Among the major players in the catalog trade, there is a strong belief that the catalog trade is a well-built warehouse economy. I fully agree with this opinion, but I want to add that the company, for the first time using the sales channel of goods through the catalog, has to solve very different issues. This article is devoted to these problems, namely, the process of organizing the sale of your goods through a catalog. Here we will only touch on the main issues and technologies, and in order to receive detailed proposals, we are ready to organize an excursion and consultation for you.
In the last year, the number of companies both exploring the possibilities of working through the catalog and already starting this business in Russia has increased significantly. Talking with their representatives, I tried to classify the reasons for the interest in catalog trading:
1) Most of them have heard about the success of selling through a catalog of similar products in the west. Indeed, the high speed of delivery throughout Europe (an average of two days), almost any legally available databases, advanced forms of payment (both cash on delivery and via credit cards) make it possible to quickly turn over funds, test and get results.
2) Possibility of fast promotion of business and coverage of the whole of Russia without creating a chain of stores. If the work is outsourced to an agency, then the client needs nothing more than an office, free finances and project management. The agency provides advertising placement, collection and processing of applications, storage and dispatch of goods, processing of payments received and telephone customer support.
3) The presence of an exclusive product or products combined into a thematic catalog, for the promotion of which it is not advisable to build a dealer network. It can be any goods that are difficult or impossible to buy in a store. They may look decent but have a low price. They can be quite expensive, but have no analogs in the store and have some unique properties. For example, in Poland and Ukraine, strawberries are sold that grow up to 1.5 m in height and give up to 25 kg of berries from a bush.
4) Any product for which the overhead cost of selling through a catalog is significantly less than in other distribution channels.
Let’s count!
According to almost all catalogers, for catalog trading to be successful, the following conditions must be met:
– The price of the goods in the catalog must be at least 2 times higher than the purchase price. This markup is approximately equal to the total markup of the wholesaler and retailer. At the same time, it is not so important whether this price is slightly higher or lower in comparison with the prices of similar goods in the store. The main thing is that the product must have some unique properties, for example, it must be distributed directly from the manufacturer.
– The response from the distribution of the catalog should be at least 1.5-2%. The ideal condition is considered to be a response of 7% – it allows you to immediately recoup the creation and distribution of the catalog, overhead and transportation costs. But even 1.5-2% are considered successful, due to the fact that repeated sales to the same customers of other products from the next editions of the catalog lead to a payback of the project in 3-5 cycles.
– People should receive gifts. Additional stimulation in the form of souvenirs and gifts significantly increases the results. The well-known catalog company Yves Roches has been testing many customer acquisition technologies in Russia. For example, an advertisement was placed in the press offering women a gift of a handbag if they simply filled out and sent a questionnaire with their data to the company. Such a test was carried out to collect the database, the formation of primary loyalty. Further, loyal customers were periodically sent special offers that could not be refused.
The costs of organizing a catalog business are distributed as follows (as a percentage of turnover):
- 20-25% – postal rate,
- 10–15% — warehouse, transport,
- 50% – the cost of the goods (the mark-up for the goods must be 200-250%),
- 20-10% – data processing, office, overhead, development.
Large investments are required not only for pre-shipment processes (databases, order taking, warehousing, data processing), but also for post-shipment processes (returns, stock balances). The payback period for a standard project is approximately 2 years.
To increase the frequency of orders and reduce the payback period, you need to come up with promotions.
Schemes for distance selling goods
The catalog business is actually just one of the varieties of distance selling. The market trend is such that there are companies that do without a catalog at all. Only the essence remains – the sale of goods without personal contact between the buyer and the seller. Therefore, in this section, we will talk about the technologies of distance trading.
Distance trading can be both an independent business and a side business. She can use various communication schemes with her clients.
Many are familiar with such large book clubs as Terra, Reader’s Digest, and others. They use the classic communication scheme: a free catalog is sent to various databases, then orders are collected and processed. Sellers of cosmetics, seeds, and other goods follow the same path. Regular customers are members of the club and, taking into account the fulfillment of simple conditions, receive discounts and gifts. They can also be a source of new customers by recommending the club to their friends.
Other companies go to the catalog via the Internet: having emerged and strengthened as online stores, and to increase brand awareness, they begin to publish their catalog to reach a wider population. The largest example is the Ozon online store and the Book Season catalog.
