Direct Marketing

Today, many marketers build long-term relationships with customers. They send birthday cards, information materials, or small premiums. Airlines, hotels, and other businesses adopt frequency reward programs and club programs.² Direct marketing is the use of consumer-direct (CD) channels to reach and deliver goods and services to customers without using marketing middlemen.

Direct marketers can use a number of channels to reach individual prospects and customers: direct mail, catalog marketing, telemarketing, interactive TV, kiosks, Web sites, and mobile devices. They often seek a measurable response, typically a customer order, through direct-order marketing.

Direct marketing has been a fast-growing avenue, partly in response to the high and increasing costs of reach­ing business markets through a sales force. Sales produced through traditional direct marketing channels (catalogs, direct mail, and telemarketing) have been growing rapidly, along with direct-mail sales, which include sales to the consumer market, B-to-B, and fund-raising by charitable institutions. Direct marketing has been outpacing U.S. retail sales. It produced $2.05 trillion in sales in 2012, accounting for approximately 8.7 percent of GDP.³

1. THE BENEFITS OF DIRECT MARKETING

Market demassification has resulted in an ever-increasing number of market niches. Consumers short of time and tired of traffic and parking headaches appreciate toll-free phone numbers, always-open Web sites, next-day delivery, and direct marketers’ commitment to customer service. In addition, many chain stores have dropped slower-moving specialty items, creating an opportunity for direct marketers to promote these to interested buyers instead.

Sellers benefit from demassification as well. Direct marketers can buy a list containing the names of almost any group: left-handed people, overweight people, or millionaires. They can customize and personalize messages and build a continuous relationship with each customer. New parents will receive periodic mailings describing new clothes, toys, and other goods as their child grows.

Direct marketing can reach prospects at the moment they want a solicitation and therefore be noticed by more highly interested prospects. It lets marketers test alternate media and messages to find the most cost-effective approach. Direct marketing also makes the company’s offer and strategy less visible to competitors. Finally, direct marketers can measure responses to their campaigns to decide which have been the most profitable.

Direct marketing must be integrated with other communications and channel activities.⁴ Eddie Bauer, Lands’ End, and the Franklin Mint made fortunes building their brands in the direct marketing mail-order and phone- order business and then opened retail stores. They cross-promote their stores, catalogs, and Web sites, for example, by putting their Internet addresses on their shopping bags.

Successful direct marketers view a customer interaction as an opportunity to up-sell, cross-sell, or just deepen a relationship. They make sure they know enough about each customer to customize and personalize offers and messages and develop a plan for lifetime marketing to each valuable customer, based on their knowledge of life events and transitions. They also carefully orchestrate each element of their campaigns. Here is an award-winning campaign that did just that.⁵

TIP TOP ICE CREAM New Zealand loves ice cream—the country has one of the highest per-capita consumption rates in the world. With fierce competition among brands, local brand Tip Top needed a way to maintain its leadership over its well-financed rivals. The “Feel Tip Top” campaign was a clever way to engage its customers. A Facebook app allowed people to nominate friends and family to receive ice cream delivered personally in the company’s new truck. The happy reactions of some lucky recipients were captured on film for ads and viral videos. Winner of the Direct Marketing Association’s Diamond Echo Award for 2013, the campaign generated 2,000 nominations in 24 hours, rising eventually to 30,000. Sales increased 5 percent.

We next consider some of the key issues that characterize different direct marketing channels.

2. DIRECT MAIL

Direct-mail marketing means sending an offer, announcement, reminder, or other item to an individual con­sumer. Using highly selective mailing lists, direct marketers send out millions of mail pieces each year—letters, fliers, foldouts, and other “salespeople with wings.”

Direct mail is a popular medium because it permits target market selectivity, can be personalized, is flexible, and allows early testing and response measurement. Although the cost per thousand is higher than for mass media, the people reached are much better prospects. The success of direct mail, however, has also become its liability—so many marketers are sending out direct-mail pieces that mailboxes are becoming stuffed, leading some consumers to disregard the blizzard of solicitations they receive.

In constructing an effective direct-mail campaign, direct marketers must choose their objectives, target markets and prospects, offer elements, means of testing the campaign, and measures of campaign success.

