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Managing Promotional Offers and Finding the Equilibrium

Posted on January 06, 2012

Since the recession, catalogers have come to rely more and more on promotional offers to drive sales. And catalog and internet buyers have come to expect strong promotional offers and seem to wait for offers before they make a purchase.

Managing promotional offers and making sure they are well balanced within your catalog circulation, your e-mails and your on line ads is a critical part of getting your marketing mix right.

Do you need deeply discounted offers to get customers to buy? Deep offers have two big negatives; First, you have the margin hit of giving deep discounts. Second, you train the customers to wait for the big offer because they know the deep discount coupon is coming. One alternative is to wean your customers away from waiting for the big offer by giving them a series of much smaller discounts so that they learn to expect frequent but not such dramatic discounts.

Will customers buy at full retail? Not if you’ve trained them to expect discounts. I’m a big customer at Borders and now wait for the discount coupon because I buy so frequently their is always a discount coupon in my mail box. And now that I’m a “platinum” member and get an extra 10% off, I really am torn about buying at a regular bookstore because now I’ve come to expect 33% and 10% off on every purchase at Borders. I even buy the Sunday New York Times there to save $2.00. But the upside to Borders of the continuous stream of e-mail coupons is that I’m loyal to their discounted prices. Note that Borders did file for bankruptcy this month.

Can you send more frequent e-mails to your buyers who have responded to e-mails? One of the big trends that is emerging is that smart marketers are segmenting out the buyers who have responded to e-mail offers and are sending them more frequent e-mails than to their entire file of e-mail addresses. You can ramp up greatly the frequency of e-mailing coupons and promotional codes to those customers who have responded to them in the past—a discount buyer is a discount buyer. I’ve also noticed, going back to my Borders example, that as soon as I use a Borders coupon I get an immediate series of fresh coupons over the next one to two weeks.

So you should segment out responders to your promotional offers and hit them up frequently with more offers and even set up a separate stream of e-mails to buyer’s right after they have made a purchase. It is an old truth in direct marketing that people are happiest with you right after they have purchased something. So right after they buy is the best time to ask them to buy again!

Should each catalog have an offer? If you’ve trained your customers that you give them frequent offers, then you run the risk if you send them a catalog without an offer that your response will suffer.

Do you have the same risk with behavioral targeted ads? Probably much less so, because the ads are going out to your web site traffic which is a mix of previous buyers and non-buyers rather than to your own buyers. So the ads are being broadcast to a different population. So with on line ads you can test ads with and without an offer.

What about giving offers to your entire e-mail list? How can you limit the risk? One technique is to broadcast strong offers to your e-mail list that hasn’t made a purchase in over a year. These people are essentially dormant, so it can be worth your while to reactivate them using a strong e-mail offer.

So here are some rules to consider to help manage your multichannel promotional offers:

  • Don’t favor one channel over another with stronger offers through e-mail than through your catalog.
  • Try to limit how deeply you discount. It’s better to run shallow discounts frequently rather than deeper discount infrequently.
  • Segment out those customers who have responded to your promotional offers and consider increasing the frequency of offers to those buyers and sending fewer discount offers to those buyers who have never used a promotional offer.
  • Consider using promotional offers either via e-mail or your catalog to reactivate customers who haven’t bought from you in a long time or to e-mail subscribers who have never bought from you.
  • Know that when you send shopping cart abandon e-mails that customers are expecting a promotional offer.
  • Test constantly. Test the difference between deep offers and smaller discounts for catalog offers, e-mail offers and on-line ad offers.
  • If you are selling commodity branded merchandise, know “street price” of the items you are selling and be very careful about selling either above or below the established “street prices” for an item. If your price is above, you won’t sell much and if your price is below the established market price, you may get pushback from your manufacturers.
  • Have a pricing and promotional strategy so you are not just reacting with discounts to make your monthly budgeted sales.
  • Consider modeling your promotional buyers versus your full price buyers at the coop databases to see if they are different types of customers.
  • Accept that promotions are increasingly a fact of life and you may have to sell most or all of your merchandise using some promotional offer.

