Mail-Order Oldies Operation Fights for Its Slice of the Pie

SPECIAL TO THE TIMES

The theme song at American Pie, a mail-order company that specializes in oldies music, might well be "Our Day Will Come" by 1960s rhythm-and-blues artists Ruby & the Romantics.

The Van Nuys business has tapped into a rich market of record collectors, jukebox owners and baby boomers nostalgic for the music of their youth. But high costs, tight budgets and an expensive marketing misstep have made it difficult for the company to score a major hit with potential customers.

"We've had some successes, but the costs have far outstripped the profits," said Steve Garwood, president and co-owner of the company, which carries 1,000 compact discs and nearly three times as many 45 rpm singles that feature doo-wop, swing, surf, soul and rock music, among other customer favorites.

Garwood, who bought the company in 1996 with a business partner, knows that a market exists for American Pie's products--hits by artists ranging from the Drifters to Donovan to Devo. His competitors include the much larger Rhino Records of Santa Monica and Collector's Choice Music, a Playboy Enterprises company.

But Garwood's company lacks their deep pockets and has had a hard time generating enough cash to pay for mailing lists and marketing. The $10,000 price tag for last year's catalog was a serious drain on cash reserves. And a poor-quality mailing list meant thousands of the catalogs were wasted on disinterested buyers. A lawsuit filed by his business partner, unhappy with the red ink, hasn't helped either.

Garwood has trimmed his salary as well as the pay of his three employees, including the company's founder. He has moved the company from Marina del Rey to its current, less expensive quarters, in addition to other steps that have cut costs by a third. Still, profit has eluded American Pie, which posted sales of about $600,000 in each of the last two years.

"I just did cash-flow projections that are gruesome," Garwood said.

But effective marketing doesn't have to cost a lot of money, according to business consultant Paul O'Reilly. In fact, he said, Garwood's background in sales and marketing is an unused asset that the company should tap. The owner has been too busy putting out fires to act on some of his own marketing ideas.

"Sometimes when you get in your own business, you can't step back enough to see what is really going on," said O'Reilly, vice president of Valley Economic Development Center Inc. in Van Nuys and former president of Advantage Marketing, a company he founded in Los Angeles.

O'Reilly recommended that American Pie focus on increasing sales to existing customers, launch several low-cost promotions such as a frequent-buyer program, work to increase its brand recognition and boost its Internet presence.

The most cost-effective way to increase sales at American Pie, as at most companies, is to pay more attention to existing customers, according to O'Reilly.

The company's average customer orders three to four times a year, spending an average of $45 each time, the consultant said. That shows him that the customers can afford to order more. If each of the 10,000 existing customers ordered just one additional CD, annual sales would climb about $150,000, or 25%, O'Reilly said. That extra revenue would fall directly to the bottom line at a company such as American Pie that has relatively high fixed costs and low sales.

Another benefit: The company doesn't have to buy expensive mailing lists to reach its existing customers; it already knows them and their musical tastes.

To increase communication with customers, aside from the expensive annual catalog the company mails out, O'Reilly suggested that Garwood use a soft-sell telemarketing technique, "almost taking a customer service approach."

Starting with the top 20% of the customer list, he suggested, call each customer to thank them for a recent order, ask them what type of music they would like to see in the catalog in the future and if they'd like to hear about a current promotion.

"It doesn't need to feel like a sales situation," O'Reilly said. "You want to remind them you exist, and a personal phone call could make the difference."

The company should also spend some time creating low-cost promotional programs to encourage customers to buy more American Pie products, he advised. A frequent-buyer program, for example, might award points toward free products for every CD or record purchased. Garwood might even consider teaming up with another company with music-related products that would like to promote its line to his customers.

Package purchasing is another promotional possibility, the consultant said. If a customer buys six CDs, for instance, the seventh one would be free. An introduce-a-friend program might award a customer points or free products for referring new customers to American Pie.

