Episode 78: Meta Who? Building a Direct Mail Marketing-First Business like Baudville Brands

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‍Transcript

Announcer

Welcome to Nerd Marketing, an original podcast for e-commerce operators and marketers looking to level up. Drew Sanocki and Michael Epstein will bring you actionable strategies from their decades of running eight and nine figure brands, along with interviews and insights from the leaders of some of the most successful brands in the world.
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Drew

Hey, everybody. Drew Sanocki here with the Nerd Marketing Podcast. Today's guest is Brad Darooge, who's the CEO of Baudville.com. It's a D2B brand, so direct to businesses. They do promotional products and things like that. But what's really interesting about Brad and about Baudville is they are almost like 90 % in on direct mail as opposed to Meta and AdWords and everything else. They're a direct mail first business and that's what kind of got me interested in talking to Brad in the first place when he told me that he was just like frustrated with the rising ad costs and Meta in the unpredictability and just wanted the channel that he could predict and grow his business off of. So they went all in a direct mail. He lays out kind of how they did it, why they did it, and gives us some tips to start if you want to start leaning in on direct mail as your preferred acquisition and customer prospecting channel.

So it's a really interesting podcast. Hope you enjoy it. Brad Darooge from Baudville.com

Drew
Brad, welcome. I wanted to first ask, but this is like a 40 year old company, is that right?

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Brad
That's correct. Yeah, we celebrated 40 years last year. So going 41 strong here, founded in 1983.

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Drew
And you started year one?

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Brad

No, I started in ‘99. As I like to say, I started after they did all the hard work of figuring things out and I got to join during the fun part where we just sort of poured gas on the model and grew the business pretty rapidly. We're founded as a software company in ‘83 making, as they said, I think in the original mantra games that were fun, but not without purpose. So they started creating educational games, but ultimately landed on a product called Award Maker, which was an award printing product, a software product for the old Apple IIe. And that led us down a long and kind of circular path to becoming ultimately kind of the awards and recognition company, promotional products, sort of Hallmark-izing business gift giving in a lot of ways over many, many years. Done some different things in technology, started a different company in photo identification, you know, done some different things along the way. Of course, if you're around 41 years and not doing some different things, then you won't be around for 41 years. So I've had a great journey here.

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Drew

Who is the Baudville customer?

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Brad

Either a HR professional in an organization, usually more entry level, not the sort of CHRO types, but a general HR professional, small to mid-sized organization, a middle manager. We have a lot of individuals who have kind of cultures within the organization, so they may be big advocates of creating a strong culture, but maybe the company isn't. So we have a lot of buyers within a company that maybe aren't being prescribed by the organization to make those purchase decisions, but have some discretionary budget and some passion for building a strong culture and recognizing their teams. And we also have a legacy in the education space. That award maker product first took root in education. And so we still have 20% or 25% of our buyers coming out of the education space.

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Drew

That's great. So even though you're, you're, you're B2B, I would say a lot of your customers might be listening to this podcast. So, but Mike and I, we met, we met you through mutual friend and we both lit up when you said something on our intro call that, that Baudville, is operated entirely off print in direct mail. So is that, I guess, is that accurate? Is it a 100% direct mail business?

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Brad

No, I wouldn't say that's completely accurate today. We have still the lion's share of our prospecting budget is spent in print catalog marketing. When we started marketing to the education space in the late 80s, early 90s, it was through a print piece. And so we got out of the wholesale market and distribution through the old software retailers and started going all in on mailing little circulars into schools. And that really started to build a core competency for the organization and catalog marketing through the 90s. And, you know, of course the internet came on and that changed things a bit, but still for customer acquisition, still even to this day for the higher value buyers for prospecting for us, it remains in position one. We can, primarily from a scalability perspective, we can spend in other digital acquisition platforms, whether it's AdWords or in socials to a point, but they're always, at least for us, seems to be a rather rapidly diminishing return at some point. So we have a scalability challenge with sort of some of our digital spend. That bar has moved all over the place over the last couple decades, but print has continued to be a stable and steady, consistent, repeatable method for us for new customer acquisition. In fact, we're making our biggest print prospecting increase, circulation increase, probably in a decade this year based on some testing we did last year and some things that we've seen. So you know, there's been many articles, I remember the one in the Wall Street Journal that said the catalog is not dead maybe a year or so ago. You know, there's been a lot of brands that have come back to print or maybe come to it for the first time. I think because at the end of the day, if you really are committed to doing the testing and learning for a lot of individuals, I think for a lot of your listeners, it could be a very profitable and a significant part of that customer acquisition portfolio. Of course, we can talk about customer retention, which also plays a key role in. But the biggest piece for us over the years has been its utility as a customer acquisition tool.

