, if you order from your home and your work address, and give us different versions of your name each time, you will be in our database multiple times. We'll try to prevent that on the front end by using your customer number to match you to our files, but with phone, fax, email, web, and old-fashioned snail mail points of contact, many matches will be missed. On the back end we use sophisticated software to "de-dupe" (remove duplicates) from our database, but it is far from perfect.
Moreover, when we run the names in our database against suppression lists (such as the DMA's mail perference file) we have to rely on that same software to make a match. So, differences between our data and theirs might lead you to be missed and to receive a catalog you don't want.
Finally, when we rent names we are using that software as well. We don't want to pay to rent your name if we already have it, but if the software doesn't catch the "dupe," we do -- and you get extra catalogs.
The only way the system will work perfectly is if you use EXACTLY the same name, and EXACTLY the same address every time you order anything. Nobody can be expected to do that, but neither can we expect our software to de-dupe perfectly.
The second answer is that even if we only have you only once in our database, we might send you as many four catalogs between September and December. Why? Because it works. Like every competent direct marketer, we carefully study the response from every mailing, and each one has to pay for itself.
The key word here is "response." Catalogs prompt response, and in general they do so in a cost-effective way. If everybody responded from the first catalog you were sent (and provided that source code to us, regardless of how the ordered was placed, so we could track it back to that mailing) then everyone would get just one. But that is not the way most people respond to catalogs, so we keep mailing.
I still believe that we will see the end of print catalogs in my lifetime, and we are actively working to both prepare for that future and to help make it happen. But that day will be closer to 35 years from now than 5.
Despair, Inc. is the company that produces usually clever and sometimes brilliant parodies of the motivational posters from Successories. They also have produced some notable catalog copy over the years, including this from a mailer I received today:
If you received this special early Fall Preview Guide, there's only one explanation. You've earned the privilege. How? By having outspent all those penny-pinching chumps who litter our mailing list like so, uh ... Litter?
Of course, we'll soon be mailing a catalog to them as well, pretending that they're every bit as special as we want you to believe that you are.
I think they meant to say "like so much" at the end of that first sentence, but what better way to set up merchandise that pokes fun at dumb motivational messsages than by poking fun at dumb "you're so special" catalog copy?
Today I'll lead Koeze Direct's annual catalog kick-off meeting at which we start making plans for the 2009 holiday catalog.
Trying to plan 10 months ahead in uncertain times is no fun. I always told people that I would never feel like a real business person until I had run a company through tough times as my father and grandfather had. Now that I have the chance to do that, it is a part of my education that I would willingly skip.
We'll probably plan for a further 5% drop in sales, be prepared for 10%, and hope for a flat year. These are what my old controller called Wild A** Guesses.