Inventory

And what to do about it.

I know a lot of marketers who are absolute wizards on the front end.  They know how to pick products, produce infomercials, buy media and get people to pick up the phone.  This is a valuable skill set, but in today’s economy it will only take you so far.  It used to be that you only competed against yourself when it came to DRTV marketing, but today the reality is that consumers have less money, less access to credit, and are less tolerant of deceptive advertising and bad service.  This has created a highly competitive marketplace where even hit products have a good chance of failing.

To beat the odds, savvy marketers have started to focus more on the back-end, where runaway returns, charge-backs and bad debt can turn a seemingly successful campaign into an unmitigated disaster.  In point of fact, the back end is where all of the action takes place once the order is captured.  Following are some ways to master the back end so that your media investments turn a profit and your hit stays a hit.

Pick the right vendors

While it may seem obvious to pick the right vendors, few marketers get this right in the beginning.  Direct response television is a vendor-intensive industry, meaning that vendors provide much of the execution within the value chain.  Many of the marketers that I know have gone through multiple vendors in each service category, and have consequently wasted a lot of money.  Take the time to do your due diligence.  Seek out consultants who offer vendor selection and contract negotiation services.  While it may seem like you are slowing down your campaign, in this case it is wise to “go slow to go fast.”

Manage your inventory

Mismanagement of inventory can break a healthy campaign.  Ordering too little can cause back orders, which can dramatically increase cancellations and customer service calls.  Ordering too much can lead to runaway storage costs, and in some cases spoilage and destruction costs.  Make sure you take the time to model your inventory requirements.  If you don’t have these skill sets in house, seek out someone who has created inventory models.  If you are running a continuity campaign or plan on doing a lot of retail distribution, it is more important than ever to have an experienced inventory person on your team.

Control your freight costs 

After media, freight should be your biggest expense.  Many marketers are enamored with inventing products, making infomercials and buying media, and often delegate freight analysis to inexperienced support resources.  This is a big mistake.  Treat freight as seriously as you treat your media buys.  Work with fulfillment companies who can offer you not only good freight rates, but also smart shipping options, such as bi-coastal and best-way shipping.  Pay attention to extra charges (called “accessorial charges”) and always analyze your freight bills.  Shaving a few percentage points off of your freight costs can sometimes turn a struggling campaign from red to black.  That’s how significant freight is.

Analyze everything

If you are a DRTV marketer, you need to be detail oriented.  You need to pay attention to everything, not just MER, CPO and AOV.  On the back-end, there are numerous fine-grained metrics that can shed light on the success or failure of your campaign.  Like brushing your teeth, every day you should check on your cancellation, decline, return, refund, bad debt, and chargeback rates.  If you are running a continuity campaign, track your stick/retention rate.  If consumers can pay in multiple installments, track your attrition rates per installment.  Find out why consumers are declining or charging back:  there are reason codes that can shed light on these things, and you need to look at them.  Marketers who are detail oriented and who take the time to understand back-end metrics are typically better at fine-tuning offers, writing scripts and buying media.

Trust, but always inspect

My boss, Larry Moulton, is a big believer in “trusting but always inspecting.”  What this means is even if you trust your staff or vendors, you should always look over their shoulders or take the time to visit their facilities to make sure that they are doing what you want them to do.  In other words, you should never take anything for granted.  From what I have seen, marketers who build relationships with their vendors and who routinely visit their offices and warehouses tend to be the ones who have repeat successes.Like analyzing everything, inspecting is a good practice that leads to greater insights.

Tony Sziklai is an information technology expert with a diverse background in fulfillment, customer service, and online marketing.  Currently at Moulton Logistics Management, a leading fulfillment company in the direct response space, Mr. Sziklai is an advocate for generating revenue and realizing profits from back-end operations (i.e. from operations traditionally viewed as cost centers). 

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