direct mail, Economics, Marketing

Just Like Money

<<Spoiler Alert: The incredible reason why retailers flood our pockets with cash every day.>>

Mailbox Money

The mailbox delivers the green– for consumer and marketer alike.

We are having an outrageously good time with store coupons.  As we exit the mall, it takes a 50-pound anchor tied to our belts to stop us from running frantically, eyes over our shoulders, across the parking lot to our get away car.

Why?

Kohl’s, one of America’s most renowned stores, mails us $10 cash coupons with no strings attached.  “Just spend it!”

Hunh? 

"Here's a discount card, no wait, here's TWO discount cards!  Go shop!"

“Here’s a discount card, no wait, here’s TWO discount cards! Go shop!”

Carter’s throws in a 20% discount for a $40 purchase.  And another– 15% off everything, period.

Bed Bath & Beyond churns out $5 coupons faster than the U.S. Treasury, which is saying something.

Ulta hands us $3.50 just to spend $10.   We have enough conditioner for the entire cast of Muppet Movie 3.

BBBY coupons come so quickly we bale them.

BBBY coupons come so quickly we have to bale them.

For some, coupons are clutter in the mailbox.  For many, they reveal how weak we really are.  Despite our supposed disdain for direct mail, we read each coupon carefully…. and then sneak into the store late Sunday night with a fistful, and a bag over our head.

holeinpocket

‘Just can’t spend the coupon fast enough.

At our house, coupons are incendiary devices, capable of exploding into flames when placed in the pocket.

For instance, I am mailed a $5.00 rebate card from ACE Hardware.   The card sits between the salt and pepper shakers, Tasering me to rise from my chair, go to ACE and buy something, even a bag of sheep manure, just to use the money.

ace manure

Buy something— anything!

My wife is a coupon maven.  She gets the deal, but escapes the accompanying load-up the marketer hoped for.

For instance, that $10 cash gift from Kohl’s?   She tenders it, usually on a $20 item marked down to $10.00.  “Look honey:” she beams, “7 pairs of  underwear, for nothing!”   Totally void of guilt.   Butter would not melt in her mouth.

So how does the retailer really fare with these incredible deals?

Not bad, if you look at the right numbers.

CouponCabin.com does an excellent job of capturing all the publicized deals of a retailer.   It spins them back to any shopper savvy enough to ask for them online.   The company regularly totals results, and in the case of Kohl’s, reports the average shopping cart is $66.43 before $18.04 in coupon savings.  A 22% discount.    That’s a promotional cost, and it comes out of gross profit.

"Take this money, please!"

“Take this money, please!”

January 2014 Kohl’s gross profit margin was 36.49%….. 7 and 11 points better than Target and Walmart respectively.

Kohl’s cost of goods (COGS) was 63.51%.

So are the Kohl’s people nuts, or is this normal business to throw gobs of money out the window?

It boils down to how much Kohl’s will pay to get an extra visitor into the store.

Bottom line: a profit with every sale.

Bottom line: a profit with every sale.

Say they mailed a 1,000,000 coupons, and 15% were redeemed.   150,000 purchases!   But set aside 30,000 purchases for those folks who would have bought the items anyway.   So the mailing generated 120,000 additional transactions, each with a shopping cart of $66.43.  That’s $7,971,600 in extra sales.   But the 22% discount takes away $2,164,800.  And subtract the mailing cost of $320,000.   Kohl’s is left with $5,486,800 cash to pay for the goods sold: $5,062,763 ($7,971,600 x 63.51% COGS).

Bottom line, Kohl’s promotion cost $2,484,800  and delivered $424,037 in extra profit. That is a 17.1% ROI.  Not bad.  You can’t run your whole business that way, but to generate extra sales and margin, still a pretty good day.

And here’s another perspective: the promotion delivered 120,000 extra store visits at a cost of $20.71 each.  And because the gross margin on each cart was $24.24 ($66.43 x 36.49%), Kohl’s did better than break even.

So that is why you find oodles of deals in your mailbox every week.   They work!

Boots

“Buy one, get one free!”

And my bottom line? I am looking for a deal on rubber boots.  To spread the sheep stuff.

 

If you got this far, I hope you took in all the math.  As with all retailers, these are big, scary numbers.   But well targeted direct mail makes them work.   Please share this article if you liked it!  Thanks.

 

 

 

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Economics

A Nickel For Your Thoughts

penny-1936-7877445Our neighbor nation to the north– those hardy, conscientious folks who are the first line of defense against the arctic chill lost a battle this past spring.    The Canadian penny was removed from the endangered species list, and officially extinguished, i.e.. it is extinct.

The argument against its survival was that it cost more than it was worth.  Which is a stunning confession to be made by any government official anywhere.

