The Finance Era

Something is going on within the catalog world. As we begin a new year, I realize that we have entered a new era in cataloging – the Finance Era.

In the weeks between Thanksgiving and Christmas, I had five clients contact me to seek my advice on how to handle the following situations:

  • They were eliminating all or most of their prospecting for the catalog in 2018. There were several versions of this – no prospecting at all, no prospecting in the spring, etc.
  • Upper management at one company was arbitrarily cutting 30% of their total circulation in 2018. The amazing thing about this one is that the client’s catalog is doing well, by any standard of measurement.
  • One company’s Finance Department gave the Marketing team a print budget 25% the size of 2017, forcing them to reduce circulation and page counts by 75%.
  • One company’s new owners want to eliminate the catalog completely, and were giving the marketing staff one year to switch all catalog driven sales over to online.
  • One client asked how to change their catalog to reduce pages, and asked about ways to mail it “smarter”.

Four of these five were clients that ordinarily DO NOT seek my help/advice – they only use Datamann for merge/purge and database services: they have always done their own circulation planning and sale analysis. A few of these requests were logical, and expected, given the mailer’s current results. A few of them were simply illogical, driven by corporate ownership that does not understand catalogs (and no, I’m not being parochial here).

Here is what I find fascinating/disturbing: As I said at the end of December, from a national economy perspective, this past 4th quarter was ideal. The stock market is up (way up!), consumer confidence is up, there is no war (more or less), no election, etc. Yet before the season was over, catalogers were making draconian decisions about 2018, decisions that in years past would have been labeled “going out of business” strategies.

So, what is driving this sudden shift in circulation and business strategies? Here is the one common trait among the clients that contacted me: almost all of these above-mentioned moves were not being driven by the marketing staff, but by Finance.

In most companies, the Finance folks (let’s say the CFO for simplicity) knows a great deal about the company’s method of business. If it is a manufacturer, the CFO understands that they have to make things cheaper than they sell them. The CFO understands the need for a sales force to go and sell the products. Most of this is intuitive, or at least “textbook” applications of financial principles.

There has always been something difficult for CFOs to wrap their financial brains around with catalogs. They hear the marketing folks talk about prospecting with catalogs to acquire new customers. But CFO knows the response rate is at best 5%. The CFO signs the checks for all that paper and all that postage, and thinks “95% of this is wasted”.

Then they hear marketing talk about putting your customers – the company’s most valuable asset – into a shared pool of names called a co-op, where anyone can come in and rent them, and STEAL YOUR CUSTOMERS. Worse, the co-op sells your data to other online-only companies that are not even participating in the co-op, but which are trying to put you out of business. Even worse than that, when you go to get names from this co-op for your own mailings, you have to pay for them! The CFO thinks they should be paying you.

Finally, they hear marketing explain how you plan your mailings, and hear you talk about mailing to “break even” and acquiring customers at a loss because you make it up in the future due to “lifetime value”.

And when the marketing folks leave the room, the CFO is looking around the table for an ally that thinks all of this is just plain crazy.

Up until now, the CFO was usually alone, because there were still enough people around that understood that a 2% response rate for prospecting was customary and acceptable. There were enough new customers coming via the catalog to justify having a “catalog team”, and thinking of the company as selling via a catalog.

But not anymore. Something has fundamentally changed. The CFO and CEO don’t have to get into the weeds of reviewing matchback reports to understand that the co-ops have dried up, and are being choked for new transactional information. They see the success the company is having with PPC, SEO, emails and even social media. Three years ago, they scoffed at the idea of hiring a Facebook coordinator. Now they want you to find and hire two more. The company is now acquiring more customers via these online “channels” than they are with the catalog.

There is one huge difference in 2018 between the catalog and online/mobile activity of these companies. Today, the CFO sees the catalog as a liability, an anachronism that is headed toward oblivion, while the online activity is what Kevin Hillstrom calls a “path to the future”.

