Cover Story : REI Treks Ahead

The camping gear marketer has changed its approach, but not its focus

“We’re sensitive to the amount of paper we use in our catalogs,” Bowcut says. He notes REI learned that if it were to stack all the catalogs it printed last year, “we’d produce 17 Mount Rainiers. So we questioned that.” At the same time, he says consumers are “used to being in charge” now, “which places pressure on how we use catalogs.”

Aggressive in Retail
“Things are more available now,” Bowcut says. With so many Wal-Mart locations all over and so many people living within proximity of at least one of them, “many companies that used to be direct-only now have aggressive retail plans. That causes us to rethink how we use catalogs.” As REI has become more aggressive in its store expansion over the past 25 years, catalogs have remained a primary part of driving sales.

Beyond catalogs, stores and the Web, REI’s integration plan includes paid and natural search, e-mail, social networks, TV/radio, newspapers, and magazines. “The question really isn’t whether the catalog business will survive,” he says. “It’s how catalogs fit into our advertising model. Catalogs are not the only tool in our toolbox.”

Bowcut and REI view catalogs and direct mail today as a “terrific sandbox/laboratory.” Catalogs are the staging ground for REI’s mail/no-mail tests, which have transformed how it approaches customers over the past year and a half, while leading the company to de-emphasize the importance of matchbacks.

By conducting such tests, REI has eliminated seven catalog mailings — four main catalogs, three small ones — from its direct mail marketing program. But the program remains profitable.

“Direct is still very important to us, but we’re a smaller player in that area than we were just a few years ago,” says Bowcut. The key to its catalog plans has been the extent to which they give sales an incremental lift.

As for matchbacks, REI uses them to measure prospect mailings. But to gauge customer activity — rather than building a traditional model in which it scores everyone on a file, sorts by the best scores and mails the best customers — REI tested and built an incremental model. This approach involved building two models: one with a catalog-mailed group, the other with a no-mailed group.

Score Everyone Twice
The company then scored everyone on the file twice using the mailed and no-mailed group models. Subtracting the no-mail score from the mailed score leaves the incremental, or difference, score. REI sorts by this score and mails the best incremental customers.

The incremental model is designed to identify the customers most likely to be influenced by the catalog. “Usually the coefficients on the variables are different,” Bowcut notes, “but the variables are the same: dominated by RFM, category, seasonal-type variables.”

Working with Nick Radcliffe from the Boston-based Quadstone, a division of customer interaction management software provider Portrait Software, REI found that customers who have the highest model score don’t necessarily have the highest difference score. Comparing the incremental model to the traditional one showed that the regular model “didn’t do a good job at all of pushing the best incremental customers to the top of the model,” Bowcut says. “There really is no pattern to incremental sales.”

Best Customers to the Top
With the incremental model, however, REI successfully pushed its best incremental customers to the top of the file. The company also learned it could have cut circulation in half and not lost any incremental sales, according to Bowcut.

“It doesn’t always work as well as we’d like it to,” Bowcut says. “We’re probably getting an incremental lift about 75 percent of the time.” Although REI isn’t using the incremental model exclusively, it’s focusing on this measurement for all of its advertising vehicles.

“REI is the perfect example of a company that combines and leverages its stores, online activity and catalog to drive traffic,” observes Bill LaPierre, senior vice president of brokerage for Millard Group, REI’s list broker/manager. “I live 81 miles from the nearest REI store, but I receive its e-mails informing me about specific activities at that store — not just generic e-mails for the entire company.”

Those store-specific activities are geared toward getting LaPierre to buy specific products. What’s more, the catalog he receives at his home is paginated to reflect the fact that he lives beyond that store’s normal trade area. “Very few other companies do that,” he notes. “It’s an innovative model.”

Although REI has scrapped seven catalog mailings, it remains committed to the channel. Like a growing number of once-dedicated catalogers, REI now mails catalogs primarily to drive sales via its stores and Web site.

Keeping Slow Sellers For Show
Some products in its catalogs drive customers to REI’s site or toll-free line to place orders. Others, such as the BOB baby stroller, don’t sell well from the catalog at all, “but we keep it in there to show that we keep you covered,” Bowcut says.

REI’s catalog is also a crucial part of the co-op membership experience that comes with being an REI member. “It’s still one of its best prospecting tools, largely because it has trimmed away much of the excess product baggage and made the book very efficient,” Millard’s LaPierre says.

Moving forward, although LaPierre believes REI will continue to need names to support its prospect catalog, “as more of REI’s purchase activity evolves online, like every other cataloger, REI needs to examine the role of e-mail prospecting lists. And as it continues to open more stores, it’ll need to build retail store prospecting models that evaluate prospects’ propensity to shop retail vs. online.”

Bowcut calls REI’s incremental customer modeling process a work in progress. “The idea is to understand what the various marketing programs do for you with all the other [selling] vehicles,” he says. “Then understand the incremental benefit of all programs and
reallocate the spend appropriately.”

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