CATALOG MARKETING

Catalog marketing is a specialized branch of direct marketing. The two disciplines share many of the same characteristics. Like direct marketing, catalog marketing is based on interactivity, or one-to-one communication between the marketer and the prospect or customer. Catalogs always include response devices, and catalogers are able to measure the response to any and every mailing they make. It is safe to say that most at-home shopping takes place through catalogs.

Catalogs offer consumers a wide range of products of either a generalized or specialized nature. In this respect they share some of the characteristics of retailers. Like retailers, catalogers employ buyers to select merchandise. Catalog buyers attend the same trade shows as retail buyers. The layout of a catalog is planned in a way that is analogous to the layout of a retail store: space is at a premium in both locations, and merchandise is arranged so as to maximize sales.

Therefore, it's not surprising that there is a definite trend for more and more retailers to issue catalogs. Retailers who have compiled databases of their customers can then build mail-order sales through catalog mailings to maximize their market opportunities. Historically, many of today's large retailers—notably Sears, Roebuck and Company and Montgomery Ward—began as mail-order businesses. Interestingly, that trend continues in the 1990s as successful specialized catalogers such as Victoria's Secret and Eddie Bauer open their own retail outlets.

THE ORIGINS OF CATALOG
MARKETING

Catalogs represent some of the earliest examples of direct marketing and mail-order businesses. How old is catalog marketing? Garden and seed catalogs were known to be distributed in the American colonies before the Revolutionary War. Benjamin Franklin is said to have offered a catalog of books in 1744. The Orvis fishing catalog began in 1856 and is America's oldest catalog still in circulation. Catalog shopping for consumer goods entered a period of growth in the 1880s, when mail-order houses began to fiercely compete with local stores. Their marketing contest centered on three major issues—price, inventory, and assurances—the very factors that made mail-order houses successful.

Aaron Montgomery Ward (1843-1913), regarded as the first of the consumer goods catalogers, started his catalog business in 1872, while Richard Warren Sears (1863-1914) mailed his first flyers in the 1880s. These catalogs had a liberating effect on 19th-century consumers. They were no longer captive to their local stores, which had limited inventories and charged higher prices because they weren't big enough to receive large volume discounts from their suppliers. With the advent of mail order, consumers could get attractive goods and prices whether they lived in the middle of Manhattan or in a remote rural setting. The postal system allowed direct-mail companies to operate on a national basis. With economies of scale working in their favor, mail-order houses could undercut the pricing of local stores. In 1897 bicycles were selling for $75 to $100 and more, until Sears started offering them for $5 to $20 in its catalog. Sears could offer those low prices because it sold thousands of bicycles every week.

The large volume of business also allowed catalogers to offer a wider variety of goods. Consumers not only wanted low prices, they also wanted variety—20 kinds of dresses rather than 2. In 1897 Sears, Roebuck and Company mailed a 700-page catalog that listed 6,000 products. Here again, the enormous volume generated by leading mail-order houses made huge inventories not only possible but also practical. By 1906 Sears catalogs were generating in excess of $50 million in sales annually.

But price and variety, while important, have only limited value if the goods themselves are shoddy or poorly made. So the mail-order firms protected consumers with powerful guarantees. Montgomery Ward was one of the first companies to offer a money-back guarantee, and the Sears, Roebuck pledge of "satisfaction guaranteed or your money back" is one of the best-known commitments in American business.

Another successful cataloger, L. L. Bean of Freeport, Maine, began in 1913 when Mr. Leon Leonwood Bean mailed his first single-sheet flyer advertising his Maine hunting boots. Perhaps he got the idea of using direct mail from his brother Guy Bean, who was the Freeport postmaster. L. L. Bean targeted his mailing to individuals who had hunting licenses. He soon added more products and began mailing catalogs.