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Drew

Are you looking at it as prospecting or new customer acquisition, retention also, I guess we're talking are we talking catalogs or postcards.. like what how does print look at at Baudville?

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Brad

I mean, we've done it all over the years. We look at really three different lanes and the metrics associated with those very independently. One is new customer acquisition  in B2B, we look at that both at the site level, but also at the individual level. We follow the individual as well as the organization as far as trying to acquire new buyers. We have a customer retention play, reactivation play in that first 12 to 24 months and then it's about reactivation. What can we do and how do we approach trying to get those lapsed buyers? In our world, lapsed is that 24 months? Everyone may have a different measure there. We have pieces different tactics that have been more successful than others and each one of those buckets. Of course, we can spend a little more against an existing customer. So the weather in the olden days, it was page count, we had a short, smaller page count book going into prospects, what we call the BOB,  still Best Of Baudville. You know, our best customer acquisition products best, you know, there's a pretty good corollary between best products and best acquisition products, but there are some differences there. And then we'd have a much richer book, thicker book, better quality paper, all that kind of stuff for our buyers. More new products, more focus on some different things that we were trying to do. Maybe more targeting based on what they had bought before. And then reactivation almost kind of went back to that. Well, let's show them the best that we have. Let's show them the best of maybe what's been new over the last couple of years. Let's do it at a lower cost. That may be a postcard piece, you know, the Slim Jim or Mini Slim, whatever the vernacular is there. There's a lot of first class mail available pieces that are catalog-ish these days. And so we've tested into a variety of those. One of the challenges that we have at the scale of millions of pieces in the way that the print world is set up, sometimes the catalog has been the most effective vehicle for us. Now I know you guys are kind of doing some disrupting things in that space to bring the kind of more individualized kind of short-form marketing that may be the way of the future for us and others. So we really look at those tactics across those three buckets very independently.

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Drew

If I think of the the customer lifecycle, so you've got a new customer acquisition, you're dropping, you said millions of catalogs, really premium catalogs to acquire new customers. Customer comes in, purchases, and then he or she is exposed to more of your retention book, which you said was a little bit more streamlined. Recency would be 24 months without a purchase. Baudville's thinking that, hey, that's essentially new customer acquisition or reacquisition. We're going to send that premium catalog to that group to try to reacquire.

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Brad

Yeah, and we're using a lot of data for, you know, various brokers about is that individual still buying out there from other other organizations? You know, trying to identify, are they still at that organization? So there's some data work that goes in between that sort of kind of customer marketing cycle and then that lapse buyer marketing cycle. And again, a B2B, we may be saying, yeah, we still want Acme Corp as a company, but clearly that person isn't maybe either there or buying anymore out in the ether. And so we need to start trying to prospect into that site to new people that might look like that person. So there's some different tactics that we deploy at that 24 month that is, you know, are supported by some analytics work and some data work that we do as we make that transition from what we call active buyer to labs.

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Michael

It sounds like you're testing a number of variables. You mentioned testing formats. So different page counts in the book, different formats, postcard versus a Slim Jim, which is like a smaller, smaller version of a catalog and traditional catalogs. And then you also mentioned testing different product assortments because certain products are more likely to help acquire new customers and others. So love to hear more about how you think about the testing strategy and all those different variables that you use to dial that in.

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Brad

I like to say direct marketing used to be fun when I started because you had a catalog and you didn't have all of these other digital variables out there. But isolating for the catalogs explicitly will do very controlled tests to the universes of similar looking prospects. And we will test everything. I mean, we test what's on the cover, obviously, is a big piece of that that gets what gets the book open. We'll test pagination of whether we're putting this product category in the front or this product category in the back. But then we've got to keep what's on the cover the same. And so  it's kind of the scientific method as I talked to my team about. Everybody wants to test everything. But what are our best ideas? What are our hunches? What do we think is going to move the needle? So first you have your kind of hypothesis and then you go out and test to try to prove it.