Another direction is when a company creates a catalog for support and development
main business. For example, among colleagues, there is a belief that the company already mentioned here, Yves Roches, started a catalog trade project in order to attract visitors to stores, but as a result, 70% of catalog recipients preferred to shop from home. Now selling through the catalog has become their main sales channel.
For several years, various “shops on the couch” have been operating: commercials for products that can be ordered with courier delivery in 1–3 days are shown on TV. A wide range of goods is sold in this way, ranging from dog hair belts, various exercise equipment, air mattresses and weight loss products to jewelry.
Catalog projects are beginning to be created in major publishing houses. One of them, My World, was created on the basis of the Burda publishing house and uses the circulation of the publishing house (more than 20 million copies per year) to distribute its book catalog. Now their business is comparable in volume to other players who have been operating in this market for many years.
Another unusual type of distance selling is the serial sale of collections and encyclopedias. It can be compared to a subscription, but for an indefinite period. It can be a very wide range of goods: collections of stamps, coins, lingerie, etc. In this case, the catalog is not needed, but people, being included in the purchase of the series, periodically receive new parts of the collections by mail and redeem them. An unredeemed package or unsubscribing by phone or letter will automatically terminate the subscription. A huge advantage of this form of sales is greater stability and predictability.
To conclude this section, I would like to share the success story of a Dutch flower and seed wholesaler. She delivered flowers for many years, and then, in order to diversify her business, she began testing several projects to expand her business. One of these projects was related to the publication of a magazine about flowers and gardening. There they began to place special offers for the direct sale of exclusive varieties of seeds, bulbs and even seedlings. For three seasons, the dynamics turned out to be so impressive (doubling the subscription to the magazine and the volume of orders every six months) that the company’s management decided to seriously develop this direction, which had previously been just one of the pilot projects. This example is also interesting because the magazine here plays the role of a catalog, and the subscriber actually pays for both the catalog and the product.
In my opinion, the most important thing in these examples is that almost all projects are successfully developing and, according to experts, the Russian distance trading market is still at the beginning of its development. Those companies that decide to use these technologies and start working in the next two years, at a time of rapid growth, will be able to build a serious business with minimal investment.
Where to get clients (to whom to send the catalog)
In the previous section, we touched in part on technologies for attracting customers to your directory. Here is a summary of the main methods. Ultimately, the choice should be determined by the cost of customer acquisition, and for this, you need to track where the customer came from.
· Advertising in the media with feedback is relevant for almost any directory. The most important thing is that the media audience should be adequate to your ideas about your consumers. It often happens that two media with a similar audience and almost the same cost of advertising give results that are an order of magnitude different from each other.
· Investments in the distribution of other catalog goods. Your colleagues who develop non-competing catalogs will most likely agree to include your promotional materials in their packages. Sometimes you have to pay for this, but most likely they will want to get a counter favor so that you put their advertising in your packages. This is a very effective way, because. the person who received and paid for the parcel, as a rule, is quite loyal to this form of purchase, and the materials contained in the parcel will be received positively.
· Get a base for rent. Various databases are available on the market, including buyers of goods from other catalogs, participants in promotions, etc. At present, it is rather difficult to agree with the owner of the base, but it is possible if you propose a joint project or in some other way contribute to the development of his business. Unfortunately, most offers come from “gray” intermediaries selling stolen bases. There are also cases of deception here when you can get a generated base under the guise of a real one. It will contain real addresses, but arbitrary surnames. How do distinguish them? As a rule, the real owner will never transfer the database to you but will do the work of distributing materials. The real owner will tell you in detail how the database was assembled, provide internal statistics,
These three technologies are used by most mail-order companies. Perhaps you will find more effective technologies. But each time you contact a new potential client, you need to use various ways to stimulate a response: gifts, coupons with answer options: “Yes”, “No”, “Maybe”, limiting the validity of the offer, etc.
Test everything! Efficiency comes first
Catalog trade requires significant investments in the first stage when there are no regular customers yet. In addition, each directory is unique and it is very likely that the methods of attracting customers that work well for one directory will be unsuccessful for another. Therefore, one of the most important tasks is to test each element of the catalog trade and select the best ones based on performance analysis.