OBJECTIVES Most direct marketers judge a campaign’s success by the response rate, measured in customer orders. An order-response rate for letter-sized direct mail averages 3.4 percent to an internal company list and 1.3 percent to a general public list. Although that can vary with product category, price, and the nature of the offering, it is much higher than e-mails’ average response rates of 0.12 percent and 0.03 percent, respectively.⁶ Direct mail can also produce prospect leads, strengthen customer relationships, inform and educate customers, remind customers of offers, and reinforce recent customer purchase decisions.

TARGET MARKETS AND PROSPECTS Most direct marketers apply the RFM (recency, frequency, monetary amount) formula to select customers according to how much time has passed since their last purchase, how many times they have purchased, and how much they have spent since becoming a customer.⁷ Suppose the company is offering a leather jacket. It might make this offer to the most attractive customers—those who made their last purchase between 30 and 60 days ago, who make three to six purchases a year, and who have spent at least $100 since becoming customers. Points are established for varying RFM levels; the more points, the more attractive the customer.⁸

Marketers also identify prospects on the basis of age, sex, income, education, previous mail-order purchases, and occasion. College freshmen will buy laptop computers, backpacks, and compact refrigerators; newlyweds look for housing, furniture, appliances, and bank loans. Another useful variable is consumer lifestyle or “passions” such as electronics, cooking, and the outdoors.

Dun & Bradstreet provides a wealth of data for B-to-B direct marketing. Here the prospect is often not an individual but a group or committee of both decision makers and decision influencers. Each member needs to be treated differently, and the timing, frequency, nature, and format of contact must reflect the member’s status and role.

The company’s best prospects are customers who have bought its products in the past. The direct marketer can also buy lists of names from list brokers, but these lists often have problems, including name duplication, incom­plete data, and obsolete addresses. Better lists include overlays of demographic and psychographic information. Direct marketers typically buy and test a sample before buying more names from the same list. They can build their own lists by advertising a promotional offer and collecting responses.

OFFER ELEMENTS The offer strategy has five elements—the product, the offer, the medium, the distribution method, and the creative strategy.⁹ Fortunately, all can be tested. The direct-mail marketer also must choose five components of the mailing itself: the outside envelope, sales letter, circular, reply form, and reply envelope. A common direct marketing strategy is to follow up direct mail with an e-mail.

TESTING ELEMENTS One of the great advantages of direct marketing is the ability to test, under real marketplace conditions, different elements of an offer strategy, such as products, product features, copy platform, mailer type, envelope, prices, or mailing lists. The Teaching Company mails 50 million catalogs and sends 25 million e-mails to sell educational DVDs of lectures and courses. Every element of the offer is tested. Changing the color and location of an “Add to Cart” button on its Web site (from pale green to orange and from side to bottom) increased sales almost 6 percent. Replacing an image of Michelangelo’s God’s hand with one depicting the ruins of Petra improved sales more than 20 percent.¹⁰

Response rates typically understate a campaign’s long-term impact. Suppose only 2 percent of the recipients who receive a direct-mail piece advertising Samsonite luggage place an order. A much larger percentage became aware of the product (direct mail has high readership), and some percentage may have formed an intention to buy at a later date (either by mail or at a retail outlet). Some may mention Samsonite luggage to others as a result of the direct-mail piece. To better estimate a promotion’s impact, some companies measure the impact of direct market­ing on awareness, intention to buy, and word of mouth.

MEASURING CAMPAIGN SUCCESS: LIFETIME VALUE By adding up the planned campaign costs, the direct marketer can determine the needed break-even response rate. This rate must be net of returned merchandise and bad debts. A specific campaign may fail to break even in the short run but can still be profitable in the long run if we factor in customer lifetime value (see Chapter 5) by calculating the average customer longevity, average customer annual expenditure, and average gross margin, minus the average cost of customer acquisition and maintenance (discounted for the opportunity cost of money).¹¹

3. CATALOG MARKETING

In catalog marketing, companies may send full-line merchandise catalogs, specialty consumer catalogs, and business catalogs, usually in print form but also as DVDs or online. In 2010, three of the top B-to-C catalog sellers were Dell ($52 billion), Staples ($9.8 billion), and CDW ($8.8 billion). Three top B-to-B catalog sellers were Thermo Fisher Scientific lab and research supplies ($10.8 billion), Henry Schien dental, medical, and vet supplies ($7.5 billion), and WESCO International electrical and industry maintenance supplies ($5.0 billion).¹² Thousands of small businesses also issue specialty catalogs. Many direct marketers find combining catalogs and Web sites an effective way to sell.