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Sometimes we get kind of wrapped up in wanting to test everything without really an advocate that says, I think this thing is going to work. I think we've got a great idea here. So you really got to not just run down the testing for testing sake, but test your best ideas, test against, you know, best products, creative execution. I mean, we've done testing where we have sort of a brand look and feel everybody does, you know, this is kind of what we look like in the marketplace, let's do something completely within that, not  taking you completely off your brand guidelines, I guess, but let's try something we don't use a lot of people, for instance. We tend to focus on the product, so we'll test somebody's reaction to the product or just, there's some in the annals of testing history, there's some stuff that you'd look at and say, wow, that beat the incumbent without continuing to kind of try new things, you don't figure out what the next best thing is.

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Drew

You measure success by running a matchback, I'm guessing right? So like, you know, who's receiving the catalog and then you're measuring. Do those households or individuals order come through your order management system? And then I guess the average person listening to this podcast probably, you know, CMO of a 50 million dollar DTC brand is probably to say like, you're talking thousands of catalogs, right, which costs something, why not just sit in front of Facebook and, you know, test different ad creative? Because I think that's probably going to be like the hesitation for most brands and like even like, you mean, I got to test thousands of catalogs, AB test and spend a lot of money to do it.

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Brad

We've built the competency. So it's hard for me to say why somebody should start from scratch doing it. I think if they've got runway and they said, hey, I know how to get to 100 million or 150 million by just continuing to do what I'm doing, then it's hard pressed for me to say, well, insert this new medium, I think the potential is when they experience what we've experienced over time, which is the tail and the diminishing return of that incremental spend. But what else can I do to try to both become a little less dependent on this one channel I may be using, which presents some risk in and of itself, and just to diversify the inflow of customers. So if you've got a recipe that's working and you see scale potential and you keep spending  10,000 more, 100,000 more, whatever, every period, quarter, month, week, and it's still working, I'm not gonna tell you to stop doing that. I think where you probably start to consider alternatives is where you start to see that diminish and say, hey, is there another way to bring new eyeballs to our product that maybe aren't engaging with the medium that we're on or invested in currently. So for us also, I think the other eternal story since really the web became a part of the mix has been that the value of the buyers that come through print is demonstrably higher. The lifetime value of every trailing metric from print buyers is just better. I wish it wasn't true, but it is because we can acquire buyers at a lower cost, in a lot of cases digitally. But the trailing metrics downstream, they're just better. And that data, that's not our data. That's kind of, that's data that's out there. If you talk to the data brokers and people who played in this space, it's a universal truth.

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Drew

Which we have found too, and I think people don't believe us because we run a direct mail business, but it's you know, we encourage people to measure, you know, the attribution of every new customer required. And what you're talking about is those that come in through direct mail buy more often, have higher lifetime values than those you acquire through Meta or search or something else or AdWords. That's what you mean.

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Brad

Yes.

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Michael

And have you noticed a halo effect around your digital ads when running print? Is that something that you look at or try and measure? Like what impact that might have on ads that are running in other channels?

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Brad

Boy, we have done a lot of work in this space over the years trying to, for instance, if we're going to, we're going to push into the market with one of our core categories is trophies. So if we're going to really push hard into trophies in Q4 around year end, we're going to raise our related spend in Google or wherever we're spending digitally and trying to understand the relationship between those things, which one is affecting the revenue line the most. We have seen success in multi -vehicle pushes like that or multi -channel pushes like that, but I don't have the science always to say which piece to do more of next time. So our budgets tend to flow together, whether it's seasonally around demand for our company, which is generally in Q2 and Q4, which is natural and normal. You know, we're going to raise our expense in multiple channels, sussing out the exact role of each of those channels. You know, we talk a lot about attribution. We talk a lot about it in B2B. We talk a lot about the different methodologies that organizations use. Obviously, last touch is kind of a thing of the past. You've got to try to figure out a way to take into consideration all of the data that you have coming in about that buyer's activity. And so we have our own algorithm for doing allocation. We've spent some time with consultants who work with other folks on it. Everyone's got their own sweet science to that. Maybe more specifically to things that we've been able to measure in a prospecting world when we pair email with catalog. Again, there's a little noise in some of the creative and some of the other things that we test, but generally, and this is something we've been ramping this year based on some testing last year, the email data is getting a little better, particularly in B2B. We're seeing a fairly significant bump, 20% to 40% depending on the month versus catalog only of pairing that email with the catalog. Again, we're trying different things with timing before the catalog arrives, right after the catalog arrives, some of those kinds of things. Those are some things that we have in flight, but not as much concrete data around, I guess, the halo effect with respect to social spend and Google as I would like, other than we do see those budgets sort of kind of flow together, you know, just logically for us seasonally.

