Lands' End is targeting two distinct customer segments -- comfort/staple seekers and style/fashion seekers. It already has a strong market presence in the first customer group (comfort/staple seekers), but in the second (style/fashion seekers), the potential is relatively untapped. 95% of Lands' End revenue is generated through product sales. The majority of costs originate from cost of goods sold and advertising expense. Though Lands' End's current business model is profitable, I see further opportunity to advertise the right product to the right consumer in order to increase profitability and gain in market share.
Individual customization of e-mail campaigns has recently taken hold within the company, but the idea has not yet been executed through the traditional, cost-intensive model of catalog distribution. This means that in catalog, staple-seekers are receiving fashion products, and fashion-seekers are receiving staples. The introduction of "micro-segmentation" in e-mail campaigns delivered double-digit response rate and conversion rate increases. If the same customization could be achieved through the catalog channel, Lands' End would be able to cut advertising expense by more than 7% ($260K quarterly) without shortfall on the revenue line. Additionally, the brand would appear more relevant to consumers because the right products would be presented to the right audience!
Lands' End catalogs are produced by RR Donnelley, a key business partner, in 8-page segments. By piecing together the appropriate 8-page segments for each distinct customer segment rather than sending a consistent catalog to all consumers, Lands' End will be able to decrease advertising expense and become more relevant to the consumer -- both generating positive financial results.
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