Catalogs are a huge business—the Internet and catalog retailing industry includes 20,000 companies with combined annual revenue of $350 billion.¹³ Successfully marketing a catalog business depends on managing cus­tomer lists carefully to avoid duplication or bad debts, controlling inventory, offering good-quality merchandise so returns are low, and projecting a distinctive image. Some companies add literary or information features, send swatches of materials, operate a special online or telephone hotline to answer questions, send gifts to their best cus­tomers, and donate a percentage of profits to good causes. Putting their entire catalog online also provides business marketers with better access to global consumers than ever before, saving printing and mailing costs.

4. TELEMARKETING

Telemarketing is the use of the telephone and call centers to attract prospects, sell to existing customers, and pro­vide service by taking orders and answering questions. It helps companies increase revenue, reduce selling costs, and improve customer satisfaction. Companies use call centers for inbound telemarketing—receiving calls from customers—and outbound telemarketing—initiating calls to prospects and customers.

As Chapter 4 noted, because of the establishment of the National Do Not Call Registry in 2003, consumer telemarketing has lost much of its effectiveness. Business-to-business telemarketing is increasing, however.

TV infomercials have been used with great success to sell the George Foreman grill, backed by the former heavyweight boxing champion.

Raleigh Bicycles used telemarketing to reduce the personal selling costs of contacting its dealers. In the first year, sales force travel costs dropped 50 percent and sales in a single quarter went up 34 percent. As it improves with the use of video conferencing, telemarketing will increasingly replace, though never eliminate, more ex­pensive field sales calls.

5. OTHER MEDIA FOR DIRECT-RESPONSE MARKETING

Direct marketers use all the major media. Newspapers and magazines carry ads offering books, clothing, appliances, vacations, and other goods and services that individuals can order via toll-free numbers. Radio ads present offers 24 hours a day. Some companies prepare 30- and 60-minute infomercials to combine the selling power of television commercials with the draw of information and entertainment. Infomercials promote prod­ucts that are complicated or technologically advanced or that require a great deal of explanation. Some of the most successful are for Proactiv acne system, P90X workout DVDs, and the George Foreman grill. At-home shopping channels are dedicated to selling goods and services through a toll-free number or via the Internet for delivery within 48 hours.

6. PUBLIC AND ETHICAL ISSUES IN DIRECT MARKETING

Direct marketers and their customers usually enjoy mutually rewarding relationships. Occasionally, however, a darker side emerges:

• Irritation. Many people don’t like hard-sell direct marketing solicitations. Firms have been popping up to help block unwanted junk mail.¹⁴
• Unfairness. Some direct marketers take advantage of impulsive or less sophisticated buyers or prey on the vulnerable, especially the elderly.
• Deception and fraud. Some direct marketers design mailers and write copy intended to mislead or exagger­ate product size, performance claims, or the “retail price.” The Federal Trade Commission receives thousands of complaints each year about fraudulent investment scams and phony charities.
• Invasion of privacy. It seems that almost every time consumers order products by mail or telephone, apply for a credit card, or take out a magazine subscription, their names, addresses, and purchasing behavior may be added to several company databases. As Chapters 3 and 5 discussed, critics worry that marketers may know too much about consumers’ lives and that they may use this knowledge to take unfair advantage.¹⁵

People in the direct marketing industry know that, left unattended, such problems will lead to increasingly negative consumer attitudes, lower response rates, and calls for greater state and federal regulation. Most direct marketers want the same thing consumers want: honest and well-designed marketing offers targeted only to those who appreciate hearing about them.

Source: Kotler Philip T., Keller Kevin Lane (2015), Marketing Management, Pearson; 15th Edition.