    • USPS’s Exigency Rate Case Appears to be Dead

    Posted on December 22, 2011

    Yesterday, the Postal Regulatory Commission issued an order requiring the US Postal Service to complete the submission of its entire case to the PRC. Per the PRC order, this includes “all information, materials, and testimony on which the Postal Service would rely to demonstrate that its Exigent Request satisfies the causal nexus of ‘due to,’ as interpreted by the Commission” – “due to” referring to the impact of the 2008 recession.

    According to the PRC order, the Commission stated that it would “apply its interpretation of the causal nexus of ‘due to’ to evaluate the remanded Exigent Request if the Postal Service wished to pursue it. The Postal Service, however, “has not provided all of the information necessary for the Commission to evaluate the Exigent Request.” What’s more, Postmaster General Patrick Donahoe yesterday said that the USPS won’t be be providing the requested information.

    End of Exigency Once and For All?
    So is the exigency case once and for all stone-cold dead? Not quite. It’s still on the table because the PRC has not dismissed it. But it can’t proceed in its current state. So it remains essentially in limbo. And with no intent of filing the required information, the USPS is standing behind its promise to take no further action on the case. As we’ve stated in the past about the case, we must take PMG Donahoe’s word on this, and he continues to say he has no intent to follow through with an exigency increase, but at the same time, doesn’t want the case thrown out altogether, pending what comes out of Congress in legislation to save the USPS.

    In its original exigency filing last year, the USPS sought $2.3 billion in additional revenue and an approximately 5%, on average, rate hike.

    If you have any questions contact:
    Don Landis
    VP of Postal and Government Affairs
    Arandell Corporation

    5 Tips from the New Best Practices for Circulation Management

    Posted on December 21, 2011

    The recession forced mailers to use their circulation more efficiently.  Smart circulation planners will leverage these lessons to squeeze more profits as we emerge from the recession.  Don’t think that because response rates have stabilized that your circulation planning should return to business as usual.

  • Circulation planners are optimizing their house and prospecting lists to suppress the households that won’t buy.  The cooperative databases and merge-purge houses can score your mail files and tell you which households are not worth mailing.  Plan on cutting your catalog cost for printing and postage a minimum of 10% to 15% without hurting top line revenue.  That 10% savings drops to your bottom line. The older your RFM segments, the more suppression opportunities you’ll find. Vertical lists and magazine lists have even more potential to prune circulation than your house file.  Optimization is the tool to precisely trimthe fat in your circulation.
     
  • Shoppers have been trained to wait for promotions…because smart shoppers know promotions are coming.  It’s becoming clear that a series of smaller promotional offers are better than the occasional big promotional splash.  Shoppers may respond just as well to 10% as 40% off….so don’t train your customers to wait for the next big promotion.  First, they won’t buy till they get a big promotion and Second, when they do buy, your margins are squeezed hard.  Don’t have your promotions end too soon; don’t cut off your catalog’s response too soon with a promotion that ends long before the natural end of a catalog’s life!  Promotions need to be in synch across on line and off line channels so that customers don’t learn to ignore your catalog and just wait for the e-mail promo to arrive.
     
  • On line behavioral targeted ads are smoking hot.  Traditional off line marketers must learn how to use on line ads.  The ROI on programs that use cookies to serve ads to your own web site traffic will make you a hero.  On line ad programs are cheap, profitable, scalable, and with metrics that make them easy to manage. 
     
  • Virtual catalogs drive web traffic especially when catalog links are featured in an e-mail campaign.  Virtual catalogs don’t get much respect because they are so cheap (at $10 per page, a 64 page catalog costs all of $640.)  Send out an e-mail with a link to your new virtual catalog and watch traffic and sales spike!  Send your virtual catalog to everyone on your e-mail list and reactivate those marginal names you can’t afford to include in your circulation plan. 
     
  • Attribution, or which channel gets credit for the sale, is a huge issue.  Good work is being done on the web side to properly allocate sales between multiple programs.  Catalogers have match back programs but match backs tend to give too much credit to the house file.  Learn to back out sales from e-mails and web programs from your match backs and you’ll mail smarter.  Use mail / no-mail hold out panels to measure the true impact of your catalog.
     
    Use those best practices learned during the recession to craft circulation plans that maximize profitability.

    • Measuring the impact of mailing a household multiple times during the same season

    Posted on December 19, 2011

    When you are up against the need to maximize both sales and profitability in Q4, you should be sure to have some tests and metrics in place to measure the impact of mailing the same name multiple times.