In principle, there is nothing complicated here. Problems arise in organizational terms because the idea of testing should be subordinated to each step of the development of the project.
1) Response testing. No matter how many ways you use to attract customers, they should all be summarized in a single list, which will indicate the costs of this communication channel, the expected effect, the effect obtained, and the resulting cost of attracting one client. If you use different media, then the analysis should be carried out for each of them. In order to distinguish between clients coming from different media, application form coding is used.
2) You may want to test different types of incentives (and rightly so!). Then you need to place different ads in the same media and compare the result. There is no point in comparing if you place different ads in two media outlets or make different mailing attachments in multiple regions. The result will be incorrect, because due to certain circumstances, for example, a general delay in salaries for state employees in one of the regions, the response here will be significantly less.
3) Testing the design of the catalog: testing the cover, product placement in the catalog, image, description, kit, and other elements. For example, if you are selling a candlestick, then it is advisable to place candles next to it in order to increase the volume of orders.
4) Testing of other product groups. As a rule, catalogs contain the main group of products intended for sale, and additional products belonging to other categories to test demand (for example, in a book catalog – disks, and video cassettes).
5) The number of tests is unlimited. The catalog business must test everything, all the time.
How to organize order service work
In my opinion, this is the most interesting part of the work. In general, the service process is as follows:
1. Receiving and processing orders. Depending on the chosen communication channels, this can be:
a. Receiving applications by mail and entering them into the database.
b. Registration of applications by phone. The phone is also used to collect information from catalog customers about product refusals, identified cases of shortages, service requests, and many other reasons, the list of which can reach 70 positions.
c. Internet. As a rule, it is used only by online stores, because. Most of the directories are focused on the regions of Russia, where access to the Internet is very difficult.
2. Storage of goods
A a. At the initial stage of the project, it is enough to have a simple warehouse if the quantity of goods does not exceed 20-30 items. With the growth of a business or with a large assortment and circulation at the start, a professional warehouse with computers accounting for leftovers is urgently needed. Otherwise, the losses can amount to a very impressive figure.
3. Picking and packaging of orders
a. The choice of technology depends on how large the circulation of the same type of series is.
i. For example, with a small assortment and large circulations, it is likely that in the total mass there will be many identical parcels with several dozen varieties of configuration. In this case, the warehouse selects components for the same type of series and transfers them to packaging.
ii. With a large assortment, the variety of parcels becomes so great that the packaging technology changes fundamentally. The packer himself goes to the warehouse, where the goods are laid out taking into account the convenience of finding them, and picks up the next 20-30 sets in his cart, and then goes to pack them.
iii. Automated picking is designed for books and certain types of merchandise that are sent out in very high volumes. For books, the selection goes automatically from special cassettes where books are loaded. Their number can reach hundreds. Further, all this falls on manual or automatic packaging.
b. Packing is carried out taking into account the requirements of the Russian Post. As a rule, this is a box or corrugated cardboard, wrapped on the outside in kraft paper and pasted over with branded tape. The parcel is marked with an address and a barcode. If the parcel is sent cash on delivery, then a special form of cash on delivery is attached. There are various ways to save on materials: for example, for packing books, you can use the corners that are put on the corners, and wrap it all in kraft paper. Savings on corrugated cardboard can reach 0.50 rubles. for the parcel.
c. Configuration control. As practice shows, the human factor plays an important role in catalog trade packaging. If you do not want a flurry of calls from disgruntled recipients and the loss of a significant proportion of customers, you need to think about this issue. Usually, weighing, separation of picking and packaging between different employees, as well as control openings of some finished packages are used.
4. Delivery of goods through the “Mail of Russia” and through courier services
A a. The goods through the “Mail of Russia” can go to the recipient from 5 to 15-20 days. The courier service is much faster, but also more expensive. In some cases, for example, when delivering expensive computers, only courier services are used to ensure the greater safety of the goods. In the existing practice, literally, all goods are delivered through the Russian Post. There are some regions where the movement of mail periodically stops due to climatic conditions. This information is available and is used in the preparation of shipments.
