In direct marketing, a customer is first exposed to a good or service through a nonpersonal medium (direct mail, TV, radio, magazine, newspaper, computer, tablet, or mobile device) and then orders by mail, phone, or fax (and increasingly by computer, smartphone, or tablet. Annual U.S. sales are more than $475 billion (including the Web), and more than half of American adults make at least one such purchase a year. Japan, Germany, Great Britain, France, and Italy are among the direct-marketing leaders outside the United States. Popular products are gift items, apparel, magazines, books and music, sports equipment, home accessories, food, and insurance.
In the United States, direct-marketing customers are more apt to be middle class. Mail shoppers are more likely to live in areas away from malls. And, because they want to avoid traffic and save time, phone shoppers are more likely to live in upscale metropolitan areas. The share of direct-marketing purchases made by men has grown: The average consumer who buys direct spends several hundred dollars per year, and he or she wants convenience, unique products, and good prices.
Direct marketers can be divided into two categories: general and specialty. General direct- marketing firms, such as Neiman Marcus (with its mail-order and Web businesses) and QVC (with its cable TV and Web businesses), offer a full line of products and sell everything from clothing to housewares. Specialty direct marketers focus on more narrow product lines. L.L. Bean, Publishers Clearinghouse, and Franklin Mint are among the thousands of U.S. specialty firms. See Figure 6-3.
Direct marketing has a number of strategic business advantages:
- Many costs are reduced—even low startup costs are possible; inventories are reduced; no displays are needed; a prime location is unnecessary; regularly staffed store hours are not important; a sales force may not be needed; and business may be run out of a garage or basement.
- It is possible for direct marketers to have lower prices (due to reduced costs) than store-based retailers. A huge geographic area can be covered inexpensively and efficiently.
- Customers shop conveniently—without crowds, parking congestion, or checkout lines. And they do not have safety concerns about shopping early in the morning or late at night.
- Specific consumer segments are pinpointed through targeted mailings.
- Consumers may sometimes legally avoid sales tax by buying from direct marketers not having retail facilities in their state (however, some states want to eliminate this loophole).
- A store-based firm can supplement its regular business and expand its trading area (even becoming national or global) without adding outlets.
Direct marketing also has its limits, but they are not as critical as those for direct selling:
- Products cannot be examined before purchase. Thus, the range of items purchased is more limited than in stores, and firms need liberal return policies to attract and keep customers.
- Firms may underestimate costs. Catalogs can be costly. Computer systems must track shipments, purchases, and returns, and keep lists current. A 24-hour phone staff may be needed.
- Even successful catalogs often draw purchases from less than 10 percent of recipients.
- Clutter exists. Each year, billions of E-mails and catalogs are mailed in the United States alone.
- Printed catalogs are prepared well in advance, causing difficulties in price and style planning.
- Some firms have given the industry a bad name due to delivery delays and shoddy goods.
The Federal Trade Commission’s “30-day rule” is a U.S. regulation that affects direct market-ers. It requires firms to ship orders within 30 days of their receipt or notify customers of delays. If an order cannot be shipped in 60 days, the customer must be given a specific delivery date and offered the option of canceling an order or waiting for it to be filled. The rule covers mail, phone, fax, and computer orders.
Despite its limitations, long-run growth for direct marketing is projected. Consumer interest in convenience and the difficulty in setting aside shopping time will continue. More direct marketers will offer 24-hour ordering and improve their efficiency. Greater product standardization and the prominence of well-known brands will reduce consumer perceptions of risk when buying from a catalog or the Web. Technological breakthroughs, such as purchases on smartphones, will attract more and more consumer shopping.
Due to its vast presence and immense potential, our detailed discussion is intended to give you an in-depth look into direct marketing. Let’s study the domain of direct marketing, database retailing, emerging trends, steps in a direct marketing strategy, and key issues facing direct marketers.
1. The Domain of Direct Marketing
As defined earlier, direct marketing is a form of retailing in which a consumer is exposed to a good or service through a nonpersonal medium and then orders by mail, phone, fax, computer, or mobile media. It may also be viewed as a “data-driven, cross media, interactive, multichannel process for building and cultivating mutually beneficial relationships between companies and their customers and prospects.”5
Accordingly, we do include these following forms of direct marketing: any catalog; any mail, TV, radio, magazine, newspaper, phone directory, fax, or other ad; any computer-based or mobile app transaction; or any other nonpersonal contact that stimulates customers to place orders by mail, phone, fax, or computer (including interactive TV and mobile).
We do not include these as forms of direct marketing: (1) Direct selling—consumers are solicited by in-person sales efforts or seller-originated phone calls and the firm uses personal communication to initiate contact. (2) Conventional vending machines, whereby consumers are exposed to nonpersonal media but do not complete transactions via mail, phone, fax, or computer; they do not interact with the firm in a manner that allows a database to be generated and kept.
