MAIL-ORDER BUSINESS



A mail-order business is one that receives and fulfills orders for merchandise through the mail. The terms "mail-order," "direct mail," and "direct marketing" are sometimes used as if they were synonymous, but in fact they have different meanings. While a mail-order business may solicit orders using a variety of direct mail packages and catalogs, there are also many businesses, organizations, and agencies that use direct mail that are not mail-order businesses. Direct mail is simply an advertising medium, just as television, radio, newspapers, and magazines are advertising media. With direct mail, a business attempts to sell its product through the mail by means of specifically addressed advertising.

Direct marketing, meanwhile, is actually an advertising/marketing methodology employed both by mail-order enterprises and other businesses. Direct marketing may be distinguished from other types of general advertising, noted Alexander Hiam and Charles D. Schewe, authors of The Portable MBA in Marketing, by "the following characteristics: 1) A definite offer is made; 2) all the information necessary to make a decision is provided; and 3) a response mechanism is given—a toll-free telephone number or a mail-in coupon, for example." But while direct marketing makes heavy use of direct mail, it also employs a range of other advertising options—catalogs, coupons, periodicals, newspapers, telephone, radio, and television—to reach its target audiences.

A mail-order business, on the other hand, is simply a kind of commercial enterprise. A mail-order establishment is a business primarily engaged in soliciting sales via various media—often through direct marketing methodologies (catalogs being the best known)—and delivering, by mail, the merchandise that is ordered by customers (either via the mail or the telephone) as a result of those sales efforts. Mail-order businesses originally took orders primarily through the mail, but lower long-distance telephone rates and the advent of toll-free telephone calls (800 numbers) made it more convenient for customers to place orders over the telephone (the mail-in option is still generally offered, however). More recently, most mail-order companies have also instituted online ordering options for customers.

MAIL-ORDER BUSINESSES TODAY

Mail-order businesses date back to pre-Revolutionary War days, when gardeners and farmers ordered seeds through catalogs. Indeed, several of America's largest modern-day retailers first established themselves as mail-order enterprises back in the nineteenth century. This trend, in which retail enterprises establish themselves via catalog sales before venturing into the nation's malls and other centers of commerce, is still evident today. Other businesses are primarily retail-oriented, and use mail-order campaigns to supplement store sales. But while some studies indicate that a mail-order establishment that also cultivates a presence in the retail world is more likely to be regarded as a viable enterprise by potential customers, many businesses exclusively engaged in mail-order sales enjoy fine reputations.

Mail-order shopping is popular in modern America for a variety of reasons. Historically, mail-order businesses became successful because they offered a wider variety of goods than could be found in local retail outlets. In addition, goods purchased through the mail were often less expensive than those available locally, in part because mail-order houses, blessed with the capacity to maintain far larger inventories than many of their retail competitors, could afford to offer more sizable discounts. Mail-order shopping also offered consumers more convenience than shopping at retail stores. Indeed, for consumers in remote rural sections of the country, their isolation from commercial centers made catalog or mail-order shopping a necessity. Finally, individuals pursuing a hobby or special interest were more likely to locate those hard-to-find items in a specialty catalog than in a store.

By the latter half of the twentieth century, several socioeconomic factors had further contributed to the growth of "at-home shopping." Possibly the single most important factor was the dramatic increase in the number of women working outside the home. This change gave some families more discretionary income, but perhaps more tellingly, the trend also meant that women had less time to make purchases. Shopping convenience subsequently became a larger concern, and mail-order purchases that could be executed at home—without driving to a mall or other retail outlet—became more attractive. The emergence of credit cards and telephone-based ordering systems also helped mail-order businesses.