  • Know your sales curve for each drop so that you don’t over allocate “unknowns to the last drop before Christmas.  Just knowing the sales curve for the various drops from looking at your key codes will let you allocate those post-Thanksgiving “unknown” key codes properly.
  • Test the sales revenue of mailing a prospect or marginal house name a single time versus two or three times.  After you have the sales revenue top line number, be sure to get to the profitability by subtracting the catalog cost of a second or third mailing to the same prospect.  You want to avoid having more revenue versus less profits from multiple mailings to the same household.
  • Having too many drops in Q4 can be more expensive and harder to read results.  Having multiple drops has some hard costs; each time you are in a co-mail pool you have to pay the printer a hefty administrative and processing cost of several hundred dollars.  And, if you break up your mailings into multiple drops, you may lose co-mail postage savings (even though the printer will tell you this will never happen, you may get bumped to the smaller mail pools) and you face the risk of a mail pool being delayed so your in home dates may fall on top of each other.
  • Mailers may seek to find unique prospecting names by pulling balance models.  This strategy can work but it can backfire.  Balance names are mailed later in the season and often miss the sweet spot of the best in home dates for the holiday season.  Mailers should build the biggest, best coop database models in the initial merge (so taking just “new” names or just “previous” names is usually a mistake.
  • You should make sure you take the various coop models, put them in the merge and correctly segment them as overlap names that are multis between two or more coops and coop singles.  Coop overlap multis can often be mailed twice in a single season and these names are the best names.  Overlap names almost always outperform coop singles.
  • Make sure you don’t segment one coop’s singles only and try to compare those results against another coop that combines their singles with the coop multis combined together.  You aren’t comparing apples to apples.  You can check this by looking at the gross-to-net percentage in the merge or by comparing the number of singles as a percentage of the total number of names in the various coop segments.
  • Make sure you can back out of your matchback results all the sales that result from late season e-mails.  That credit should go to the e-mails and often matchback results credit those e-mail sales back to the last catalog mailings in a season.

    • The key way to preserve your profitability is to know how many prospects are being mailed multiple times and the catalog cost of those second and third mailings compared to the incremental revenue being generated.  Profits get pretty skinny when you are mailing two or three or four catalogs to get incremental prospecting revenue.

    The coops have good optimization models that you can use to only mail the “best-of-the-best” prospecting names and to score older multibuyers and these optimization models should be part of cataloger’s circulation plans.  If you are taking a large portion of your circulation from a single coop, use another coop’s optimization model to score your prospecting file.

    What to do in the face of increased postal costs

    Posted on December 16, 2011

    So postage is going to go up for catalogers again this Spring. This is not the first time and in all likelihood it won’t be the last.

    Every time the USPS has increased rates in the past, catalogers have mailed fewer books. Marginal circulation has been eliminated. It is a downward spiral. It is a pretty simply formula, i.e., increase the cost and reduce expense by mailing less and revenue remains about the same (or decreases).

    So if you are planning on mailing less this year plan on making less revenue.  If you don’t want to make the same or less revenue let me suggest a radical strategy. This is the time to increase your circulation! Why? You need more customers to cover increase costs. How do you get more customers? You mail more catalogs to prospects.  Another positive is that most WILL decrease circulation, what will that create? Less catalogs in the mailbox = less compteition.

    USPS Delays Closings until May

    Posted on December 14, 2011

    The U.S. Postal Service will delay the closing or consolidation of additional Post Offices or mail processing facilities until May 15, 2012. The USPS said on Tuesday that it made the decision in response to a request made by multiple U.S. Senators.

    The U.S. Postal Service is studying 3,700 of its nearly 32,000 retail offices for possible closure as it faces an ongoing financial crisis, and is planning to close about half (250) of its processing facilities. Postmaster General Patrick Donahoe said it was considering the retail closures because customer’s habits “have made it clear that they no longer require a physical post office to conduct most of their postal business.”

    Tuesday’s announcement came a week after the Postal Service announced it would move ahead with plans to lower its service standards for First-Class mail. The move, which it said would generate annual savings of $2.1 billion, would mean in effect the end of overnight delivery for First-Class mail.