Direct marketing is involved in many computerized kiosk transactions; when items are shipped to consumers, there is a company-customer interaction and a database can be formed. Direct marketing is also in play when consumers originate phone calls, based on catalogs or ads they have seen.
2. The Customer Database: Key to Successful Direct Marketing
Because direct marketers often initiate contact with customers (in contrast to store shopping trips that are initiated by the consumer), it is imperative that they develop and maintain a comprehensive customer database. They can then pinpoint their best customers, make offers aimed at specific customer needs, avoid costly mailings to nonresponsive shoppers, and track sales by customer. A good database is the major asset of most direct marketers, and every thriving direct marketer has a strong database.
Database retailing is a way to collect, store, and use relevant information about customers. Such information typically includes a person’s name, address, background data, shopping interests, and purchase behavior. Although databases are often compiled through large computerized information systems, they may also be used by small firms that are not overly computerized.
Reports on database retailing show that collecting individual-level customer data (ILCD) about online and store-based shopping behavior helps retailers more efficiently select and contact customers. Gathering ILCD also assists retailers in personalizing content and offers, enhancing customer experience, and improving purchase conversion of individual consumers or business buyers via individually interactive media (IIM) and other touchpoints. When a company can link customer purchases to the offers that spurred them, the data provide valuable clues for personalizing the goods, services, and promotional offers that should be offered next to those particular customers and prospects. Knowing more about target audiences’ particular attitudes, propensities, and household composition provides clues about the channels, messages, and timing for the next offer.6 Database retailing is discussed further in Chapter 8.
3. Emerging Trends
Several trends are relevant for direct marketing: the evolving activities of direct marketers, changing consumer lifestyles, increased competition, the greater use of omnichannel retailing, the newer roles for catalogs and TV, technological advances, and the interest in global direct marketing. Online retailing is discussed in depth later in this chapter.
EVOLVING ACTIVITIES OF DIRECT MARKETERS Over the past several decades, these direct marketing activities have evolved:
- Web and mobile technology has moved to the forefront in all aspects of direct marketing— from lead generation to order processing.
- Multiple points of customer contact are offered by most firms today.
- There is an increased focus on database retailing.
- The emergence of database-driven direct marketing services is helping newer and smaller firms enter and diversify into new markets at a lower cost than in the past years.7
- Firms now have well-articulated and widely communicated privacy policies.
CHANGING CONSUMER LIFESTYLES Consumer lifestyles in the United States have shifted, mostly due to the numerous women who are now in the labor force and the longer commuting time to and from work for suburban residents. Many consumers no longer have the time or inclination to shop at stores. They are attracted by the ease of purchasing through direct marketing. Some of the factors consumers consider in selecting a direct marketer are:
- Company reputation (image)
- Ability to shop whenever the consumer wants
- Types of goods and services as well as the assortment and brand names carried
- Availability of a toll-free phone number or Web site for ordering
- Credit card acceptance
- Speed of promised delivery time
- Competitive prices
- Satisfaction with past purchases and good return policies
- Customer reviews and comments at retail sites and through social media
INCREASED COMPETITION AMONG FIRMS As direct marketing sales have risen, so has competition; although there are a number of big firms, such as Guthy/Renker (www.guthy-renker.com), which has marketed such products as Proactiv acne solution, there are also thousands of small ones. According to the Direct Marketing Association, there are thousands of U.S. mail-order (and E-mail-based) companies alone.
Intense competition exists because entry into direct marketing is easier and less costly than entry into store retailing. A firm does not need a store; can operate with a small staff; can use low-cost 1-inch magazine ads, send brochures to targeted shoppers, and have an inexpensive Web site. It can also keep a low inventory and place orders with suppliers after people buy items (so long as it meets the “30-day rule”).
About one of every two new direct marketers fail. Direct marketing lures small firms that may poorly define their market niche, offer nondistinctive products, have limited experience, misjudge the needed effort, have trouble with supplier continuity, and get consumer complaints.
GREATER USE OF MULTICHANNEL AND OMNICHANNEL RETAILING Today, many stores add to their revenues by using ads, brochures, catalogs, and Web sites to obtain mail-order, phone, and computer-generated sales. They see that direct marketing is efficient, targets specific segments, appeals to people who might not otherwise shop with those firms, and needs a lower investment to reach other geographic areas than opening branch outlets.