THE GROWTH OF CATALOG
MARKETING

According to the Direct Marketing Association (DMA), catalog and other direct-mail sales of goods to consumers represented about 3 percent of all retail sales in the late 1980s, a figure that was expected to remain in that range. In 1994 the DMA announced the results of a study of the catalog industry that it had commissioned from the WEFA Group, an econometric modeling and forecasting firm. The study covered a seven-year period from 1987 through 1993 and provided estimates for 1994 through 1997.

According to the WEFA Group study, catalog revenue reached $53.4 billion in sales in 1993, an average growth of nearly 7 percent per year from $35.7 billion in sales in 1987. The same study forecast that catalog sales would grow by an average of nearly 6.8 percent annually to reach $69.5 billion by 1997. In actuality, catalog sales reached $75 billion in 1996, and an update to the WEFA study predicted catalog sales of $87 billion in 1998, on catalog advertising expenditures of nearly $11 billion.

The same elements that have fueled the growth of direct marketing since the 1960s have contributed to the growth of catalog marketing. From the many factors contributing to the growth of direct marketing and mail-order catalogs, direct-marketing expert Jim Kobs selected five as the most important.

1. Changing lifestyles were an important factor in the acceptance of catalogs and direct marketing among consumers. The number of women working outside the home jumped from 42 to 58 percent between 1980 and 1990. This was a trend that began at least a decade earlier and contributed to the growth of at-home shopping. After all, isn't it logical that when you have less time to go shopping, it's more convenient to select and examine merchandise in your own home, at your own convenience? In this regard catalogs must compete with other direct-mail offers, home-shopping programs and networks available on television, and interactive online shopping services.
2. The growth of business-to-business catalog marketing was related to the increased cost associated with personal sales calls. By the end of the 1970s, the average cost of a single sales call was estimated to be about $137. By the end of the 1980s, the cost had risen to more than $250 per call. An interesting application of catalog marketing in business to-business selling is to use catalogs to make personal selling more cost-effective by generating qualified leads that can then be followed up by a personal sales call.
3. Technological growth in general, and computer-based technologies in particular, have played an important role in many areas of direct marketing. New computer technologies have allowed direct marketers to be more precise in the analysis of results, in the targeting of messages based on more complex psychographics and demographics, in developing more sophisticated customer and prospect databases, and even in the creative execution of direct-mail packages.
4. The growth in the number of available products and services has made direct marketing more attractive than mass marketing when a larger number of goods and services are being offered to a smaller group of prospects. In addition, consumers have proven receptive to purchasing a wide range of products from catalogs, including everything from automobiles to food to collectibles.
5. Increased consumer acceptance of the telephone as a way to place orders has also helped direct marketing achieve phenomenal growth. Coupled with telephone-based ordering are faster order fulfillment and the elimination of delays previously associated with mail order. Today, placing an order by phone offers almost the same "instant gratification" as picking up a piece of merchandise at the store.

Other socioeconomic factors contributing to the growth and acceptance of direct marketing include a population growing older, rising discretionary income, more single households, more double-income households, and the growth of the "me" generation. External factors include the rising cost of gasoline (at-home shoppers use less gasoline and reduce environmental pollution), the availability of toll-free telephone numbers, the expanded use of credit cards, the low cost of data processing, and the widespread availability of mailing lists.

CATALOG MARKETING AND THE INTERNET

The Internet represents a tremendous marketing opportunity for catalogers, who can display their merchandise without incurring postage and paper costs. While estimates vary widely, one source reported that online retailers generated about $518 million in sales in 1996, up from only $200 million in 1994. That's certainly a small percentage of the overall $75 billion in mail-order sales generated in 1996, but the potential for growth is there. Many retailers are building their own Web sites and gathering customer data in preparation to launching an Internet catalog. In 1995 Amazon.com launched what has become the largest online bookstore. Online sales have also been facilitated by the establishment of "virtual malls," which are Web sites that include a variety of online catalogs.

