Turning a Business Model Upside Down - 1
Sweepstakes marketers claim the folks who respond have great demographics—good incomes, own homes, travel, drive nice cars, etc. But sweeps promotions only work for a one-shot offers—a magazine subscription, book or product. For a marketer, sweepstakes promotions are like heroin. You get a rush, but don't expect to get additional sales without sweetening the offer with another sweepstakes.
The folks that entered Meredith's "Everybody Wins" sweepstakes wanted the grand prize and knew they would get a free Better Homes and Gardens spice cookbook at the very least. Virtually none of the new 200,000 sweeps-sold members bought anything subsequently. The idea of including a sweeps offer to book club members in each of the 15 cycles a year was preposterous.
Changing the Business Model
We separated 200,000 non-buying sweeps members from the 150,000 good and loyal customers that made up our bread and butter. It turned out that the percentage of the 150,000 buying customers that took the main selection was more like 50% than the 70% that was forecast. In other words, instead of printing 265,000 copies of a main selection, the actual number of books sold—50% of 150,000 members—was more like 75,000.
Understand, if you can send a mailing and get a 50% response, it's hugely profitable—but not when you're spending $1.5 million a year circularizing 200,000 people who don't buy anything and overprinting 2.8 million books that don't sell.
I wrote a long, thoughtful memo to Meredith management explaining the lose-lose arithmetic of the current business model and telling them what I planned to do:
1. Write the 200,000 nonbuying members a warm, fuzzy and highly flattering letter to be included with the next mailing cycle. It would say that we loved having them as members, but since they had not bought anything in a year, this was going to be the last offer they received unless they placed an order. Virtually all of the 200,000 nonbuying members went bye-bye.