But there you have it.   The upside is that every child in the nation will now learn the important arithmetic of rounding up and down to the nearest five cents.   There is the clever, political subtlety that the Canadian government did not eliminate “cents”.  It is still legal to use a cent: talk about it, write it, or include it in important bank interest statements.   Retailers can still charge you cents, but you will pay according to nickels.  The penny is the ghost on the sales counter that haunts all transactions.   Everyone senses its presence, but it can’t be seen.

The move has rocked the net worth of the country.   According to the Royal Canadian Mint, there are 35 billion pennies at large in Canada.    About $10 per person.    Turns out there are nearly 19,000 tons of pennies stashed away in cans, desk drawers, pants pockets and chesterfields which have been devalued by a factor of two.   You thought you had a jar of $12 bucks in pennies?  Nonsense.   You have enough copper and zinc for a Venti Frappuccino.  

Where this new found economy takes us, is to another government agency in on the conspiracy: the post office.    Canada Post has announced its new plan to modernize and overhaul the postal system.   This includes raising the price of a single first class stamp to $1.00.    A buck!  Unless you purchase stamps in bulk, when you will only have to pay 85-cents.    See how that works?   No pennies!!

lady letterbox

Compounding this elaborate pricing strategy is the plan to curtail household delivery.   Before long, Canada’s mail will be delivered to a community box at the end of your street.   This will precipitate two additional behaviors.  First, neighbors will have to speak to each other when they visit the box.  Second, they can remove the riveted, burnished steel “No Junk Mail” signs from their doorsteps.

junk.letterbox

Truthfully, the United States Postal Service has a similar history of thriftiness.   They too decided that the customer should share in the work of delivering the mail.   In 1928 they thrust the responsibility of addressing onto the back of the writer!   No longer was it acceptable to merely place your aunt’s name on the envelope.   The USPS unilaterally demanded a street address and number.   Another typical example of  heavy-handed government.  Added to that insult was the price of a stamp: 3 cents.

IMG_6200And if you couldn’t find the pennies, you had to round up to a nickel.

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Economics

Breezy Money

Following up on my amazement yesterday about the glut of wind farms…the whole thing about wind farming is that it looks so easy. Like dew worm farming. Or mushrooming. You just put up a fan, and the wind blows it, and a little machine turns it into electricity. And it’s free! Almost growing wild on the beach.
beach-money

Like many, I was so enchanted with the concept of getting easy money that I did some figuring –not my strong suit– but I calculated that if I had just one of these giant wind turbines, say the 250-footer, I would have a 2- megawatt wind farm. A megawatt turns out to be a thousand kilowatts, and just to explain it in terms you understand, a 100 watt bulb costs about 55 cents up at ACE Hardware, and it’s good for a 1,000 hours they say.

incandescent-light-bulb

Rounding that all up, I stood to pull in about $43,000,000 per year, before taxes. Mind you, there are no taxes because the government is subsidizing the whole thing for me.

Actually, I may have that slightly wrong. On good authority, I learned my new turbine would really cost $3,500,000.

If I borrowed the money from friends, my operating costs, maintenance and loan interest would work out to $290,000 per year. Which is, admittedly, more than I am making now, so I am really interested in selling one of these contraptions to somebody else.

But nevertheless, once it’s all in place, it is guaranteed to deliver 5,260 Megawatt Hours of power per year. I am just thinking about the batteries I am going to purchase to hold all that electricity. When all is said and done, my cost to produce a Megawatt hour is around $55. That’s like, only 100 lightbulbs, which I can handle.

When I whittled this down to Kilowatt hours, which I know is more comfortable for you, it’s a measly 5-1/2 cents each.

Awesome, right? Now you’re up for it, I can feel it.

This is where it gets interesting though. I looked at the latest ransom note we received from Commonwealth Edison, and they are only demanding 4-3/8 cents per Kwh. Hah! No wonder they can’t make any money! If they sold my wind farm product, they could shut down Niagara Falls, and still be in the black by Tuesday.

american-falls

Niagar Dry

As a practical business person however, I am doing nothing at this time, pending sage advice from my accountant who is allowed one phone call a week.

If you are eager to get in on this, but looking for something a little more in your income bracket, there is a company out there now, Southwest Windpower, which is installing back yard wind turbines faster than you can say “Oklahoma” .

Their Skystream 3.7 goes for $12-$14,000, and they are flying –haha– off the shelves.

Myself, I am forever teetering on the innovative edge. I am preparing a personal, hand-powered turbine. This one is all natural, 100% environmental, multi-directional, and can be used on the calmest, or windiest of days without pause.

Slick Whimmy

See, I told you this would be easy.

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