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Michael

So general sort of lift when you're heavy in market across channels and then email specifically, you've been detecting a significant bump when you're mailing to that person that they're, I guess, more likely to engage with those emails.

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Brad

Significantly more so. The only other, I guess, comment I would make, and this is going back a few years, but in an effort to try to understand the impact of our digital spend on catalog performance, we actually did a fairly, boy, this is about a year long state -based holdout test. It was the best way we could figure out how to manage an AB environment. So we were mailing catalogs into the whole country and then we turned off Google spend and we picked, I think it was eight states or something, and looked at another eight states. So we had New York and Texas, one was held out, one was in, but they have similar populations and perform similarly or what have you. So we did a state-based holdout test to say, okay, well, when we don't spend anything on Google, what is the performance of the catalog? This was again, five or seven years ago. You know, it was clear that digital spend was helping the catalog performance and the overall performance in those states where we lost our ability to really benefit from the test. Like I wanted to is to what degree, you know, how much can I justify maybe spend that I'm not seeing on Google or an AdWords benefiting us in real time affecting that advertising effect of impacting catalog and impacting transactions in that state view. So we knew it was good to spend in both channels together. I didn't know whether I could justify doubling my spend in those states and that I was confident I would see the catalog performance and the overall performance in that state go out commensurate with that. So hopefully, I'll give my information out at the end of this. And if anyone has figured out that rubric, they can send me an email and I'll buy them virtual lunch to tell me how they figured all that out.

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Drew

You know, one of the reasons a lot of people go into direct mail is because the spend is more predictable. You know, you're not at the whims of a dynamically priced ad market, right? Like you would be in meta. If you guys found that having run both digital and direct mail that your CFO is happy because the direct mail is more predictable?

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Brad

Absolutely.

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Drew

That's a big reason you do it or is that sort of a nice to have?

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Brad

You know, I think again, for us, the reason is just the rich history you have and all the data to support continuing to do it. So it's not as applicable to someone trying to dip their toe in. But our goal with most prospecting we've done over the last decade is what we call break even on a marketing income basis. So taking gross margin less your marketing costs. Can we break even on that first order? If we can do that, we're going to be very profitable at 12 or 24 months out with that audience. Some product categories, some campaigns, you know, we'll lose money on that first order. But generally with print marketing, if you look over the last 20 years, most of our history, we've either been, you know, digging and dunking around that, you know, losing a little bit to making a little bit on that first order. Marketing income, that's not applying all the rest of the cost of the business. The volatility of that metric, whether it's Meta or Google or anything we've done really outside of print, it's just highly volatile. And again, it gets more volatile as we spend more on those channels. And the predictability of it is just wild swings from month to month or year to year in the same period where catalog is with some variability is much more predictable.

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Michael

What's the team look like that helps manage the program internally? I presume you have dedicated folks. You're doing your own creative. Generally, what's that team look like that manages this program for?

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Brad

Baudville is a bigger and more mature business. We started another business in the catalog marketing space in 2002, which we sold a few years ago. That was a smaller team. So maybe for somebody getting in, we had one creative who was doing kind of working across channels in that team catalog, depending who you are, how much you're doing, you might go to press three times a year, four times a year, once a year, twice a year. So you have a, you know, a push of work there. So for somebody who's doing, you know, everything on Meta or everything digital today, for a good creative, having a little work diversity is nice. You might be able to push them into getting a print campaign done a couple of times a year to start to do some testing. Of course, you can outsource it to agency, but agencies are expensive. They generally, from my standpoint, want things to look pretty versus be effective. I think we've learned over time, you got to have a balance with that. Yeah, you're advertising your brand, but you got to have a density of product and some things that sometimes agency types don't get as excited about. So, you know, obviously we need to creative execution. You need a printer partner. And that's a pretty important piece because whether it's you guys or if you're doing bigger printings to get into co-mail pools, to be able to drive down postage. You need to be working with smart print folks. You guys are doing something creative, but just using your local guy who does some mailings is probably not going to get you where you need to be from a cost per piece, even if you're not doing a ton of them.

