Redirection: How Catalogs Create Demand For Online Pureplays

Given that catalogers seem to enjoy yesterday's discussion about the failure of catalog and multichannel marketing, is is appropriate to share the following outline concerning demand generation in 1994, 2001 and 2008. Of course, what follows in the image is only a theory of mine --- no hard evidence to prove one way or another. Click on the image to enlarge it.



















My theory suggests that catalog marketing is as effective as it has ever been. However, Google and Social Media have stepped in and redirected demand that would have gone to your brand.

Redirection (otherwise known as "transfer" in Multichannel Forensics) happens in many different ways.

• Google and SEO --- think about how many of you found my blog via Google/SEO?
  
• Google and Paid Search.
• Social Media --- Check out Manolo's Shoe Blog as an example.
• User Generated Reviews --- You see an item advertised in the Crutchfield catalog, you read a review from a customer on Amazon.com, and you ultimately buy the item on Amazon instead of Crutchfield.

Redirection is lethal for a brand that doesn't play along. Since this is just a theory, I don't have any solid numbers to back up my thesis --- I would surmise, however, that maybe 25% to 50% of your demand is "at risk" for redirection.

This theory suggests that we have two important objectives.

1. Prevent redirection of demand away from our brand.
2. Induce redirection of demand to our brand.

A metric like the "net promoter score" would be useful, wouldn't it? You look at the percentage of demand that is redirected to your brand, then subtract the demand that is redirected away from your brand. The net is your score --- positive is good, negative is bad. Think of Zappos. Their score has to be amazingly good, right? Footsmart sends a catalog, the customer checks prices online, and buys at Zappos where she gets the item tomorrow via free shipping. Footsmart gets a negative score in this instance.

Abacus/Epsilon --- what do you think? You could so easily help the catalog industry that pays your freight by generating an index of this nature for your clients. There you go, free product development information from The MineThatData Blog! You've got bright people, make something happen! Heck, toss me a few pennies, and I'll develop the prototype.

Too often, we view the world through tactics, like catalog marketing or e-mail marketing or paid search or SEO or affiliate marketing. How often do we view the world in the context of "redirection"? How might we approach competitive advantage via the concept of redirection?

Profit Week: Do You Do The Marketing For Your Competitor's Brand?

This quote comes to us from a seasoned Chief Merchandising Officer:

"This is what bothers me. I send a catalog to my loyal customers. One of my customers receives the catalog, sees something she likes, then gets on the internet and visits www.google.com. She keys in the description of the items she's looking for, compares prices across a half-dozen competitors, then buys a comparable item at a lower cost from a competitor. All of a sudden it hit me. My catalog response rates continue to decrease, and they decrease because I am out there doing advertising for my competitors. I send a catalog, and my competitors benefit from it. How the heck do I fix that problem? I don't offer the lowest cost or fastest and most inexpensive delivery options."

In 1995, a direct marketer had a moat around their brand. The cataloger delivered a catalog to your home. If you didn't receive catalogs from competitors, you couldn't compare similar items across competitors. You didn't truly know if you were "getting the best deal".

Every week, a catalog executive tells me that s/he is experiencing lower response rates, coupled with increased average order values. In other words, a catalog used to deliver a 4% response rate and a $100 average order value. Today, the same catalog (measured across all channels) delivers a 2.5% response rate, and a $130 average order value.

The price-sensitive customer is choosing to shop elsewhere, lowering the overall response rate.

The price-sensitive customer spends less per order. In other words, you're losing a quarter or more of your orders, orders that averaged $60 each. This appears to drive up your average order value.

And here's the danger. You analyze what is selling, and notice that bigger ticket items are selling best. So you shift your merchandise assortment toward the bigger ticket items in a Darwinian manner. This further drives down future response rate.

We're told we have to be "multichannel". But being multichannel can have dire consequences. For many catalogers, catalog advertising is driving sales away from the brand, to lower-cost competitors.

What follows is my opinion.

A great re-shuffling of brands is happening in the wild west known as the internet. The "middle ground" that was so beneficial to catalogers in the 1980s and 1990s is being eliminated. Customers are moving in one of two directions. The majority are migrating toward the lowest-cost competitor. In other words, you mail a catalog, your customer sees something she likes, then uses the internet to find the company that offers a comparable item for the lowest cost and fastest delivery. The low-cost, fast-delivery brand remains profitable by transacting numerous small-profit orders.

A minority of customers are moving in the exact opposite direction. They want unique merchandise, something that can't be easily found elsewhere. These customers are willing to pay a premium to have something that few have, or want something from a highly targeted niche. Catalogers and e-commerce pureplays in this space enjoy fat gross margins, and can remain profitable.

In other words, being "multichannel" is good if you are at the low-cost, fast-delivery side of the spectrum, or is good if you are at the exclusive-merchandise, high-gross-margin side of the spectrum.

Those of us who are stuck in the middle are doing free advertising for the low-cost, fast-delivery brands. A brand like Footsmart sends a catalog, offering shoes at fair prices. Then the customer compares prices plus shipping plus handling:

• A Footsmart $100 pair of shoes will cost $114.99 for 6-10 day delivery, or $134.98 for next day delivery.

• The same item at Zappos will cost $103 and will arrive tomorrow.

Long-term, Footsmart cannot possibly compete online against Zappos. The harder Footsmart tries to produce spectacular catalogs, the more business they drive to Zappos as customers use the internet to search for comparable merchandise.


Profit Week Tip: Long-term, the catalog or multichannel brand must decide what it wants to be. Does it want to be the low-cost, fast-delivery option? Or does it want to be the purveyor of exclusive products that cannot be found elsewhere? In my opinion, the cataloger or multichannel brand cannot survive being somewhere in-between. What we are seeing today is the slow and painful death of brands stuck in the middle of this spectrum. If you feel you're stuck in this powerplay, run a Multichannel Forensics analysis across low spend, average spend, and high spend customers. See if you're losing the bottom of your customer file, a symptom of losing customers to low-cost, fast-delivery brands.