Old-School Cataloging: Optimization Of Pages And Circulation Depth

Old school catalogers spend considerable time optimizing circulation depth and pages per catalog (please click on the image for more information).

There is a formula that you can use to make high-level estimates of sales performance at different circulation depths and page counts. We've talked about this previously, but it is worth mentioning again.

Demand Prediction = ((Proposed Pages / Last Year Pages)^0.5) * ((Proposed Circulation Depth / Last Year Circulation Depth)^0.5) * (Last Year Demand).

Many catalogers play with the (0.5) factor, testing different combinations and then fitting the appropriate factor.

Using this formula (and the factors that are right for your business --- a free software tool called CurveExpert can help you find the right factor to use), you can create a table like the one at the start of this post. The table clearly shows that the "optimal" circulation depth and page count for this catalog is at any one of the following combinations:

• 80 pages to 500,000 customers.
• 96 pages to 500,000 customers.
• 112 pages to 400,000 customers.
• 128 pages to 300,000 customers.

When you look at the four optimal combinations, what do you observe?

Yup, smaller page counts allow one to contact many, many more customers. This is why you see so many companies with small prospecting catalogs.

The equations were created at Eddie Bauer, way back in 1998. We used the equations to optimize page counts for each merchandise division, then rolled-up the pages, and optimized circulation depth. It was like sweeping up money, tremendous fun for a math geek, lots of profit for the company.

By the way, e-mail folks ... you can run a similar exercise. But the metrics change.

• Circulation Depth still matters. If you have an e-mail list of 100,000 customers, you'll generate less demand mailing only the top 20,000 customers.

• Pages are replaced by contacts. Instead of 64/80/96 pages, you have 1/2/3 contacts per week.

• Using this framework, you can quantify demand by circulation depth and number of contacts.
  

Catalog Page Counts And The Square Root Rule

Many of you are looking to trim expense, while maintaining demand. For some, this means reducing the number of pages in a catalog.

Remember, there is a quick formula for estimating the demand impact of fewer pages in your catalog --- just use the Square Root Rule.

Example:

• You have a catalog with 124 pages.
• You expect the catalog to generate $5,000,000 in demand.
• Your CFO wants you to cut 8 pages, leaving you with 116 pages.
• Demand = (116/124)^0.5 * $5,000,000 = $4,836,021.

You run a profit and loss statement on 116 pages generating $4,836,021 ... is that more profitable than 124 pages generating $5,000,000. Your printer can help you with printing efficiencies at different page counts, efficiencies that point to optimal page counts.

Also, your "DMPC", demand per thousand pages circulated, improves as pages are reduced ... this means that you can actually circulate deeper into your file as pages are reduced.

Profit Week: Prospect Catalogs And Page Counts

Since the great postage increase of 2007, much has been made about prospect catalogs and page counts.

Both concepts are similar ... can one generate the same level of phone and web sales with a 64 page catalog as in a 124 page catalog?

Ultimately, the smaller catalog needs to be merchandised with the best product you have. If this is done, the concept has potential. This is no place for experimentation. Go with the best merchandise you have!

Performance estimates by page count can be determined, in lieu of actual test results, via the magic of the square root rule. When the prospect catalog is merchandised really well, folks observe 90% of the demand on half the pages ... not too shabby at all!

Here's a profit and loss statement for best customers, comparing a 64 page catalog to a 124 page catalog.

	124 Pages	64 Pages	Increment
Demand	$5.00	$3.59	$1.41
Net Sales	$4.00	$2.87	$1.13
Gross Margin	$2.20	$1.58	$0.62
Less Book Cost	$0.80	$0.50	$0.30
Less Pick/Pack/Ship	$0.46	$0.33	$0.13
Variable Profit	$0.94	$0.75	$0.19

Notice that, for best customers, a 124 page catalog is better than 64 pages.

How about for average customers?

	124 Pages	64 Pages	Increment
Demand	$3.25	$2.33	$0.92
Net Sales	$2.60	$1.87	$0.73
Gross Margin	$1.43	$1.03	$0.40
Less Book Cost	$0.80	$0.50	$0.30
Less Pick/Pack/Ship	$0.30	$0.21	$0.08
Variable Profit	$0.33	$0.31	$0.02

Here, the larger catalog is only marginally better than the smaller catalog. Let's take a peek at marginal customers, those who shop infrequently or have not ever purchased.

	124 Pages	64 Pages	Increment
Demand	$2.15	$1.54	$0.61
Net Sales	$1.72	$1.24	$0.48
Gross Margin	$0.95	$0.68	$0.27
Less Book Cost	$0.80	$0.50	$0.30
Less Pick/Pack/Ship	$0.20	$0.14	$0.06
Variable Profit	($0.05)	$0.04	($0.09)

Ok, now the smaller book works!!

Smaller page counts typically work best among customers who purchase infrequently. For the cataloger feeling the pressure of postage increases and a recessionary environment, the prospect catalog, with fewer pages, offers opportunities to increase total profit.

Multichannel Catalog Advertising Strategy

Over the past ten years, I have been very pessimistic about the future of catalogs. Catalogs as a true sales driver have become relegated to an audience over the age of forty-five. Younger consumers increasingly use search, e-mail, and social media to complete their direct-to-consumer transactions.

Recently, I've been able to envision a future for a catalog that is purely advertising-related. As multichannel retailers move from mass media (television, radio) to more accountable forms of marketing, catalogs have the potential to drive sales in a more productive way than mass media. It is in this manner that catalog may have a future.

Between the past and future of catalogs is this quirky time known as 2006-2007. You'll continue to see multichannel retailers change circulation strategies. Page counts have to decrease over time, as the catalog becomes nothing more than a targeted advertising vehicle. When page counts decrease, it is possible to increase circulation.

The multichannel retailer could test these strategies in 2007, to understand the sales impact on the business as catalogs evolve from sales drivers to targeted advertising vehicles. Most likely, the evolution to smaller page counts will result in decreased sales. The multichannel retailer can increase reach, save expense, and potentially drive increased profit. For instance, a 160 page catalog mailed to 500,000 customers might drive $3,900,000 across channels, yielding $1,120,000 expense and $128,000 profit. A 48 page catalog mailed to 1,000,000 customers might drive $2,900,000 across channels, yielding $580,000 expense and $343,000 profit (send an e-mail if you want to see the spreadsheet outlining the simulation). The smaller catalog strategy, mailed to more households, could yield increased profit. Over time, multichannel retailers will figure out how to calibrate creative in order to better drive sales across all channels. It's time to start testing!