Prior to the mid 1990s the list business was booming. List owners enjoyed a nice stream of list rental income. Brokers and list managers enjoyed their well deserved commissions. That's no longer the case.
Several factors have affected the traditional list business. The first and most significant relates to the emergence of the co-operative databases. The Internet has been a major factor, as has outside list performance and the economy. Catalogers have shifted much of their circulation away from outside lists to mailing deeper to their own housefile (a development that has also impacted the co-ops).
The first co-op was Abacus, which began their run almost 20 years ago. There are currently five different co-ops all competing for the same business. There has been a major shift away from outside prospect lists to one or more of these co-ops. In 2003, approximately 50% of all prospect names were selected from traditional files. Today, 70% or more of all catalog prospecting is done using co-operative databases.
Cost and performance factors are the main reasons for the shift to co-ops, whose names rent for $55 to $70 per thousand. Outside lists, unless on exchange, rent for $100 to $150 per thousand or more. Co-op names are a good value for the money. Yes, there will be overlap from one database to another but each co-op will identify names worth mailing based on their modeling that another co-op might not find. Each builds statistical models targeted to your specific merchandise offer. And what's more, the co-ops look at an individual's transactions over time. This is a good indicator of future purchases. The co-ops have a better handle on consumer purchases, which translates into better performance.
The Internet has certainly been a factor influencing the use of outside lists. While the sky is not the limit, catalogers and Internet retailers have been able to generate new buyers for less cost through paid/organic search programs, Web affiliates, etc. Many are looking at the pure cost of acquiring a new buyer online versus print. However, the lifetime value from a new buyer generated through the Internet may not be as great and the cost for key words is increasing. We are starting to see a shift back to the use of more outside lists. So far, prospecting to outside e-mail lists has not worked.
List performance or lack thereof, has reduced dependency on the use of traditional outside lists. Buyer counts are down and there are not as many 0-12 month names to rent. List fatigue has set-in and response rates have declined. Again, this has contributed to the shift to using a higher quantity of names from the co-ops.
And of course, there's the economy. Catalogers are doing less prospecting with print media, making a bad situation worse. The good news is we are already beginning to see some stabilization of catalog and Internet sales within certain markets. We are seeing slightly lower average order sizes as consumers spend less but response rates seem to be holding. Catalog companies are moving from more reliance on their housefile to a more traditional mix of prospecting and housefile. This does not mean that the traditional list business is going to rebound. But it does mean that 12-month buyer files will begin to grown again as catalogers start prospecting more.
Effective prospecting means balancing the use of traditional outside lists and co-ops. Be careful not to overuse prospect names selected from the co-operative databases; outside prospect lists should also be rented (or exchanged) for the following reasons:
· Universe Issue – Additional lists are needed for growth beyond the one or two highly indexed segments offered by co-ops.
· List Selectivity – With some models, you are working in an unknown environment with no control over recency-frequency-monetary value selects.
· "Fresh" Names – There is a need for fresh, new names individual outside lists can supply. Although co-operative databases are updated, the member companies may not send their file updates as frequently as they should. What's more, the co-ops only select multi-buyers while individual outside lists include the single or one-time buyers who can also be good prospects for your offer.
· Performance Issue – Modeled names normally perform at or slightly better than your "best" outside prospect lists. Again, the performance will tend to decline after the first few highly indexed segments. The top segments are the real winners while additional outside lists will be needed for continued growth.
In summary, the list business as we once knew it will never be the same. Catalogers will continue to depend on the use of names selected from a co-operative database. The traditional outside list business will most likely not rebound because of the cost of outside lists, the hassle of dealing with approvals/exchange balance reconciliations, invoicing, payments/collections, etc. What's more, the lifetime value (payback) models do not necessarily show a significant difference in co-op quality vs. directly rented names.
Stephen R. Lett ([email protected]) is president of Lett Direct, Inc., a catalog consulting firm.
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