When unaddressed mail produces upmarket results
In the world of luxury retailing, the personal touch has always been touted as the best way to handle affluent customers. Just ask Holt Renfrew, Canada’s leading luxury retailer. For years, Holts has sent personalized direct mail regularly to some of its best customers, always tailored to their previous purchases and preferences for the finer things. But when Holts wanted to attract new customers for its fine jewellery, it decided to forego the kidglove treatment and instead turned to an unconventional approach: unaddressed mail to targeted postal walks. And the results proved surprising.
Holts has never been shy about trying new approaches to win customers. For 173 years, the retailer has used new and unusual marketing strategies to promote its exclusive fashion apparel, footwear, handbags, cosmetics and jewellery. Every spring and fall, it mails a catalogue with its to-die-for wares to customers who treat the beautiful book like a collector’s item. In November of 2007, Holts launched an outreach effort with its so-called White Catalogue of jewellery items. The company hoped to raise awareness of its jewellery collection, acquire new customers and compare the effectiveness of a catalogue to direct mail for connecting with prospects.
To reach the target audience, the company printed 100,000 copies and inserted them in a Saturday edition of the Globe and Mail distributed in Toronto, Montreal and Vancouver. According to Pierre Montagnier, Holts’ Senior Manager of Customer Analytics, the campaign was well received, creating a lot of buzz for the chain’s jewellery department. But the approach had limitations. It didn’t screen out existing customers and the newspaper distribution zones were too large to allow Holts to select preferred areas for targeted marketing. “Geographically inflexible” is how Montagnier describes it.
More problematic, the results were hard to measure. “The campaign was successful on the surface,” says Montagnier. “People came into the store talking about the catalogue and we had strong aggregate growth in our fine jewellery business. But when we attempted a deeper analysis of this particular marketing tactic, it was hard to measure the results. Our response measurement was fuzzy.” Unable to see a significant difference in sales patterns or customer acquisition between the targeted cities and those that didn’t receive the catalogue, Holts couldn’t determine the program’s effectiveness.
For Montagnier, an analytical marketer who holds a Ph.D. in mechanical engineering, this lack of quantification was particularly frustrating. “If marketing isn’t measurable, why bother doing it?” he asks rhetorically from his Toronto office. “We wanted to crunch the numbers to make sure that we’d made the right decision using newspapers. But the numbers just weren’t available.”
To design a more measurable campaign, Holts revamped its approach. In 2008, it contacted Environics Analytics (EA), the Toronto-based marketing analytics company, to help identify its best customers and determine where to find more of them. Using PRIZMC2, EA’s segmentation system that classifies Canadians and markets into 66 lifestyle types, analysts first categorized Holts’ existing customers into one of the clusters. Not surprisingly, many hailed from the nation’s most affluent segments, such as Cosmopolitan Elite (very wealthy middle-aged and older families), Suburban Gentry (wealthy, middle-aged suburban families) and Les Chics (sophisticated, urban Quйbec couples and singles). Then researchers mapped the presence of key clusters to neighbourhoods within the trade areas of Holts’ stores. By knowing the top clusters and customer sales per neighbourhood, marketers could pinpoint the under-penetrated areas—that is, neighbourhoods where like-minded prospects live who were not already regular Holts’ customers.
Holts selected the 294 most promising postal walks (consisting of about 300 households each) near its flagship stores in Toronto, Montreal and Vancouver. In the fall of 2008, it mailed 75,000 lavish, art-directed, high-gloss catalogues to unaddressed households in those targeted areas. But it also identified “control” neighbourhoods with a high concentration of the key clusters and held back 16,500 catalogues to test the difference in sales between the two groups. Then it sent 40,000 of the 20-page catalogues to existing customers who’d never bought jewellery in order to compare a direct mail approach to customers with the targeted unaddressed strategy to prospects. Finally, to obtain an accurate budget comparison, Holts made sure that the cost of mailing the catalogue unaddressed to the target postal walks was comparable to the cost of the previous year’s newspaper insertion.
“We wanted a scientifically designed test,” says Montagnier, “so when it was time to compute ROI, we’d have hard numbers and not just intangible feedback. By distributing catalogues at the postal walk level, we felt we could better trust the results.”
With its careful design, the less personalized campaign yielded a number of surprises. First, the response rate of prospects who received the unaddressed catalogues matched the response of existing customers who were sent direct mail—both in number of purchasers and amount spent by each responder. In addition, residents in the postal walks who received the new catalogues showed a 60 percent lift in sales over those in areas who didn’t receive a piece. “That was the icing on the cake,” says Montagnier. “The campaign proved that receiving a catalogue made a difference in sales. Even when comparing customers who share the same lifestyle, those who receive a catalogue tend to shop more than those who don’t.”
Beyond the lessons learned, the campaign made money for Holts. Despite the $3.30 cost for each catalogue, the unaddressed campaign not only broke even thanks to the immediate sales to the new customers, it eventually proved profitable. A follow-up analysis showed that a significant percentage of newly acquired customers returned to purchase jewellery within six months—a good indicator of customers with a promising lifetime value. “The campaign wasn’t just a one-time wonder,” says Montagnier. “It really created a larger base of jewellery customers.”
The White Catalogue campaign also indicated which PRIZMC2 clusters were the most responsive to the catalogue mailing, and Montagnier’s team hopes to refine their cluster selection for future marketing campaigns. Although he recognizes that Holts’ indirect approach to marketing fine jewellery through unaddressed mail may be unusual, he believes it can be extremely effective if married to well-designed analytics behind the scenes.
“There is no magic to this kind of target marketing,” says Montagnier. “You just have to go about your analysis in a very disciplined manner. If you look for your most profitable customers and address them specifically, even in an unaddressed way you cannot go wrong.”