You may not want to admit it, but there is much truth in what the CFO believes. Yes, catalogs still work for part of your house file. Yes, some of you can still effectively prospect with catalogs – but the universe of viable names is getting squeezed ever so smaller each season. Yes, 5 out of every 100 new customers is a coveted “Millennial”, and with just a little more time, you tell everyone that you will figure out a way to attract more of them, and get it up to 7 out of 100.  And no one is listening to you.

You also have to admit that catalogs are costly. Not when you measure the cost at 50 cents each, or maybe 45 cents each with a good co-mail pool. That’s the small cost. The big cost is the infrastructure you need to maintain a “catalog” – the creative staff, and everyone in merchandise and marketing that indirectly spend time on the creation of a catalog. Then there is the “direct” time – the hours spent on creating spreads, passing them around for review, doing press proofs, and inkjet approvals. Finally, there are the hundreds of thousands (in many cases, millions) of dollars spent on paper, ink, postage, and even merge purge. When you think in terms of 50¢ to mail a catalog, it’s not so bad. When you think in terms of $1 million, all of a sudden, you’re talking real money.

And that is why the CFO is involved. The CFO may not have all the facts or know all the nuances of selling by catalog, but he/she has enough of an understanding to see the direction the company needs to go, even in this strong economy.  They are not catalogers, and they recognize that catalogs are just one – not the only one – way of selling, and acquiring customers. They don’t care about co-mail pools, balance models, or personalized printing. They are looking for ways to cut costs and make profits. The boom in the economy during the past 14 months has largely left many of you watching from the sidelines, and the CFO is looking for how to “cash in”.

This is so puzzling to the “catalog forces” within the industry. They keep telling you there is a “catalog resurgence”. They keep telling you that now is not time to give up on the catalog. Your print salesman would love to have the CFO come to the plant so he/she can learn all about the new Harris 8000 printing press the printer just installed along with four new inkjet lines. But, the time for that has long since passed. We are now in a new era.

Then the thought occurs to you – why is the CFO suddenly taking an interest? In the past, when you went in to defend your catalog budget, the CFO skipped over the millions you wanted to spend on paper and postage, and quizzed you instead on why you needed to attend that conference in Boston in March? Why is the CFO now not only questioning your print budget, but also cutting it by 20%, 40%, and even 75%? And you have no rebuttal?

Oh, and not only is the CFO cutting your budget, but he/she is holding you to continue to make your sales goal. They tell you just to create some great “viral content”, and get some “free” online sales.

Something is afoot… and yes, some of the actions and expectations are unrealistic. Some of these actions are clearly “going out of business” strategies. The CFO does not understand that eliminating prospecting for 2018 results in an elimination of customers rolling into 2019, customers that will sustain the business. But you already know that when the CFO/Finance get this involved, it usually means that companies are looking for ways be profitable, and look lean, because they are either for sale, or a need for reinvestment is on the horizon.

It’s one thing if Marketing takes a back seat to Finance during a recession, because the expectation is that this is temporary. But not under these present conditions. There is no going back for many companies. Finance is in control and Marketing is shut out. This is not the Bean Counter Era, or the invasion of the Accounting Trolls. This is deep involvement of Finance.

In the few days before Christmas, it was announced that Amerimark bought LTD Commodities, resulting in a company that now has 6.2 million names over age 55. It was also announced that Home Depot purchased the Company Store. These are deals that Finance loves. They are the type you will see a lot more of in 2018.

We all know that eventually, reductions in marketing hurt. The company must make some investments in growth otherwise there will be nothing left. If you are facing similar “going out of business” strategies being forced on you, and need an ally that can help you build a case for why some decisions being handed down by the CFO are simply hurtful, give me a call. You may not be able to reverse the CFO’s intentions, but we can at least approach them in the smartest way possible.

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by Bill LaPierre

VP – Business Intelligence and Analytics

Datamann – 800-451-4263 x235