Any promotional program would have to be evaluated to determine its cost, but O'Reilly is confident that American Pie can get started with the little extra money it has.

What's important is that the company start thinking about how to actively promote its CDs and records to existing customers, he said.

"If I had to give general advice to any business, it would be to try to take some time to take a step back," O'Reilly said. Look at the company as an outsider might and think about what is missing, he said. Take time to come up with ideas and strategies to improve marketing or other weak areas of the company.

A business owner can form an idea group with outside business associates to generate ideas and get feedback, the consultant said. Another option is to take advantage of the free or low-cost resources available for business owners who want outside input and fresh ideas, he said.

For example, O'Reilly signed Garwood up for one such program at the Valley Economic Development Center. Under the Challenge program, a group of six to 10 entrepreneurs meet biweekly to solve problems, come up with creative ideas and share knowledge. The members also tend to hold each other accountable for meeting goals, O'Reilly said.

Brand recognition, or the lack of it, is another area that American Pie needs to address, the consultant said. He pointed to American Pie's catalog as an example.

"If they are spending that much money, they want to make sure they are getting a higher hit ratio," he said.

That means getting the customer to open the catalog. Without an effective cover, most customers will toss a catalog aside, he said. All the work and money that went into buying a mailing list, producing the catalog and mailing it out will have then been wasted.

American Pie's current catalog cover is colorful, but the logo gets lost in the busy design, O'Reilly said. With some minor redesign to sharpen the cover logo, the catalog could be made more effective, he said. In order to build brand recognition, the style and placement of the logo should be the focus of the company's catalog covers, and used consistently on all sales and marketing materials, he said.

"They are building that image with the client," he said. "Small businesses don't do that enough."

O'Reilly recommends that companies spend some money upfront for a top-notch logo design and basic company brochure. It's an expense that will pay off over the long term, he said.

"One really well-designed piece you can use over and over again is critical," he said.

His final recommendation could be the most difficult for American Pie to achieve, but it could transform the company if successful. O'Reilly would like to see the company boost its Internet presence beyond its current Web site (http://www.ampie.com). He suggested Garwood look into an alliance with Internet portal companies, such as Yahoo. The goal would be for an American Pie icon to pop up on the screen when someone searched for "oldies," linking them to the company's Web site.

If that proves too difficult to accomplish, Garwood might look into becoming the "oldies" supplier for the music companies that may have beat him to the portal sites. That's an idea Garwood finds exciting, in part because it would be a way out from under the heavy fixed costs of a mail-order business.

The owner, who began his career stocking records for a rack jobber before moving into sales of laser discs and then video games, is confident that success will come for American Pie.

"We've done some things so well and the appeal is so great," Garwood says. " . . . If we can just turn a corner here and do more things smartly, I think we can make it."

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

This Week's Business Make-Over

Company Name: Turbo Zone Direct, doing business as American Pie

Headquarters: Van Nuys

Type of Business: Mail-order 45-rpm records, compact discs

Status: California S corporation

Co-owner: Steve Garwood

Founded: 1981; current owners bought in 1995

Start-up financing: $100,000 from an existing business

1998 sales: $600,000

Employees: 3

Customers: Collectors, nostalgia buffs and jukebox owners interested in original recordings from the '40s through the '90s.

Main Business Problem

A serious lack of cash.

Goal

To survive long enough to improve sales and profitability.

Recommendations

* Increase sales to existing customers.

* Create low-cost promotions such as a frequent-buyer program.

* Strengthen the company's brand-name recognition, starting with the catalog.

* Create an idea-generating group with outside business associates.

* Boost Internet presence by becoming the oldies music source for portal companies such as Yahoo. Or become a supplier to their existing source.

Meet the Consultant

Paul O'Reilly is vice president of the work force and training division of Valley Economic Development Center Inc. in Van Nuys and an adjunct professor at Pepperdine University's Graziadio School of Business Management. Previously, he was president of Advantage Marketing in Los Angeles.

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