5. Receiving payment for the goods
a. Cash on delivery is the most common way to receive payment for goods. The buyer receives a parcel in the mail after he pays the money. Then, through the postal channels or the Cyber money system, the payment goes to your account. The term for receiving cash on delivery is, as a rule, from 5 to 15 days after payment by the recipient, while an additional fee of 4% is charged for money transfer.
b. Prepayment. This is a more cost-effective way for both the recipient and the directory owner. At the same time, payment, as a rule, is made through Sberbank, where you can get a much lower percentage, subject to the conclusion of a special agreement. The term for receiving money is less and is approximately 3 days. In addition, there is an opportunity to save on the cost of sending goods, which will go not as valuable, but as a registered parcel. The negative factor is the decrease in the number of responses because not everyone who wants to buy your product will agree to an advance payment.
c. Postpaid. It has all the same advantages as prepayment, but, as a rule, it is used only with regular customers who receive a package, unpack it at home, take out a receipt and go to pay. The only drawback is that the money arrives later and there is a risk of not receiving a small part of the payments.
6. Reporting
a. When growing a business, proper reporting allows you to hold the reins and see the real picture. Here are some types of reports regularly used for monitoring:
i. Daily report on received and processed applications
ii. Daily report on packaged and sent parcels
iii. Weekly report on returns received and processed
iv. Weekly inventory report
v. Daily report on payment received
vi. Daily report on calls to the hotline
vii. Analytical report on the effectiveness of different media and types of advertising.
Organization of interaction with customers based on the information system
An ideal information system allows you to see all the detailed information online, but its most important function is to accumulate and manage information. It goes without saying that IP reflects the real business processes of catalog trade. This is a record of contacts with customers, tracking the movement of the received order, managing stock balances, and tracking payment.
First, an application from a new client is recorded in the database, and its own code is assigned to it. If this person calls with any question, makes a second-order, or refuses to receive a parcel, then all this information enters the IS and, in the future, will be taken into account when building relationships with this client.
Statistically processed information shows:
– what is the lifetime value of the client, i.е. how many purchases on average and for what amount he makes;
How do his preferences change? For example, a client started buying fiction, then they sent him a DIY catalog, and he additionally started ordering from there, and then he received a travel book catalog and stopped buying in the first two, but began to buy from the third;
– goods of which group and in what combination are in great demand;
– on which special offers and from which groups of customers the best response was recorded;
– there are special Data Mining technologies that allow you to extract implicit dependencies between parameters in the database.
As a rule, in any catalog company, customers are divided into two categories – active, i.e. those who made an order during the last year, and passive ones, from which there were no orders for more than a year. The active ones are regularly sent new offers, taking into account the profile of their preferences, while the passive ones are sent a catalog only 1-2 times a year. Thus, the problem of profit maximization is solved. This allows you to optimize catalog mailing budgets and only send them to customers who are potentially inclined to buy.
Also, IS helps to give the client the right answers if he calls the hotline. For example, a customer calls and asks where his parcel is. The operator opens the corresponding page and says: “Your parcel was sent 5 days ago and you will receive it soon.” If the parcel was sent a long time ago (more than 2 weeks), and the person did not receive it, then he may be recommended to go to the post office. If the parcel has already been returned back, and the buyer says that the mail did not bring him a notification, then the operator specifies the address and, depending on the internal rules, puts the parcel for re-sending.
Or, for example, the recipient of the catalog may call and say with anger in his voice that he should not be sent anything else at all. In this case, he gets into the so-called Robinson’s list and the company will no longer spend money to sell him something.
Of course, IS has an order of magnitude, or even two, more functions, but the purpose of this article is to introduce the reader to the main, most interesting or important aspects.
A few extra tips
Tip 1. If you have a burning desire to start a catalog business, then first wait a month or two, cool down, and draw up a business plan, where you describe in detail how you are going to act, what money you are ready to invest, what tasks you set and what result you expect. Without this minimum plan, there is a 90% chance of failure. Catalog trade is, first of all, a sober calculation.
Tip 2. Look for a gift that is interesting to your audience, which will cost a penny from a distributor, and 150-300 rubles at retail. So you will not spend much on stimulation, but will significantly increase the response.
Tip 3. The Chinese sometimes do very decent things. The current trend is an increase in the share of Chinese goods in the catalog under the control of the quality of products by the compiler of the catalog. This gives a good profit – up to 300-500% of the sale of these goods.
Tip 4: Walk around a few catalog companies and discuss your plan with them. This way you will understand the key mistakes and can take a more sober look at the likelihood of losing your money.