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So there's a lot of debate in the history of catalog marketing. It's nothing matters, but who you send it to and when versus nothing matters than the quality of the product and the offer. As far as the who you send it to and when and the data side of things, you know, we've got one individual with a couple of us who lean into a lot of that sort of work data nerds who lead into that kind of data side of the business, which is very interesting. You know, one of the funner Excel worlds to play in from my perspective and kind of slicing and dicing all that stuff, but doing the merge and doing some of the match back stuff. We've mostly done that in -house because again, we've got some history there. There's great firms out there that you can partner with on the data side that can help support that. But I would say if you're out there and you've got a digital brand and probably the creative side is going to be easy piece you really need to focus on if it's not in your core and if you've just been working with agencies on advertising on Meadow or Google or what have you, getting that data piece right, the who and when part kind of dialed in is probably going to be the bigger hurdle for folks that are jumping into that space.

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Drew

For those who are listening and have never done catalogs before direct mail, this is a very old industry. It goes back a hundred years. What Brad's talking about is developing an audience. And traditionally you get these audiences from a handful of data companies, Epsilon, Axiom, Trans, Weiland. They're providing audience data and then you can cross that a zillion ways in terms of behavior, demographics. I mean, the goal is to try to get something that converts, right? And between your average brand and the data providers, there's a whole network of consultants and brokers and intermediaries. You could do it in-house sometimes, like Brad said, if you get big enough. Big challenge when you start prospecting. Cause you, you know, just like a Facebook ad, it's targeting an offer and the targeting the audience is really important.

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Brad

Absolutely. And you know, building those models. I mean, if you've got a pretty good size buyer file and pretty good data about who buys from you currently, the types of people you're looking for the best 10 % of those folks, then pushing out their modeling against those folks, trying to identify what are the core attributes you're looking for. Again, not that that work isn't happening in the digital ecosystem, but there's important work that would need to be done there. Not, I don't want to say it like it's, boy, that sounds complicated. Let's not do it. It's not a certainly insurmountable mountain. It's just something you got to be mindful of as you kind of walk into that journey.

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Drew

It sounds like you do almost like a look alike off your top customers to get a brand new audience of prospects that look very much like your existing customers. Do you find that that audience is big enough to go back to three times a year, four times a year with these big drops?

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Brad

Yes, absolutely. I think there's a lot of different ways to slice that for us. We have luxury of having diverse product offering and different reasons to buy. And so we may be doing a lot of work in Q4 around year-end employee gift giving. You know, we saw some real interesting things happen during COVID with that whole employee gifting space, with companies wanting to spending more on shipping to get stuff to each individual's house than they were on the actual product. We may be doing a lot of work to identify a certain group of buyers in Q4 that may be materially different than what we might be pursuing in Q1 or Q2.

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Q2 being still a heavy education period for us. We have different modeling and product categories that we're trying to push seasonally there. So if you're a one product, one customer kind of brand, maybe there's a little less of that complexity. But if you have some different products in the portfolio that may have some either different buyer attributes or types that are interested in or seasonally you experience some different things. You can really tailor your audience identification to that. I work in B2B, so I've got a finer universe than most of your listeners do. They have an even bigger pool in which to play. One that even requires a little more front end, you know, thinking about how do we want to narrow this in to those people we think that are going to be most apt to buy.

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Drew

How would you say direct mail is different today than it was before COVID? Like, are we in a direct mail renaissance with everybody working from home? Have the economics of the business changed at all?

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Brad

Well, there's some things that happened during COVID that really confused us a little bit and maybe what I would say muddied our buyer file a bit, buyer behavior that happened during that period of time in which we didn't see a lot of those people come back in the same way that we've seen buyers come back historically. So that made for a very successful kind of 2020, 2021, even beginning of ‘22, but a challenging late ‘22, early ‘23 as we got into, you know, not really understanding what we had in the buyer file as well as we needed to and trying to apply our historical approach to marketing to those folks. So we rode that wave of a lot of individuals and organizations wanting to throw money at trying to reengage with their teams, companies that came to us for the first time, maybe we had never had a relationship with, that were really one-offs. They have buying authority because of COVID for a period of time, and then that changed. In B2B, we've also seen a lot more people moving jobs, and so finding that person has been a little more challenging for us post -COVID.