    In its announcement yesterday, the Postal Service said it would continue all necessary steps required for the review of the facilities during the interim period, including public input meetings.

    “The Postal Service hopes this period will help facilitate the enactment of comprehensive postal legislation. Given the Postal Service’s financial situation and the loss of mail volume, the Postal Service must continue to take all steps necessary to reduce costs and increase revenue.”

    USPS Update – 12/8/11 Webinar

    Posted on December 08, 2011

    The USPS announced in September, 2011 the possibility of closing over 250 processing facilities. Just how will the closures and network realignment affect catalogers?

    Presenter: Don Landis – Vice President of Postal and Government Affairs

    Don Landis will review and explain the latest information from the USPS and what catalogers need to be aware of i.e, service standards, print schedules, etc.

    Don Landis is responsible for Arandell’s postal policies and mail marketing strategy development. He uses his knowledge of the United States Postal Service (USPS) to educate clients about USPS products and services and about how to implement those products and services into their marketing strategies.

    A USPS CLOSURE IN YOUR AREA?

    Posted on October 20, 2011

    The USPS filed for an opinion on closing some 3,652 post offices, stations and branches nationwide (about 11 percent of its retail network).

    Texas and Illinois top the list of possible USPS closures, and Delaware is the only state with no facilities on the list.

    The USPS must consider these closures because of society’s changes in communications (i.e., email and bill paying via the internet), the questionable need for traditional brick-and-mortar stores, and the USPS’ current economic condition.

    Of course, postal union members aren’t very happy about this, in addition to customers in small towns who consider the local post office a meeting place.

    Wonder if your post office is on the list? Click Here

    For more information on Arandell Mailing Services, visit http://www.arandell.com/services/mailing/, or email us at: info@arandell.com

    JANUARY 22, 2012 MAILING SERVICES PRICE CHANGE

    Posted on October 19, 2011

    BACKGROUND:

    Prices for most Postal Service mailing services will change on January 22, 2012. Mailing services includes First-Class Mail, Standard Mail, Periodicals, Package Services and Extra Services. Prices for shipping services will also change on January 22. We will provide customers the new shipping services prices later this fall.

    While actual percentage price increases for various products and services varies, the overall average price increase across all mailing services is capped by law at 2.1 percent, the rate of inflation as measured by the Consumer Price Index.

    FIRST-CLASS MAIL HIGHLIGHTS:

  • Letters (1 oz.) – 1-cent increase to 45 cents. This is the first increase in the price of a First-Class Mail stamp since May 2009.
  • Single-piece letters additional ounce rate – unchanged at 20 cents.
  • Postcards – 3-cent increase to 32 cents
  • Letters to Canada or Mexico (1 oz.) – 5-cent increase to 85 cents
  • Letters to other international destinations – 7-cent increase to $1.05
  • The second ounce will be free for First-Class Mail Presort pieces weighing between one and two ounces.

    • ADDITIONAL PRICE ADJUSTMENT HIGHLIGHTS:

  • The price increase for Standard Mail Letters is slightly below the overall average at less than 1.9 percent
  • A new 3-month pricing option will be available to rent PO Boxes for people on the move and others that need a PO Box for a shorter time period.
  • Delivery Confirmation will be free for several parcel products as the Postal Service continues to make tracking an integral component of parcels mailed at commercial rates.

    • PERCENTAGE OF PRICE CHANGE BY CLASS OF MAIL:

    Class Percent Change
    First-Class Mail 2.133
    Standard Mail 2.124
    Periodicals 2.133
    Package Services 2.133
    Extra Services -0.663*

    For more information on Arandell’s mailing services solutions visit: http://www.arandell.com/services/mailing/

    USPS dilemma

    Posted on September 19, 2011

    On September 6, 2011, Postmaster General Patrick Donahoe testified before the Senate Committee on Homeland Security and Government Affairs concerning the USPS dire financial dilemma.  He laid out what is needed from Congress to keep the USPS from default. It seems the Senate panel got the message and understood the need for immediate action. Something the mailing industry has known for years. My concern is what we will finally see from Congress knowing there will be winners and losers.

    Will Congress have the fortitude to do what is right or give in to special interests groups which will only temporiarly delay default? 

    What do you think?

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