Certain types of merchandise seem to sell better on the Internet than others. For example, items such as books, software, and music tend to sell well because they can be described with words rather than pictures. Less successful are items such as apparel and gifts, which require an element of "romance" as part of their sell. Food and flowers, however, have reportedly done well over the Internet.

DIFFERENT TYPES OF CATALOGS

The three major categories of catalogs are business-to-business catalogs, consumer catalogs, and catalog showrooms. Business-to-business catalogs are those that 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 on catalog marketing, Katie Muldoon identified eight types of consumer catalogs. Unaffiliated catalogs are stand-alone ventures whose primary purpose is to sell merchandise by mail. These independent catalogers are not affiliated with any retailer or manufacturer. While the stores of unaffiliated catalogers were originally designed to sell only remaindered and unsold merchandise, some successful independent catalogers have opened their own retail outlets to take advantage of the consumer recognition their catalogs have built.

Consumers are also quite familiar with retail catalogs, of which Muldoon identified three types: traffic generators, independent profit centers, and a combination of the two. Catalogs that retailers produce as traffic generators are designed to build store traffic rather than to generate mail-order sales. On the other hand, a retail catalog that is set up as an independent direct-mail operation is expected to produce a profit on the basis of the mail-order sales it is able to generate. Hybrids that are designed to generate store traffic as well as mail-order sales combine the best of both worlds.

A noteworthy trend in retailers' catalogs is the disappearance of the large general catalog in favor of more specialized and targeted catalogs. In the 1970s the five major general catalogers were Sears, Roebuck and Company; Montgomery Ward; Spiegel; J.C. Penney; and Alden's. Alden's has since ceased operations. Ward abandoned the general catalog for a while, only to bring it back using outside companies to produce the catalogs and supply the merchandise. Sears stopped mailing its general catalog in favor of a series of specialty catalogs, as did Spiegel. Penney's large catalog, begun in 1962, has remained successful. In the ever-changing world of catalog marketing, no one is bound to stick to formulas that worked in the past. Only what's working today counts.

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. Incentive catalogs offer consumers discounted name-brand merchandise with some type of proof of purchase of a particular product or use of a particular credit card. The once-popular incentive catalogs of the trading-stamp companies have largely disappeared, but they have been replaced by incentive catalogs issued by credit-card companies and others.

Consumer catalogs issued by nonprofit organizations represent yet another type of consumer catalog. Museums have successfully used catalogs to increase sales of gift-shop items. Co-op catalogs are used to highlight merchandise from a variety of companies. Co-op catalogs are relatively cheap to produce and are often found in nontraditional channels of distribution such as bookstores and newsstands.

Syndicated consumer catalogs carry the name of a particular company, usually one that is well known and prestigious. The company whose name is on the catalog, however, is not involved in its production and does not carry the merchandise listed in the catalog. 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. These may originate in Europe or elsewhere. With improved telephone service, it is possible to order by telephone or fax from virtually anywhere in the world.

Catalog showrooms are a category of consumer catalogers who 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.

ELEMENTS OF CATALOG MARKETING

A successful catalog operation is built on several key elements, including the right personnel, merchandise, catalog design and format, sales promotion, mailing lists, and order processing and fulfillment.

CATALOG PERSONNEL.

Many of the functions necessary to maintain a catalog operation can be fulfilled either by employees or outside services. Within the company individual employees can be assigned to handle more than one function. Key functional areas include merchandising, catalog design, marketing and production, office services and data processing, warehouse operations, customer relations, and administrative areas covering office operations, personnel, legal affairs, and finance. In addition, most operations require some type of administrative support personnel.

MERCHANDISE.

Merchandising involves selecting the appropriate items for the catalog. In the case of unaffiliated catalogers, merchandise is selected by buyers from a variety of trade shows and from merchandise centers such as New York City, Chicago, Dallas, and Atlanta where there are many showrooms to choose from. A wide range of publications also offer merchandise that is selected by catalog buyers.

