Catalog Watch--Prospecting Online
Take the following scenario as an example of what can happen if a cataloger fails to look at the big picture concerning its Web sales. The following assumptions, based on findings from research and client studies, will be used in the example:
• In many cases, average order value (AOV) for an order placed online is 10 percent to 25 percent lower than an order placed through traditional channels such as phone or mail. This decrease is likely due to the perceived hassle involved with shopping online (slow download times, illogical navigation, etc.). While catalogers often can increase online AOV by improving various site aspects, this example will assume a $75 AOV for the catalog and a $63.75 AOV online.
• Fulfillment costs online are 30 percent to 50 percent lower than traditional channels because of the lower labor costs involved in processing catalog orders from the Web. Assume a net fulfillment cost of $7 per order for the catalog and $3.50 per order for the Web.
• Assume cancellations and returns combined account for 5 percent of sales and that the cost of goods sold (COGS) is 40 percent of sales.
Based on these assumptions then, the cataloger would see the following P&Ls for each type of order:
This example results in an 8-percent drop in contribution per order when a customer is converted from a catalog buyer to an Internet buyer. If this is the case, the question of whether it makes sense to try to convert catalog customers to Web buyers "because it doesn't cost as much to process an order online" has to be asked. The picture becomes even grimmer if the cataloger implements an offer of, say, $5 off for all orders placed online. The net result in that case would be a 22-percent drop in contribution per order.