Mail-order businesses today offer consumers a wide array of products and services that they can order from their own home. Magazine subscription sales represent the largest segment of mail-order sales, while books and newspapers also account for a significant portion of mail-order business. The fastest growing segment of the mail-order business, however, is that of specialty catalogs. Specialty catalogs are fast replacing the large general merchandise catalogs with which American consumers of earlier generations were familiar. In fact, several of the major merchandise catalogs have been discontinued and replaced with a series of specialty catalogs. The list of specialty goods sold through the mail is seemingly endless, encompassing hundreds of categories. Kitchenware, furniture, gourmet foods, outdoor clothing, health products, gardening products, sports equipment and apparel, music, collectibles, and computer software and equipment are but a few of the more popular categories of goods sold through specialty catalogs today.

CATALOG MARKETING

There are three major categories of catalogs: business-to-business catalogs, consumer catalogs, and catalog showrooms. Business-to-business catalogs provide merchandise to be used in the course of business, including everything from office supplies to computers. In industrial settings, business-to-business catalogs are used to sell everything from heavy machinery to hand tools. Business-to-business catalogs are mailed to individuals at their place of business, with most purchases being made on behalf of the business rather than the individual.

Consumer catalogs are mailed to consumers at home. In her book Catalog Marketing, Katie Muldoon identified eight types of consumer catalogs. Unaffiliated catalogs are stand-alone ventures—not affiliated with any retailer or manufacturer—whose primary purpose is to sell merchandise by mail. The next type of consumer catalogs are retail catalogs, which include traffic generators, independent profit centers, and combination catalogs. Traffic generator catalogs are designed to build store traffic rather than to generate mail order sales. On the other hand, a retailer might set up a catalog as an independent direct mail operation that is expected to produce a profit on the basis of the sales it generates. Hybrids that are designed to generate store traffic as well as mail order sales combine the best of both worlds.

A third type of consumer catalog is the manufacturer-supported catalog. These may be designed to generate mail order sales, build store traffic, or simply create an image for the maker of a product. Incentive catalogs—which are often issued by credit card companies—offer consumers discounted name-brand merchandise with some proof of purchase of a particular product or use of a particular credit card. Catalogs issued by nonprofit organizations represent yet another type of consumer catalog. Museums have successfully used catalogs to increase sales of gift shop items, for example. Co-op catalogs are used to highlight merchandise from a variety of companies. These catalogs are relatively inexpensive to produce and are often found in non-traditional distribution channels such as bookstores and newsstands.

Syndicated consumer catalogs carry the name of a particular company, usually one that is well known and prestigious. However, the company whose name is on the catalog is not involved in its production and does not carry the merchandise listed in the catalog. Instead, the syndicator pays a commission to the company for use of its name and handles all of the aspects of the catalog business. Another category of consumer catalog is the international catalog. With improved telephone service, it is possible to order by telephone or fax from virtually anywhere in the world.

Catalog showrooms combine retail marketing with catalog marketing. A catalog showroom is essentially a retail outlet. The catalog, usually quite large, serves primarily to build traffic in the showroom. The trend in catalog showrooms has been to de-emphasize the mail order aspect of the catalog and present the showroom as a retail outlet with the added benefit of being able to place catalog orders from the showroom.

Industry analysts forecast continued growth within the mail-order business, although they caution that competition has increased in the industry. In addition, the growth in mail-order purchases has brought, perhaps inevitably, an attendant increase in concerns about a minority of establishments who engage in deceptive mailing practices or disregard commonly adhered to customer privacy parameters. Concerns over such issues have spurred discussion of increased regulation of mail-order businesses.

STARTING A MAIL-ORDER BUSINESS

Mail-order's current popularity, as well as the almost uniformly positive assessments of its future prospects, have made it an attractive area for entrepreneurs. But while some entrepreneurs have been highly successful in mail order ventures, those who enter the business are not guaranteed to succeed. Indeed, the prospective mail-order business owner needs to consider a variety of factors before launching his or her enterprise.

