A catalog’s buyer file is the company’s most valuable asset. And in this multichannel world, your catalog buyers are getting many layers of marketing messages from your company. Buyers receive catalogs, e-mails, digital ads, your web site and search engine marketing on a regular on-going basis. Measuring the incremental sales and profits from catalog mailings is necessary in order to set the optimum house file circulation.
Catalog marketing is a simple economic model; profits are maximized when you mail all circulation that exceeds your breakeven. But knowing the incremental sales and profits that come from a catalog drop is complicated because your buyers are receiving so many multichannel messages. Marketers are spending a lot of time and resources on trying to determine how to allocate or attribute sales to the various marketing messages.
A reliable method to determine the incremental sales from house buyer file segments is to use mail versus no mail tests to measure the difference in sales to hold out panels where you divide house file segments and mail a portion and not mail another portion of the same segment and then measure the difference in sales.
By comparing how much better the group receiving the catalog does that the holdout panel, you can see the effect the catalog has on sales. For the holdout test, you withhold mailing the catalog so that the two groups receive all the other marketing messages. After running a holdout test, the response rates and dollars per catalog are compared in your match back processing. So if the holdout group yields $1.00 in sales during the life of the catalog’s order history and the group receiving the catalog yields $2.50 in sales, then the incremental lift is $1.50. With all other variables held constant, the incremental lift represents the sales that your catalog mailing added to the overall marketing mix.
Without mail versus no mail testing it is difficult and arbitrary to understand the true incremental lift provided by catalog mailings. However by using mail versus no mail testing you can determine which of the RFM segments of your house file mailings are above breakeven and get a reliable estimate of the incremental lift that catalog mailings to your house buyers provide.
Where do you pick segments inside your house file to test?
Always test the marginal older segment of the house file which are responding around breakeven. Knowing the incremental value of mailing to marginal house file segments tells the incremental sales coming from mailing to older house segments. If your breakeven is $1.50 per catalogs and an older segment will yield $.50 even if you don’t mail a catalog, then you know that your breakeven sales are $2.00 when you look at the overall sales in your match back reporting.
Test newer house buyer segments which are responding well above breakeven. If the incremental sales from catalog mailings are substantially above breakeven, you may want to increase the frequency of mailing your best catalog buyers.
Test those buyers who came to you from web channels or affiliate programs. These buyers may well respond poorly to incremental catalog mailings. It may dilute your results by keeping web buyers included in your traditional RFM (recency, frequency, monetary) segments.
Test combining e-mail along with catalog mailings to both your house file and to prospecting circulation. The lift from e-mail may allow you to expand your prospecting universe.
Test mailing to previous prospects to understand the sales that are coming from earlier mailings to the same prospects versus the most recent mailings to the same prospects.
Test marginal house file segments over multiple mailings to understand how incremental sales decay over time when multiple catalog mailings are suppressed. This tells you how often you should be mailing your marginal segments.
Testing your catalog circulation with holdout panels allows you to measure precisely the incremental sales from catalog. Understanding your incremental sales allows you to optimize your circulation to maximize your profitability.
Multichannel marketers are flooded with data about the sales coming from various marketing messages and contacts. Attributing sales in this multichannel world is a universal vexing problem for catalogers. Simple hold out tests are an invaluable measurement of the incremental value of catalog mailings. Make sure that you bake these tests into your catalog circulation plans.