The Market and War: Attitudes
Donald R. Libey
As
you read this, it is likely the US will either be engaged in active conflict
with Iraq or on the verge of action. The foremost concern you have, aside from
the concerns for our youth in harm's way, is the effect this will have on your
business. The Direct Marketing
Association has offered a White Paper titled Contingency Planning For Catalogers During
International or Domestic Crises: Key Issues and Alternative Responses. This article is a discussion of a number
of points about that White Paper and seeks to offer alternative thinking to
those "key issues and alternative responses."
What is Possible
and Probable?
The DMA White Paper does an
excellent job of offering the information and considerations as a checklist of
possible suggestions; no firm position is presented and, of course, none is
possible until something specific occurs. The broad indications are, however,
that a brief, intensive war is probable and a terrorist-like domestic incident
or incidents, such as the attack on the World Trade Center or the Anthrax
attacks, is possible. The downside
risks are further described as a loss of readership, drops in direct and
indirect demand and disruptions of the informational and financial infrastructures.
The upside risks are given as a shift to direct channels, an increase in
shopping from home or business and a return to healthier economic factors
post-conflict. In the national crisis
and conflict, essential objectives for a business are described as liquidity,
flexibility, caution and imagination.
Clearly, one cannot disagree with these possibilities and
positions. They are, after all, common
sense and logical.
It is, however, in the DMA's offered
possible alternative responses for circulation, contact strategy, sales and
revenue enhancements, merchandising,
catalog costs and logistics, overhead and operating costs, balance sheet
management, banking relationships, and personnel that an unfortunate tone of
softness and resignation seems to emerge.
Circulation
and Contact Strategy
In circulation and contact strategy,
the thrust of the DMA suggestions are to consider cutting back or trading off
new prospecting in favor of adding circulation to the house file segments or
increasing older house file reactivation. I would suggest that most pull-backs
in prospecting and increases in house file mailings will result in a further
dilution of house file performance and a longer term loss of momentum in new
customer acquisition and share shifting in the cataloger's core markets.
Regardless of what happens in Iraq, your local supermarket will still be open,
still be selling Black Angus prime beef, still be offering solid,
margin-producing value propositions to attract new customers. The Mom and Pop local grocery that opts to
cut back on circulars, newspaper advertisements, or reduce any of its minimal
promotional budget, will drop farther and farther behind the power of the major
competition, and it will lose core customers.
A reduction in quality prospecting, even in times of short, intense
conflict, is a guaranteed downstream increase in irrelevancy and a guaranteed
downstream reduction in the valuation of the catalog company. In the immortal words of the late Larry
Quadracci, "There are some things so important, you cannot afford to know what
they cost." Consistent, relentless
prospecting in the face of all adversities is one of those things.
The house file has been the
repository of "increased circulation" strategies for some time now, and the
response results are telling us something. Universally, I hear the committed
catalog customer- both consumer and business-to-business-say, "You send me too
many catalogs." Maybe it's time to listen to those customers. Maybe it's also time to stop apologizing all
over ourselves and actively go after the 50 percent of the national market that
has never bought anything from a
catalog. The largest portion of the catalog market potential is not currently
our customer. An industry with
imagination and imaginative leadership should focus all of its energies on
initiatives for growth and expansion when the untapped potential is as large as
that of the multi-channel direct marketing industry, not on scaling back its
primary marketing strength: prospecting to the immense universe of potential
customers who have never even set foot in our "stores."
Merchandising
In the area of merchandising, the
overall thrust of the DMA White Paper is to examine product productivity in
order to decide if new product/old product ratios can be adjusted, to consider
price incentives and to consider cutting under-performing product from the
catalog. The case is fairly made for
decisions on either side of the questions, however, momentum historically
resides with the cataloger who aggressively introduces new products, maintains
price positioning and margins and increases viable page counts in the face of
diffident, retreating competitors.
Let's assume what likely will happen
from recent experience of September 11, 2001 and the Anthrax debacle. Most consumer and business-to-business
catalog companies will, in fact, pull in their heads, stop prospecting, combine
mail drops, reduce page counts and postpone growth hires, capital expansion,
and other normal activities of viable catalog companies. Mind you, these are the same companies that
blithely flushed several million down the Internet drain in 1999 and who are
now afraid of maintaining $500,000 in prospecting momentum because CNN induces
frequent mass hysteria, but that's another issue altogether. If all of the sheep do the "safe thing"
which catalog companies do you think will emerge with increased share and
progressive growth momentum, albeit at a slightly higher cost? Right!