The single most important factor to consider is whether the product (or products) that would be featured in your mail-order business is a strong one. In assessing the strength of a product line, factors that should be weighed include the product's availability in other mediums (such as retail outlets), its intended demographic audience, and its unique qualities. Of course, just because a product is unique does not mean that it will be popular. A unique product that is of little use to customers will not be successful; conversely, some of the most profitable mail-order businesses concentrate on providing commonly available goods such as kitchen appliances. They are successful because they are able to convince customers that their products offer advantages in price, performance, or aesthetics. Still, some of the most spectacularly successful mail-order establishments have been ones that take advantage of previously untapped consumer niches by introducing products that are unique in one respect or another.

Another important consideration when weighing whether to launch a mail-order business is the cost of doing business. Catalogs are quite expensive to print and mail, and the nature of other direct mail advertising options, such as coupon mailings or newspaper advertising, precludes presentation of more than a couple products. This is not a deterrent if you are only selling one or two products, but if you have a sizable product line, such advertising avenues are far less attractive. The prospective mail-order business owner, then, must determine if he or she will sell sufficient quantities of their product(s) to compensate for marketing/advertising costs and other expenditures. In addition, he or she also must gauge whether the product is suited for sale through mail order. If it is a delicate product, or one that might spoil or otherwise lose its attractiveness in a relatively short time span, then it may not be one that should be subjected to the rigors and shipment schedule realities of mail order.

If the business owner determines that mail order is the route to go, then a catalog will almost certainly be the centerpiece of the firm's advertising efforts. To best ensure that their catalog is effective in sparking sales and long-term profitability, experts urge entrepreneurs to consider the following:

Since many mail-order establishments rely on the mail to reach customers, it is vitally important for them to secure and maintain useful and reliable mailing lists. For many mail order businesses, their internal customer database is one of their most valued commodities. "The fastest way to make money in the catalog business is to mail more frequently to your known customers," stated one mail order consulting executive in Entrepreneur. Given the importance of this information, many owners of small mail order companies outsource management of this data so that it can be maintained at a high standard (professional database managers can ensure uniformity and accuracy of information). In the meantime, the owners can turn their energies to aspects of the business to which their talents are better suited (marketing, workforce management, etc.) In addition to internal lists of customers, good mailing lists can also be secured from list brokers, magazine publishers, or trade associations. Of course, even the best mailing list is of little long-term use if the mail-order enterprise provides shoddy goods or customer service. "Dissatisfaction with the product or a poorly conducted return program can cause enough bad will to ruin your business reputation or simply destroy your profit margin by the extra postage and handling charges involved," observed the editors of How to Run a Small Business.

Another business option for the prospective mail-order business owner is to sell goods that are actually manufactured by other establishments. Entrepreneurs who opt for this kind of mail-order business should make every effort to purchase the goods they are selling from the manufacturers themselves. Purchasing from secondary sources is significantly more expensive, for those establishments need to push up the price of the goods in order to realize a profit. Experts acknowledge, however, that in some instances—such as scenarios where an offered product dramatically exceeds estimated sales—it may be necessary to deal with secondary sources in order to meet customer orders.

Some mail-order businesses even arrange for their suppliers to ship the goods themselves. Under this system, mail-order outfits accept paid orders on behalf of the manufacturer, then pay the manufacturer to mail the product directly to the customer. Some mail-order houses shy away from this arrangement, however, for while such systems eliminate most inventory costs, they also compromise the independence of the mail-order house and its ability to ensure quality service. If a manufacturer proves incompetent or engages in questionable business tactics—such as using the addresses supplied by the mail-order business to compile its own mailing list, thus cutting the mail-order house out of the action down the road—a mail-order enterprise can find its very existence threatened.

REGULATIONS THAT AFFECT MAIL-ORDER BUSINESS

Mail-order businesses must comply with the regulations of the Federal Trade Commission (FTC) and the U.S. Postal Service (USPS). In addition, mail-order businesses may be subject to applicable state laws, especially concerning the collection of sales tax.