Catalogs affiliated with retailers or manufacturers typically include merchandise that is also sold by the retailer or manufacturer through a store or other channels. Affiliated buyers, however, may be able to select additional merchandise for inclusion in the catalog. Catalog sales of such merchandise are then monitored to see if the items should also be offered through other channels.

CATALOG DESIGN AND FORMAT.

Once the merchandise has been selected, it is necessary to determine how it will be presented in the catalog. Catalogs come in a variety of sizes, shapes, and overall general appearances. A cataloger must select a design concept for its catalog that is appropriate for its company. A catalog carrying discounted merchandise should look like a sale catalog. A catalog carrying high-end merchandise should have a quality look and feel about it. In the hands of a consumer it is the catalog that presents the image of the company.

Keys areas that catalog marketers focus their attention on when designing a catalog include page layout and design, space allocation for various products, the front cover, the back cover, sales copy, headlines, and the sales letter. The inside and outside of both covers as well as the center of a catalog are considered "hot spots" that have a disproportionally large influence on sales generation and how the prospect responds to the catalog.

SALES PROMOTION.

The order device is also an important "hot spot" in any catalog. Sales can be won or lost with the order form, so most catalog marketers regard it as an important sales tool. The key to a successful order form is making it easy to use. Whether the order is placed by mail or a toll free telephone call, a well-designed order form can facilitate the sale.

In addition the order form usually carries other information that is designed to overcome any reservations that prospects might have about ordering merchandise through the mail or over the telephone. Customers usually look to the order device or pages surrounding the order form to include information about warranties and guarantees, customer service, and any promotional incentives that might be offered.

MAILING LISTS AND DATABASES.

As with all types of direct marketing, a key factor in a successful catalog marketing campaign is being able to reach the right audience. Catalog marketers acquire customers by renting mailing lists, then they build in-house databases based on customer histories. The two basic types of lists are response lists and compiled lists. Response lists contain the names of prospects who have responded to the same offer. These typically contain individuals who share a common interest. Response lists are not usually rented; rather, they are an in-house list compiled by a particular business. Most list rentals involve compiled lists, including mass consumer, specialized consumer, and business lists.

Direct-marketing databases are similar to mailing lists in that they contain names and addresses, but they are much more. They are the repository of a wide range of customer information and may also contain psychographic, demographic, and census data compiled from external sources. They form the basis of direct-marketing programs whereby companies establish closer ties and build relationships with their customers.

As with mailing lists, there are two basic types of marketing databases, customer databases and external databases. Customer databases are compiled internally and contain information about a company's customers taken from the relationship-building process. External databases are collections of specific individuals and their characteristics. These external databases may be mass-compiled from public data sources; they may contain financial data based on confidential credit files; they may be compiled from questionnaires; or they may be a combination of all three sources.

ORDER PROCESSING AND FULFILLMENT.

Catalogers who seek to build relationships with their existing customers and acquire new customers must have an efficient system of fulfilling orders in a timely and accurate manner. Nothing turns a customer off more than receiving the wrong merchandise or receiving it too late for the purpose for which it was originally ordered. In some cases catalogers may have their own warehousing operation that is involved in picking, packing, and shipping orders. In other cases merchandise may be drop shipped from another location, or the entire order-fulfillment process may be handled by an outside service bureau.

In addition to efficiently fulfilling orders, catalogers capture order information to build their in-house customer databases. Such databases typically contain information concerning the amount of the purchase, what items have been purchased, and the dates purchases were made. Armed with this data, catalog marketers can more effectively target future mailings to customers based on when, what, and how much they have ordered in the past.

The success of a catalog-marketing program depends on the same factors that determine a successful direct-marketing program. The catalog must deliver the right offer at the right time to the right person in the right way. The target audience must be correctly identified. The offer must be made in the best possible way, and the catalog must employ the most effective creative execution to present the merchandise offered for sale. At its most effective, catalog marketing is an ongoing process of communication to maintain relationships with existing customers and build relationships with new ones.