Turning a Business Model Upside Down - 1
That October, the Direct Marketing Conference was in Boston and I rented a car for a trip to our printer—Colonial, as I recall—where I was taken into the warehouse and shown my inventory. Before me were wall-to-wall skids of unsold books vanishing to infinity, and they were all mine. I owned them. Talk about a need for three vodkas.
What Went Wrong
My comptroller was a numbers genius names Harold Schwartz, incongruously bearded and Jewish in an organization made up entirely of WASPs. I've seen Schwartz eyeball a 40-page computer printout just handed to him by an IT flunky, spot a number on the cover page and circle it. "This is wrong," he would proclaim. "And if this is wrong," he said turning to page 2 and circling an entire column, "then these numbers are wrong and this report is useless. Do it again right, and bring it back to me!"
I asked Harold to give me a customer analysis by source. When it arrived, I made a horrific discovery: Virtually none of the 200,000 sweepstakes customers were book buyers. I was spending roughly 50 cents a cycle to circularize them 15 times a year. That was $7.50 per member—$1.5 million annually—and they were buying bupkis.
On top of it, we were incurring huge expenses on overstock books that weren't selling, but rather lying like lox on pallets disappearing into infinity at a Boston warehouse.
Family Book Service under that business model was on life support.
The One Problem with Sweepstakes Promotions
Quite simply, sweepstakes buyers are out to win money and prizes. According to Federal Trade Commission rules, if you use a sweepstakes to promote a product or service, every person that enters must have an equal chance to win, and there can be no "consideration" (i.e., no purchase necessary).