This time of impending conflict can
be either a time of retreat or a time of progress. When the retail and sales
force channels pull back into a safety zone, it is an opening in the
merchandising defense. Now is the logical time to penetrate those
defenses and run and pass for yardage.
Those catalog companies that increase
new product/old product ratios, increase
prices, increase page counts, increase prospecting and increase product penetration strategies
will be positioned, whenever the conflict ends, ahead of the rabbits that went to ground. Who do you believe will
command a place of honor in European history: Winston Churchill or Jacques
Chirac?
Catalog
Costs and Logistics
The DMA position is, overall, one of
a consideration of possible pull-backs in creative and production costs for the
catalog, such as deferring on-site location spreads, using vendor-supplied
artwork, and smaller quantities on print runs with re-mails printed on a
selected basis. While logical and good concepts on the surface, and concepts
that could be considered, I would
offer that maintaining a consistent quality and integrity of creative and
production is the only possible position of strength; diminution of proven
creative and production strategies will diminish the post-conflict outcome for
the individual catalog company. Yes, you might save short term money, but you
will lose long term momentum.
The
true key issue here is about preserving long term momentum and valuation.
There are two points of view and two
strategic positions involved in this issue: one is conservative and considers
pulling back where indicated; one is aggressive and seeks to preserve and
expand momentum and capture future share in a time of disruption. American history favors the side of
aggressive action. Capitalist history
favors the side of aggressive action.
And catalog history favors the side of aggressive action.
Overhead
and Operating Costs
The DMA paper is very clear on these
elements. The paper states:
The issues here are very
straightforward. Without jeopardizing
the remainder of the year, or the core strength and morale of your
organization, you should keep costs down whenever possible . . . . Defer new
hires, spending increases, even if planned, and capital expenditures until you
see the market environment normalizing.
Here, I must take exception. First, the market environment may not
"normalize" for another five years. We
are in the midst of a major business cycle change that could extend over a decade. Second, nothing positive has ever been
accomplished by deferring growth. If
you had 5 children living in a two-bedroom home, would you defer building an
addition until things got back to "normal," whatever that is? Of course not. You move ahead and use common sense, but you service the future.
I was in the midst of evaluating
businesses for acquisition in England on December 20, 1989 when the US invaded
Panama. There was no consideration of what would happen to catalog demand; no
consideration of cutting prospecting or circulation; no consideration of
deferring new hires, capital expenditures or even acquisitions. And if you go
all the way back to 1983 and the invasion of Granada and numerous other
conflicts throughout the post-World War II era, there has never been such
paralyzing business fear as we are currently experiencing regarding the
unknown. My re-write of the DMA
position would be as follows:
The issues here are very
straightforward. In order not to
jeopardize the remainder of the decade or the core valuation of your business,
continue operating your business and maintaining your budget to invest in and
assure growth. Make needed new hires,
increase spending on viable prospecting in order to capture new market share,
and invest in needed capital expenditures to assure appropriate positioning for
future opportunistic and organic growth and expansion.
The
Bottom Line on High-Level Strategy
The combined postal increases of the
past 15 years have hurt your business more than the possible effects of a
conflict in Iraq. The privacy
constraints that have been allowed to occur legislatively have hurt your
business far more than the possible effects of a conflict in Iraq. The near-national Do Not Call lists and
near-universal national telemarketing legislation has hurt your business far
more than the possible effects of a conflict in Iraq. The erosion of the fundamentals of direct marketing are far more
dangerous than the minimal costs of a short term dip in demand due to
conflict.
But even more dangerous, even more
insidious, even more fatal to the individual and collective valuation of the
catalog industry is an attitude of fear, diminution, resignation, and retreat
in a time of difficulty, whether economic or geo-political. It is precisely in these times that an
attitude of perseverance, aggression, boldness and strength is essential for
the capture of the future. No catalog company has ever succeeded by stopping
and no catalog company will ever grow by shrinking. Invest in the future.
Invest in the future during difficult times. Adopt a contrarian philosophy. Assume the mantle of the lion, not
the sheep. Look beyond the horizon ahead, not the horizon behind. And remember, it's not complex: it's all
about consistency, staying the course, discipline and following a proven,
logical, sound plan for continuous growth.
In the end, those catalog owners who understand this will harvest the
largest portion of wealth.
Copyright 2003 by Donald R.
Libey. Permission to reprint or quote
is granted.
Libey-Concordia
Advisors and Investment
Bankers to the Catalog Industry
Philadelphia Des Moines Cincinnati
Direct: 515-277-4444
E-mail: libey@libey.com
Web: www.libey.com