Catalog Analysis: Determining your product winners and losers May 1, 2001 12:00 PM
, Jack Schmid
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This month, we're going to begin looking at a number of the pre- and
post-merchandise analyses, systems, and flow charts that you can use to
improve your merchandising efforts. Since sales-per-page analysis and
square-inch analysis are two of the most important tools you can use to
assess and hone your merchandising practices, we'll start by exploring
how to use them.
Build on your product winners
Your merchandising strategy should be based on building upon your
winners — your best-performing price points and product
categories. By studying and analyzing how customers respond to the
products offered in each catalog, you can eliminate the losers and give
customers more of the types of items they want. While merchandising has
a strong intuitive side to it, and determining the next big trend may
be based partly on gut feeling, you must also use left-brain thinking
and quantitative analysis to achieve success.
Begin the analytical process by physically marking up a catalog to
indicate the units sold and sales for each catalog item. Summarize your
sales for each page and spread in the same manner.
This process of physically tracking sales of each item helps both
the merchandisers and the creative team. Many factors affecting catalog
performance will become strikingly apparent, including the positions on
the page or spreads that consistently produce winners and differences
in design, photo treatment and even the types of models used.
Calculating sales per page (or spread)
To increase performance, merchants and the creative team can
establish a sales goal for each page before producing the catalog and
then judge a page's actual performance against that standard. For
example, a $20,000 sales-per-page performance may be satisfactory or
lacking, depending on whether your sales-per-page goal is $15,000 or
$25,000.
To compute your sales-per-page goal, consider this example: Your
48-page catalog is mailing 500,000 pieces for a spring drop. Cost per
catalog in the mail (variable cost) is $0.60. Advertising cost is
therefore equal to $300,000 ($0.60 × 500,000).
In a profitable catalog business model, advertising is normally
20%-25% of sales. Dividing your total advertising cost by these
percentages will give you the total sales goal for the catalog
($300,000 divided by 20% = $1.5 million; $300,000 divided by 25% = $1.2
million).
Divide the total sales goal for the catalog by the number of selling
pages to determine the estimated sales per page goal. In our example,
we're not going to count the cover as a selling page ($1.5 million
divided by 47 selling pages = $31,915 sales goal per page; $1.2 million
divided by 47 selling pages = $25,532 sales goal per page).
By understanding the sales-per-page goal, the creative team and the
merchandise staff will have a far more accurate barometer of how each
page in the catalog is doing from front to back, from peak pages to
valleys.
Square-inch analysis
Square-inch analysis, often referred to as “squinch,”
shows the hard facts — what has sold, how much it cost, and how
much space on the page was required to sell it. Squinch measures how
productive an item, a page, a spread, or an entire catalog is. It also
allows us to look at the key variables — customer response or
demand, cost of goods and advertising — to better understand how
each figures into the profitability, or lack thereof, of a page.
The squinch spreadsheet (see chart below) should be organized by
page, showing each item and its cost, actual selling (or retail) price,
number of units sold, total sales, cost of goods, gross margin, cost of
catalog space, and most important, contribution to fulfillment,
overhead, and profit.
The chart shows the cost breakdown of a page from a typical catalog.
Overall, this page is an underachiever, contributing just $414.77 to
the bottom line — hardly what a successful and profitable catalog
is looking for. The problem is that this page has many poor-performing
products. Overall, the page has six losers that detract from profit,
compared with five winners that make money.
When reviewing the results, the important thing to assess is not how
many units sold or even the overall sales dollars earned, but the
profit contribution of each item and page. This information will be a
revelation and guide product buyers as well as the creative people in
allocating space and paginating the next catalog.
So for example, on the page charted below, you would probably want
to get rid of the potholder, which took away $119.10 from profit, and
the extra binder pages, which lost $110.05. You could then replace them
with items similar to those that did well, such as the tea towel, which
contributed $289.90 to profitability, and the recipe binder, which
contributed $167.45 to the bottom line.
Calculating space allocations and costs
When determining for your squinch how much catalog space each item
took up, you don't need to measure down to the tenth of a millimeter.
Rather, allocate space on the basis of pages or fractional pages
— for instance, 1/8 of a page or 15% of a page.
When it comes time to calculate the cost of producing each page, you
can subtract whole nonselling pages, such as the front cover and the
president's page. But when allocating space on pages that are primarily
selling pages, all space, including nonselling space such as
testimonials and editorial sidebars, needs to be accounted for. While
there are compelling reasons to use nonselling space in a catalog, such
as providing additional editorial information that establishes your
catalog as an authority in its field, all the products must ultimately
pay for these spaces.
To determine productivity, the cost of each product's space is
calculated by taking the entire cost of the catalog in the mail divided
by the number of pages, divided by the amount of space each product
occupies on the page. You can use just variable costs (printing,
mailing, postage, and list costs) or fixed costs (which include design,
photography, page production, and color separations) plus variable
costs. The fully loaded, or combined fixed and variable costs, is
typically the more accurate measure for this calculation.
Let's say you are mailing a 48-page catalog, and the fully loaded
cost is $0.60 per book. If you mail 100,000 catalogs, the overall
catalog cost in the mail would be $60,000. Then you would divide this
number by 48 pages to arrive at the cost per page, of $1,250 per
page.
But as mentioned earlier, you would need to subtract any nonselling
pages from the total number of pages. If you took out the cover, the
president's letter, and a one-page editorial, you would end up dividing
the total cost by 45 pages, which equals a cost per selling page of
$1,333.
Other analyses
Once you've completed your squinch by page, you can look at the data
in a number of other ways, including sorting the information by profit
contribution, from high to low. Once you do, it probably won't take
long for you to see that the 80/20 rule was in effect: 20% of the items
contribute 80% of the profits.
Fortunately, spreadsheet software can easily sort the compiled
information by other parameters, such as
price point (for instance, $0-$10; $10-$25; $25-$50; $50-$75)
product category
rank order by contribution
rank order by number of units sold
rank order by sales
new vs. repeat items and their performance
This last analysis is an important one if your catalog offers a
significant portion of items from book to book. Individual products
have a life cycle. This analysis can help you determine when to reduce
the space for an item in the catalog or when to “rest” a
product before repeating it. Indeed, smart catalogers often take a
winner, run it for a period of time — say, three months —
and then leave it out for a month or two, before putting it back in (on
the part of consumer catalogers, typically in time for the holiday
season).
Both sales-per-page analysis and square-inch analysis enable the
merchant and the creative team to look at more than just units sold and
sales per item; both are directly tied to profitability or profit
contribution. Too often we see merchandise departments look more at the
number of products sold, rather than the profit contribution. These
analytical tools are probably the most important ones to understand and
can be used to drive profitability of a catalog.
Next month we'll take squinch one step further and look at analysis
of product categories and benchmarks of success.
Jack Schmid is president of J. Schmid & Associates, a
Shawnee Mission, KS-based catalog consulting firm.
To download a copy of this article in PDF format, complete
with chart, click here. This file requires Acrobat Reader,
which you can download for free at www.adobe.com.
