Manufacturers Mail Order Selling to the Public

September 16, 2010 at 3:53 AM | Posted in Mail Order, Small Business | Leave a comment
Tags: advertising, beginners, business, costs, customers, direct, drop shipping, home business, list, local, mail, Mail Order, making, market, marketing, maximise his sales, money, online drop shipping mail order, order, people, present, press, press advertising, product, profits, public, random, research, sales, selling, wholesale, wholesale drop shipping

It is popularly believed that by cutting out the retailer, and — where he exists — by cutting out the wholesaler too, the manufacturer can market his goods both more cheaply to the public and at a greater profit to himself. It must be borne in mind, however, that if he bypasses the middlemen, he has to provide within his own organisation the services they normally provide. And that costs money too.

For beginners?

Manufacturing is a very different activity from retailing. If your expertise lies in the former, you will normally find it best to concentrate your efforts there, leaving it to those skilled in retail distribution to shift your product on to the general public.

If you’ve tried marketing your product to wholesalers and retailers but they’ve shown no interest in taking it, ask yourself honestly whether the product is genuinely saleable in its present form, at its present price, at the present time, to the present public. Middlemen don’t normally decline the chance of making money, and if they won’t handle your product, there’s probably something wrong with it. Think very carefully before launching yourself into an area of business, as a raw beginner, in an attempt to retrieve a failure in a line of business where you are genuinely expert. Mail order can’t sell the unsaleable.

There are two circumstances when, as a manufacturer, you might consider mail order. First, if the product is of a specialist nature, with too few retailers of sufficient size and skill able to handle it effectively. Second, if your research has revealed a gap in the mail order market — an area of demand currently unfulfilled — which you believe your manufacturing skills could supply. There’s a world of difference between manufacturing a product to fit a gap you have confidently identified in the market, and desperately scrabbling to find a market for a product you’re already stuck with.

The gadgets, gimmicks and novelties mail order firm

This is what the general public tends to think of — incorrectly, as we have seen — as the typical mail order business. Firms like this rely almost exclusively on continuous press advertising, usually using bargain square advertisements — one column wide and an approximately equal height — each devoted to a particular product. The total number of products they deal in may run into hundreds or it may be only one.

For beginners?

This is one of the more visible areas of the market and the one to which many beginners naturally gravitate. Indeed, it does provide one of the quickest and cheapest ways for the newcomer to ‘have a go’: quickest, that is, if you can get the press to accept your advertising.

With one product and one ad, you can put a toe in the water. But what then? The message coming back from the toe will almost certainly be that it’s decidedly chilly out there. Regrettably, any dreams you might have had of being overwhelmed by orders from your single advertisement are unlikely to be fulfilled. See Dave Patten’s comment below on typical response rates.

The difficulty for such businesses is how to develop any real business momentum, ie to build up a body of regular customers and so escape the stranglehold of expensive press advertising. The people fascinated by your folding walking-stick may not be turned on by your pocket solar-powered radio or your plastic Christmas tree. Follow-up sales, the jam on the mail order bread, are not easy to achieve.

Making money in mail order

Although overheads like rent and rates tend to be low compared with other retail businesses, other costs — advertising and postage, for example — tend to be high. Just as the shopkeeper needs to maximise his sales per square metre of floor space, so the mail order dealer has to maximise his sales per pound of advertising money.

Direct mail

Though most mail traders have to use press advertising some of the time — and new traders particularly may need to — for many, the preferred form of promotion is direct mail, in which advertising is posted to individuals on a mailing list. Lists may be composed of one’s own past customers or enquirers, or be compiled by research, or be rented from list owners who have themselves built them up in one or other of these ways. The random spray of shot is now replaced by the sniper’s bullet. Provided the lists have been intelligently compiled and maintained, this is a much more efficient procedure.

Even so, response percentages very rarely get into double figures; a 2 per cent rate is fairly typical if you’re using a good rented list. Get out your calculator again. With second-class postage at 13p and enclosures costing, say, 7p, and another £50 to rent the list, then 1000 items cost £250; a 2 per cent response, therefore, means that you make 20 sales, for each of which you have spent £12.50 in advertising. Not cheap, but better than £23.

A strategy for mail order

For most businesses, the mailing list that produces the best results is their own list of past customers. And this fact lies behind the most widely pursued strategy in mail order: to build up a list of customers. Because this is where the most profitable business promises to be, it is not unusual for firms to accept a short-term loss on their press advertising, which they regard less as a way of selling goods than of ‘buying’ customers from whom future profits will be made.

A ha!

This is often the explanation of something that baffles and dejects many mail order beginners. You place an ad which seems to you very similar in its appeal to one that another mail order company has been running for months on end — and yet your ad fails and loses money. How, you ask yourself in some bewilderment, do they make their advertising pay?

There are a number of possible positive answers. A mail order campaign is made up of many parts, of which the press advertisement is only one. Two seemingly similar ads may thus form part of two very different selling operations, and this makes it impossible to explain the success or failure of a particular ad by reference only to the ad itself. Account must be taken also of all the concealed costs which only the advertiser himself knows about: general overheads, purchasing costs, staff salaries, and so on.

If you arc trying to copy the supposed success of another advertiser, you will need to duplicate every aspect of his mail order operation, including those which, short of espionage, you simply can’t know about. You may both be selling a well-known brand of Thingummies at exactly the same price from virtually the same advertising in the same paper; but if he is purchasing his Thingummies direct from the manufacturer at £2 each while you are getting yours from a local wholesaler at £3 each, he may be making a small steady profit while you are making a small steady loss.

But the likeliest explanation of the other advertiser’s continued presence in the advertising columns is that though his ad doesn’t pay in the short term, it does pay in the long term. Perhaps he encloses a catalogue with all orders despatched, his profits coming from the sales that the catalogue produces. Perhaps he direct mails his customers every six months, his profits coming from that operation.

This is the point: the iceberg tip of mail order advertising that you arc familiar with as a member of the public is just the visible fraction of a complex selling operation, the ultimate profits of which may arise only indirectly and after the passage of time.