Sampling with a Twist
For decades some book publishers have multiplied their sales by persuading customers to pay up front to receive a series of books in the mail over time. Now some small companies are wisely applying the concept of continuity, club, or subscription sales to their own industries. The benefits include --
* More even cash flow. "When we didn't have much money, the club helped with cash flow," says Bruce Pavitt, founder of Sub Pop Records, a $1-million independent Seattle record label. To publicize Sub Pop, four years ago Pavitt produced limited editions of seven-inch singles; they sold out quickly at record stores, and disappointed customers complained. So began Pavitt's Single-of-the-Month Club. With 2,500 members, who pay $35 or $60 in advance for 6 or 12 months of new music, the club gave the label a stronger national presence.
* Lower cost of sales. A small company can make more money on items sold through a catalog than through retail; with club sales you can also reduce the cost of direct mail. "Instead of printing a catalog and getting just one order out of it, you get all these cumulative orders and can spread the marketing costs out over them," says Dwight McCabe, mail-order director for Starbucks Coffee, a Seattle retailer and distributor of specialty coffees. Starbucks customers sign up to get 6 or 12 months of coffee and pay about $50 or $100 up front. Each mailing promoting the club to the 30,000 existing Starbucks customers costs $40,000, says McCabe. Response rates run as high as 20%. In one recent month, the company's club revenues surpassed mail-order revenues for all of 1991.
* Predictability of demand. Ruth Owades has offered "A Year of Flowers" since beginning Calyx & Corolla, an $11-million mail-order flower retailer in San Francisco, in 1988. Customers sign up for 3-, 6-, or 12-month subscriptions and pay $110, $205, or $375 in advance for orchids in February, heather in March, and so on. Depending on the season, club sales account for from 15% to 40% of revenues -- smoothing out fluctuations in Owades's seasonal business. "I wish we could forecast the whole year this way," she says, "but the club at least gives us some basis for projections."
-- Michael P. Cronin* * *
CAVEATS OF SUBSCRIPTION SALES
Club sales are not for mail-order neophytes. Handling fulfillment presents an unusual computer-programming puzzle with few fixed parameters. When Ruth Owades set up her company and her flower-of-the-month club, she hired Nashbar/Associates, a mail-order consulting firm in Youngstown, Ohio, to develop the computer systems that handle Calyx's orders, tracking, and billing. Nashbar defined every possibility: Is the duration of the subscription fixed or open-ended? Do customers pay up front or upon receipt? Can they return a delivery? Nashbar systems start at $70,000.
If you can't afford to make the ongoing investment in software and personnel, consider handing over fulfillment to a service bureau. For names of bureaus, consult the advertisements in trade journals like Catalog Age (203-358-9900) or call the Direct Marketing Association (212-768-7277) for a list of recommendations. -- Michael P. Cronin* * *