The FTC has issued several directives, guidelines, and advisory opinions concerning mail-order businesses. These and other relevant regulations are published in the Code of Federal Regulations (CFR), Title 16, Chapters 1 and 2, which is available in most large libraries or directly from the FTC. Among the most important of these FTC rules is the Mail-Order Merchandise Rule. This regulation, also known as the 30-Day Rule, is designed to protect consumers from unexpected delays in receiving merchandise ordered through the mail. It allows the customer to cancel any order not received within the time period advertised or, if none is stated, 30 days of order. According to the rule, in those instances in which shipment of goods is delayed, a customer must be notified within 15 days of placing his or her order. Moreover, if shipment is delayed past the agreed-upon delivery date (or 30 days), then the business must send a postage-paid return notice notifying the buyer that he or she may terminate the order for a full refund, which must be received within seven business days.

Another FTC rule requires all mail-order advertising to indicate the country of origin of the product being advertised if the product has a fabric as part of its content. This rule was designed to protect domestic textile and wool producers. Mail-order business are also subject to FTC guidelines concerning product guarantees and warranties that apply to all businesses.

Mail-order advertising frequently contains endorsements or testimonials. Under FTC guidelines, any endorsement must reflect the views of the endorser, and must not be reworded or taken out of context. In addition, the endorser must be a genuine user of the product. If the endorser has been paid, the ad must disclose that fact, unless they are celebrities or experts. Additional FTC rules apply specifically to endorsements by average consumers and expert endorsements.

The FTC has also issued guidelines to curb deceptive pricing by some mail-order businesses. These rules affect two-for-one offers, price comparisons, and other issues. The practice of advertising products that have yet to be manufactured, while legal, is subject to FTC requirements as well. FTC regulations call for this advertising practice, also called dry testing, to clearly state that sale of the product is only planned and that it is possible that consumers who order the product may not receive it. In addition, if the product is not manufactured, consumers who ordered it must be notified within four months of the original ad or mailing, and they must be given the opportunity to cancel their order without obligation.

In addition to FTC regulations, mail-order businesses must also be aware of USPS regulations. Lotteries, for example, are illegal under USPS regulations. As defined by the USPS, a lottery includes the element of chance, consideration—a term that means that one must make a purchase to enter—and a prize. In recognition of this definition, mail-order businesses instead organize sweepstakes that do not require any consideration, payment, or purchase on the part of the consumer. While sweepstakes have proved to be an effective method of advertising mail-order merchandise, many states have laws affecting their use.

Post office operations can impact on a mail-order enterprise in other ways as well. A mail-order house that presorts direct mailings by zip code can sometimes lower its postage costs, for example, while business-reply cards are subject to the approval of your postmaster. For complete information on postal rates, regulations, and requirements that could potentially impact a mail-order (or any other) business, contact your local post office or the Customer Programs Division of the U.S. Postal Service in Washington, DC.

FURTHER READING:

Beresford, Lynn. "Pushing the Envelope." Entrepreneur. February 1996.

Hiam, Alexander, and Charles D. Schewe. The Portable MBA in Marketing. Wiley, 1992.

J.K. Lasser Institute. How to Run a Small Business. Simon and Schuster, 1994.

Keup, Erwin J. Mail-Order Legal Guide . Oasis Press, 1993.

McIntyre, Susan. "Cataloging for Entrepreneurs: Doing Your Own Competitive Analysis." Direct Marketing. January 1999.

Muldoon, Katie. Catalog Marketing . American Management Association, 1988.

Simon, Julian L. How to Start and Operate a Mail-Order Business . McGraw-Hill, 1993.

Small Business Administration. Selling by Mail Order. No. MT09. SBA, na.

Sroge, Maxwell. Inside the Leading Mail-Order Houses . NTC Business Books, 1989.



User Contributions:

Comment about this article, ask questions, or add new information about this topic:

CAPTCHA