5 Questions in 5 Minutes: Utilizing Store-Level Data
Sales efficiencies on the newsstand still average about 30 percent, says Richard Lawton, senior vice president, Comag Marketing Group, the distributor co-owned by Conde Nast and Hearst. That figure that hasn’t changed in ten years. Yet store-level and point of sale data are available from retailers and wholesalers that can have a significant impact for publishers wishing to achieve greater sales efficiencies. Lawton spoke with FOLIO: Alert via e-mail about unnecessary distribution due to ratebase pressure, store-level data opportunities and why publishers aren’t exploiting it.
Q: Sales efficiencies are still in the 30 percent range. How many magazines are selling one or no copies and what are the costs associated with dealing with returns and unsold copies?
A: Approximately 100 million copies per year (4 percent of total) are distributed to stores for publications whose average sale in those stores is zero, and nearly 300 million copies (15 percent of total) are distributed to stores with an average sale per store per issue of 1 copy or less, with an average sales efficiency of 16 percent. The level of "demand overshoot" in these segments represents unnecessary and significant costs for all channel partners, from paper, printing and distribution costs for publishers to handling costs for wholesalers and retailers, not to mention the environmental costs which are "externalized" since they don’t show up on anyone’s P&L. And this is just the tip of the iceberg.
Q: What are the opportunities for publishers who use store-level data?
A: PP&D (print, production and distribution) is the largest single cost associated with newsstand distribution, and it is the least skillfully managed. Store level data offers the opportunity to change this, potentially enabling publishers to apply direct marketing-like discipline to measure, segment, understand and manage the newsstand source more efficiently and profitably. There is a growing list of successful applications by publishers; we worked with one publisher of a mid-tier checkout monthly who was able to reduce its print order by removing draw from unprofitable stores, resulting in annualized cost savings of over $600,000 with no loss in sale. The leverage in even small efficiency improvements is substantial.
Q: Describe the difference between managing to average and managing to margin. What’s the preferable strategy?
A: The difference is similar to that between a chainsaw and a scalpel. Managing to the average is a crude and blunt instrument, but is easy since it doesn’t require much thought or skill. If a publisher divides their total sale by total print order to get an average sell through of 35 percent, they might be satisfied with that if their break even efficiency is 25 percent. What they don’t see, and what is fairly common, is that as much as 20 percent of their business is operating well below that breakeven point. Managing at the margin requires first that a publisher really knows what their marginal break even efficiency is (which includes such things as ad revenue per reader per copy, and subscription replacement costs). Secondly, segmenting store level data to identify how much print order is being distributed to stores running below this threshold. And thirdly, using this information to inform your print order management decisions and processes. The first two steps are now fairly easy; it’s the third that’s the most difficult and most important, and where most people get stuck or give up. Managing at the margin is not only preferable, it should be considered a required skill and practice if the magazine category hopes to effectively compete for merchandising space in an increasingly competitive retail environment.
Q: What’s the hold-up? Why hasn’t the use of store-level data become an industry norm?
A: I’d boil it down to two things: the inertia of collective conditioning. Old habits die hard and publishers’ fear of missing rate base. A Pandora’s box has been opened revealing what in reality is an increasingly complex business and network of relationships, which calls for a whole new set of skills and way of looking at the business. Also, it’s not just a question of using store-level data, but how it’s used and for what purpose. Some people selectively screen the data to find and use only what supports what they’ve always believed or serves their best interest in the most narrow sense, some are stopped in their tracks due to being overwhelmed and not knowing where to start, and some are trying to use the data to micromanage rather than target market (which is more about control than being effective). For many publications, maintaining print orders at current levels to avoid the risk of missing ratebase is the equivalent of wearing a belt and suspenders to avoid the risk of having your pants fall down. It’s overly cautious.
Q: What needs to change?
A: First, give up all hope of it ever being comfortable for those of us who work with it, it’s anything but. It’s difficult and often frustrating work, but the insights and occasional breakthroughs make it worthwhile. Many things need to change, but the combination of two basic market forces will ultimately drive these changes, one positive and the other negative. The first is that an increasing number of publishers are showing the way by successfully using this data to more profitably manage the newsstand source as an integrated part of their circulation mix. As these successes are shared and gain attention, they will act as a positive force of encouragement for other publishers to join in. An equally strong negative force is the increased business risk of not finding ways to mine value from the data. Those publishers and national distributors that do not respond to one or both of these forces by using the data to radically rethink how they do business will be at a competitive disadvantage which will only widen over time.