A Catalog, You Say?

Face it … life is not a Bob Hope movie. And just as a family of adorable tots can’t really make it in show business anymore by punching the air and yelling, “Let’s put on a show,” gone too are the days of, “Let’s have a catalog!” in the not-for-profit world.

Having a merchandising program is one way for many nonprofits to raise unrestricted funds and to reach donors and prospects at a time when their mailboxes — both physical and virtual — are crammed with philanthropic requests. Properly undertaken, it can enable the nonprofit to increase its visibility in a positive way.

But such programs shouldn’t be undertaken lightly. A good deal of thought and effort needs to go into creating a merchandising program that reflects well on the organization. It’s all too easy for a poorly conceived or executed plan to damage a nonprofit’s reputation.

The first thing you, as an organization, need to decide is whether you want to create an actual merchandise business or simply sell some products to generate an additional source of revenue.

The distinction is an important one. If you want to actually create a business, you’ll have to establish a real infrastructure to handle the task. If that’s the case, you need to be able to answer “yes” to all of the questions below. If you answer “no” to any questions, you should take the necessary steps to turn that no to a yes before proceeding. These questions include:

* Is there a raison d’etre — other than raising money — to undertake this business? Just wanting to create funds isn’t enough. A merchandising program must have a tie-in with the organization.

* Is there a strong internal commitment from top management to support a business strategically, financially and emotionally?

* Is there a team of folks who can be relied on to help the project as it gets going? Any new venture makes additional demands on the organization that need to be supported internally. Among those who have to buy in are membership, marketing and administration.

* Do you have the funds to invest in a business, or do you have a source of donor seed money to get the business up and running?

* Is there strong name recognition for your organization among the segment of the market that’s likely to be your customers?

* Does your organization have a strong sense of its brand identity?

* Is there a current database of names of members, donors and other affiliated persons?

* Have you thought through what distribution channels you would use? For a real business, you need to think about how you can combine at least two of the following: retail, online and catalog.

* Is there a person or group of people with an entrepreneurial spirit that can serve as the catalysts and actual workers to get the business up and running?

* Are there folks with expertise on the outside who can be called upon by your organization?

* Has someone outside your nonprofit with experience in other successful, similar ventures taken a look at the business plan? Have you taken his or her comments into account?

If all you’re looking to do is supplement revenue by selling merchandise, you don’t need to take all of these questions into account. But it’s still important to create a business plan and to gain buy-in from your organization.

Move ahead … with caution
Once you know how you want to proceed, consider the merchandise. Some questions to answer before product development are:

* Who’s the target customer for these products? What are the demographics involved with this group?

* Does the organization have some natural tie-ins for products? Are there collections that can serve as the basis for product development?

* What’s the public impression of the organization? Are there products that can readily enhance this impression? Are there things to avoid to ensure that the merchandising program doesn’t harm the organization’s image?

* How will the products be distributed? The greater the channels of distribution, the greater the potential source of income. Of course, the greater the channels, the higher the risk and the greater the potential for failure.

In general, your organization’s existing communication channels will be used to offer products to members and prospects. Going beyond existing channels into retail, a catalog or a sales Web site can be quite expensive — and it really means starting a whole new business.

* Is there a way to get rid of excess inventory? One very important thing to keep in mind in creating products is that not every product will be a hit. One of the most painful things to learn as a merchant is that just because you like a product, that doesn’t mean other folks will share your enthusiasm for it. You need to think about how you’ll dispose of excess inventory at a cost that’s acceptable to your organization’s finances and reputation.

Merchandising options
There are a number of merchandise categories that can be created for nonprofit organizations. Following is a breakdown of the most typical categories.

Logo products. The easiest is logo products — the T-shirts, mugs, water bottles, pens, letterhead, backpacks and more that you see sporting any number of logos. All you need to do this is a strong, recognizable logo and the ability to purchase the minimum number of products required by the manufacturer. These products lend themselves to sales through your Web site or newsletter, and some can be used as special donor or member premiums. Logo products can be profitable, but they’re rarely strong enough to merit the creation of a product business.

Licensing arrangements. In this case, the product’s creator underwrites the cost of product development and pays the sponsoring organization a percentage of the sales price of the product in the general marketplace. What the organization ultimately licenses is the right to put its name on a product or series of related products. In some cases the nonprofit is paid an advance against future royalties upon signing a contract with the manufacturer.

The two parties sign a contract specifying what say, if any, the nonprofit has in product development and quality-control parameters, what approval rights it has, and where the products are to be sold. The upside for the nonprofit is that it can get products at a relatively low cost, but there’s still a cost to the organization for personnel to support the requests/needs of the licensor. For such a program to succeed, both the licensor and licensee have to be committed to it.

A wide range of products can be created under licensing arrangements. The gamut runs from calendars, books and records, to clothing, jewelry, furniture, household linens, paint, wallpaper and athletic equipment. The nonprofit can sell some of the products through its existing distribution channels. Others will be sold solely by the manufacturer to a broad base of national accounts. It’s important that you choose to work only with manufacturers whose reputations will enhance your own.

Existing merchandise. It’s also possible to include existing merchandise from the marketplace in your program. Just be sure it relates somehow to the goals and perception of your organization. It helps to get the manufacturer to add some simple copy, such as a hang tag, that connects the product to your mission. And bear in mind that the price on the products has to conform to the general marketplace. Be prepared to compete with mass merchants that discount products.

To avoid that competition, you might consider working with a manufacturer to modify existing merchandise — putting a special cover on an existing book, for example. By modifying existing products, you’re not obligated to pay for creative and manufacturing costs, which already have been borne by the manufacturer. One of the advantages of this type of merchandising is that you can set your own price and not be in competition with general retailers.

New-product development. The last merchandise category is product development, which results in a product that’s available only from your organization. These custom products provide the greatest control over the cost of goods sold, but they also involve the greatest investment. It’s one thing to put your own cover on an existing book, but quite another to publish a new title. Nonetheless, it can be a smart move for a mature merchandising program; it’s not a starting point unless you have a very talented outside consultant.

Susie Boghosian is the director of marketing and strategic planning at the Smithsonian Catalogue. Jinny Fleischman is a Washington, D.C.-based marketing consultant.