Fingerhut uses optimization to reduce cascade of catalogs

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Fingerhut is mailing less and making more out of its catalogs thanks to optimization technology supplied by IBM Business Intelligence Consulting & Services.

Since the Federated Department Stores subsidiary, which has 6 million active customers, began using the technology to better target its mailings two years ago, the average number of catalogs a customer receives has dropped between 7% and 8%.

Minnetonka, Minn.-based Fingerhut began working with IBM five years ago on a "mail stream optimization" project that sought to pare the number of catalogs it mails to customers.

"Over the years, we had built up the numbers of catalogs we had mailing on top of each other containing the same products," said Randy Erdahl, director of business intelligence at Fingerhut. "We had the potential of mailing over 100 catalogs a year. On average, customers were getting 60 catalogs a year. We felt there was plenty of room for improvement there."

Mike Haydock, the IBM unit's VP-worldwide practice leader working with Fingerhut, developed a horizontal marketing concept that looks at a customer relationship, including purchase history, over time. The approach employs a time line of marketing decisions and considers multiple promotions before deciding which one to offer. This system gets a company closer to seeing the world from the eyes of its customers and creates a one-to-one relationship.

In 1998, Fingerhut began testing mail stream optimization on 10% of its customers. Today, all Fingerhut customers are part of the horizontal marketing strategy. In 1999, Fingerhut also began applying the strategy to its list of new customers.

Mr. Erdahl attributed $3.5 million in annual circulation savings to the mail stream program.

Fingerhut also has seen increases in response rates but hasn't measured the full response yet.

Optimization techniques even-tually could be used by Fingerhut's e-commerce and telemarketing divisions or be adopted across the Federated enterprise by retailers through direct mail, catalogs and even in stores, Mr. Erdahl added.

"This is just the beginning of what it will become," he said. "A big step has been made here."

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