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Fast forward to now, some of our higher value product categories are doing much, much better than they did during COVID. So higher priced items. So it's just been a big change over the last three or four years. And our nimbleness in responding to that hasn't been quite as rapid as hindsight would suggest I'd like to have been. But the catalog performance for us last year in customer acquisition was very strong, which is why I think, as I mentioned either before we got on the call or the beginning of the call, that we've got our biggest prospect circulation increase that we've had here in probably the last decade happening this year. Early signs are very positive. I don't want that to be a suggestion that that's universal or it'll be the way the whole year shakes out. But we're seeing the appetite for catalogs to be as good as it's been for us in a long time. So, you know, we've tested our way into that and we are able to rapidly pivot if we need to, not as rapidly as in the digital space. But if we start to see things soften, even if I've got books queued up to mail, I can draw that out for a longer period of time. There's other things I can do. Press time is actually hard to get. It's actually easier to mail less right now than it is to mail more. You got to forecast that. But for us, we're seeing some real positive trends here coming into 2024.

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Michael

Someone who's producing their first catalog or their first prospecting direct mail campaign more generally, what are some of the key best practices that you would say on the creative side? How should they be thinking about producing a piece that checks the boxes for best practices?

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Brad

The creative voice and the creative things that you've been doing that have gotten you where you have gotten from a digital perspective likely are going to translate for the most part. I think you've got to be who you are. Things like how you approach offers digitally, pricing, maybe I would be coming out with a test of something against something else, you know, out of the gate, your two best ideas, your two best products. We interestingly, over a fairly long period of time, discounting really doesn't move the needle in a huge way for us in B2B. Maybe it's because it's somebody else's money, I don't know. The jury's out on that first order, maybe sometimes it's a little better, sometimes a little worse, but the downstream metrics for a non -discount buyer are so much better. We mostly don't discount on the cover of our catalogs. That may be completely something that works in your space, and you've seen work in and what you've done on the digital world and so you want to test offer versus no offer. You've got two winning products, you want to test this product versus that product. Again, back to the scientific method. You know your business, trust your gut, come up with you what you think the best ideas are. We're all catalog consumers, whether they like it on some level or not, they come into our mailbox every other day. What do you react and respond to? So maybe I would save the best catalogs you get, best mini slims or the tab mailers over the next 90 days, what about those things got you to open them and use your own kind of marketing gut and sensibility about it? You gotta be realistic about what kind of window of time you're gonna give it to succeed and what you're willing to put it at play. You gotta take a little risk to figure it out. You gotta have a mindset of, I'm gonna, here's what I'm gonna do over the next six or 12 months. I'm gonna do a few mailings. We're gonna try this out. I'm gonna work with a guy with Drew or I'm gonna work with whomever and develop a plan and then stick to your plan. Because I think what you'll find is maybe sometimes the early results, you got to give it some time to see what the performance of those buyers looks like over time. Because as I said, that's been the kind of eternal truth of print marketing is that the downstream metrics of those buyers outperform your digital buyers.

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Drew

There's light at the end of the tunnel, basically, right? I mean, I don't know if you ever go on Twitter, but CMOs and CEOs every other day complaining Meta costs up, you know, like, or the, is the algorithm working for you? Or I just got locked out of my Meta account, like, or it's over reporting or under reporting. There's just so much pain around that channel that it's good to hear there's light at the end of the tunnel.

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Brad

You got to have some alternatives that you're developing over time and give catalogs a shot. You know, again, like I said, creatives like a new challenge. I think organizationally, if you bring the right people to the table and put your best minds together, you may be featured on the podcast a year or two from now as a catalog success story.

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Drew

Great. Well, really appreciate it, Brad. This was incredible. If you don't mind, we'd love to put your contact info and I'm sure people would love to follow up with you. If not order some stuff from Baudville for their companies, but really appreciate it.

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Brad

Well, both. I know I get sent on podcasts often. I'm, you know, everyday average Joe here. So don't hesitate to reach out. If you got questions, I may be able to refer you to some folks who are happy to help other organizations out there pursuing the channel.

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Drew

Thanks, Brad. This was great.

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Michael

Great. Thanks, Brad.

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Brad

All right, thanks guys. Have a great day.

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