Last week I was sad to read that one of the first “brick and mortar” clients I worked with 20 years ago had declared bankruptcy. I was reminded of the initial project that I did for them. They had hugely expanded their catalog program, mailing many millions of catalogs over the year, but with results that were less than half of what had been predicted by their new catalog director. They asked me to figure out what had gone wrong. I determined that two-thirds of the target population of the U.S. lived within twenty miles of their 300+ retail stores. The response rate within the store trade areas was approximately one-third of the response rate outside the trade areas. It was evident, however, that they had budgeted the higher response rate received outside the trade areas for the entire mailing.
I recommended that they continue the catalog program, but accept that the differential catalog sales between the trade areas and non-trade areas occurred in the stores. Management was unwilling to justify the catalog program on this basis, maintaining that the catalog program had to stand on its own. Thus, the catalog program was discontinued. The following year, the company experienced a seven percent decline in comparative store sales! As a result, the board fired the CEO. I suspect he never knew why store sales had plummeted and why he truly lost his job.
Since then, we have worked with many store retailers who maintain a postal program as a key driver of store sales. We have become much more knowledgeable in the programs that we recommend and how we measure results.
When considering a catalog or direct mail program in a retail environment, it is fundamental to recognize that you are appealing to both those who are direct marketing responsive and those who prefer to shop in a store. The latter group is a much larger audience and requires a very different marketing program from that of a typical catalog company. Keep in mind that one’s website is also a retail store that is open 24/7, so much of the following discussion applies to all direct marketing companies. Let’s examine the following factors:
Merchandise Presented: The number of products presented in a piece mailed to customers within trade areas can typically be much smaller, since the customer will see the breadth of selection when they enter the store. For the buyer file, it is important that they see new products that they have not previously seen in the store. For prospects, while new is still important, seeing the most popular items is important.
Inventory Management: In a retail store, there is no such thing as a backorder. When the catalog drops, every item must be in the store ready for purchase. While direct sales may quickly identify new best-selling items and can sell through 100%, management must provide a fair allotment of all items to the retail stores so that retail customers are not disappointed (and store managers do not rebel).
Format: Mailings should be created in many different formats suitable for different purposes. A catalog showing most of the company’s products should periodically be mailed to appeal to direct/out-of-trade area customers, introduce major collections, and to make a brand statement. A smaller page count catalog can be used to introduce new or best-selling products. A brochure or postcard can communicate a sales event, open house, or designer in-store appearance.
Creative: The look and feel of all creative should be consistent across the company. This includes the store motif and signage, the catalog or direct mail piece, the website, and marketing emails. Depending on the type of retailer, more attention and print space may need to be used to represent the brand and educate customers about the company. For companies such as Nordstrom, for instance, presentations may lean toward rich and delectable lifestyle and hero shots as opposed to encyclopedic product photographs. On the other hand, the encyclopedic approach makes sense for others such as Harbor Freight. In addition, just as one makes every effort to drive customers to one’s website, store locations should be included in the creative along with store pictures to add authority and drive traffic.
Promotion: We are strong advocates that, as with look and feel, the same promotions, sales, and discounts be consistent across all media: catalog, direct mail, website, email, SEO/SEM, and social. The synergy gained by marketing the same message across media yields greater response. Retail stores tend to have more traditional sales events around holidays or seasons, therefore other media must be in lockstep. As mentioned above, in most tests we have conducted, a simple postcard can be just as effective as a full catalog in communicating a sale and have a much higher ROI.
Circulation: Circulation driving store sales is much more complex than a typical postal program. The following are critical features:
- The name, address, and email address of every store customer must be collected, preferably with transaction content. Without this information, one cannot mail or apply the same modeling/segmentation to store customers that is applied to direct customers.
- Store trade areas must be defined based on a progressive ranking of customer penetration of zip code groups as one moves away from each retail location. Once defined, response to both customers and prospects must be measured by deciles of penetration and distance to determine if these attributes are predictive of response (direct and in-store) and, in turn, if they drive different depths of mailing.
As with the above, the response of mailings to individual store trade areas must be evaluated to determine the permissible depth of mailing into each trade area that meets ROI requirements.
Cooperative database models must model a universe of retail store buyers, not just direct response buyers. Separate models for store trade areas and non-store trade areas must be created. One should test running separate models by store trade area or by clusters based on past response levels. As an alternative, the depth of records selected from models can be varied by each store trade area based on past response levels.
- Demographic and psychographic models can work equally well in selecting both customers and finding large universes of prospects to be mailed in store trade areas. Likewise, depending on the nature of product, other prospect universes such as new movers can be mailed based on home value without employing direct response filters.
New universes of prospects should be explored. As NaviStone has identified and modeled anonymous web visitors providing mailable addresses, in the future, the same information may be captured for anonymous store browsers based on interaction with or location of their smart phones.
Analytics: Testing becomes even more important when evolving a mail program that not only produces direct sales but also drives store sales. While I have made recommendations based on experience, if there is one lesson that I have learned over the years, it is that nothing is universally true. Test, test, and test!
Rather than absolute response being the gold standard for measuring ROI, holdout panels of both customer and prospects must be created to measure the incremental increase in sales resulting from mailing. The challenge here is determining how long a holdout panel must be maintained (usually over multiple seasons) to get a true read, the size of panels required for valid results, and management’s willingness to absorb potential losses by not mailing holdouts for different customer segments. In general, we have found management only willing to support limited holdout testing and then go with their philosophical leanings.
As malls become less productive with reduced foot traffic, it is critical that all store retailers examine how they can proactively drive traffic to their retail locations using a sophisticated direct mail program. Such a program will also allow them to select lower cost destination store locations that will offset much of the cost of a direct mail program. We have already seen retailers such as the Williams-Sonoma brands continue to drive retail store success with catalogs and direct mail. Those who do not fully adopt and integrate a multi-channel and multi-media marketing program that includes direct mail may follow in the footsteps of my old client referenced at the beginning of this blog.
For information about how to create a successful store retail program using postal media, please contact me at email@example.com.