Neiman Marcus Group is a good example of a luxury store-based retailer that has flourished with its distinctive omnichannel approach. It uses its strong print catalog experience to drive omnichannel efforts. Its catalogs, such as “The Book” for Neiman Marcus and “BG Magazine” for Bergdorf Goodman, play an important role in bringing the firm to life in a very tactile way to customers. Neiman Marcus started selling online through its Web site in 1999; today it accounts for 24 percent of total business. The company still asserts that there is a niche in the market for catalog services, and that catalogs play a role in moving customers across the demographic spectrum through the purchase cycle. Neiman Marcus has successfully leveraged data and insights gained from its catalogs, its vendor relationships, and its fulfillment infrastructure in its E-commerce efforts.8
NEWER ROLES FOR CATALOGS AND TV Direct marketers are recasting how they use their catalogs and their approach to TV retailing. We are witnessing three key changes in long-standing catalog tactics: (1) Many firms now print “specialogs” in addition to or instead of the annual catalogs showing all their products. With a specialog, a retailer caters to a particular customer segment, emphasizes a limited number of items, and reduces production and postage costs (a specialog is much shorter than a general catalog). Each year, such firms as L.L. Bean and Travelsmith send out separate specialogs by market segment or occasion. (2) To help defray costs, some companies accept ads from noncompeting firms that are compatible with their image. (3) To stimulate sales and defray costs, some catalogs are sold in bookstores, supermarkets, and airports, as well as at company Web sites. The percentage of consumers buying a catalog who actually make a purchase is far higher than that for those who get catalogs in the mail.
Television retailing has two major components (not including interactive TV shopping, which is now emerging): shopping networks and infomercials. On a shopping network, programming focuses on merchandise presentations and sales (often by phone). The two biggest players are cable giants QVC and Home Shopping Network (HSN), with combined annual worldwide revenues of $12.4 billion. QVC has access to a global TV audience of 350 million households, HSN to 94 million. They feature jewelry, women’s clothing, and personal-care items and do not focus on leading brands. Most items must be bought when they are shown to encourage shoppers to act quickly. Both firms have active Web sites (www.qvc.com and www.hsn.com) and mobile apps. Nearly half of their U.S. sales revenues (40 percent HSN and 49 percent QVC in 2015) are E-commerce orders, with mobile accounting for half of QVC’s E-commerce revenues.9
An infomercial is a program-length TV commercial (typically, 30 minutes) for a specific good or service that airs on cable or broadcast television, often at a fringe time. As they watch an infomercial, shoppers call in orders, which are delivered to them. Infomercials work well for products that benefit from demonstrations. Good infomercials present detailed information, include customer testimonials, are entertaining, and are divided into timed segments (since the average viewer watches only a few minutes at a time) with ordering information displayed in every segment. Infomercials account for several billion dollars in annual U.S. revenues. Popular infomercials include those for the Total Gym, Life Lock, Proactiv Acne Treatment, Shark Rocket, and Copper Chef. The Electronic Retailing Association (www.retailing.org) is the trade association for infomercial firms.
TECHNOLOGICAL ADVANCES The technology revolution has improved operating efficiency as well as enhanced sales opportunities:
- Market segments are better targeted. Through selective binding, bigger catalogs are sent to the best customers and shorter catalogs to new prospects.
- Advances in computerized database technology has made it both easier and less costly to selectively reach individual customers.
- Firms inexpensively use computers to enter mail and phone orders, arrange for shipments, and monitor inventory on hand.
- Huge, automated distribution centers efficiently accumulate and ship orders.
- Customers dial toll-free phone numbers or visit Web sites to place orders and get information. The cost per call for the direct marketer is quite low.
- Consumers can conclude transactions from more sites, including kiosks at airports and train stations.
- Cable and satellite programming and the Web offer 24-hour shopping and ordering.
- In-home, at-work, and leisure-time Web-based shopping transactions can be conducted.
MOUNTING INTEREST IN GLOBAL DIRECT MARKETING More retailers are engaged with global direct marketing because of the growing consumer acceptance of nonstore retailing in other countries. Among the U.S.-based direct marketers with a significant international presence are Brook- stone, Eddie Bauer, Lands’ End, and Williams-Sonoma.
Outside the United States, annual direct-marketing sales (by both domestic and foreign firms) amount to hundreds of billions of dollars. Direct-marketing trade associations—each representing many member firms—exist in such diverse countries as Australia, Brazil, China, France, Germany, Japan, Russia, and Spain. In Europe alone, there are well over 10,000 direct-marketing companies; and the emerging Indian direct-marketing arena features numerous firms, domestic and international.10
4. The Steps in a Direct-Marketing Strategy
A direct marketing strategy has eight steps: business definition, generating customers, media selection, presenting the message, customer contact, customer response, order fulfillment, and measuring results, and maintaining the database. See Figure 6-4.
BUSINESS DEFINITION First, a company makes two decisions as to its business definition: (1) Is the firm going to be a pure direct marketer or is it going to engage in multichannel or omnichannel retailing? If the firm chooses one of the latter two strategies, it must clarify the role of direct marketing in its overall retail strategy. (2) Is the firm going to be a general direct marketer and carry a broad product assortment or will it specialize in one product category?
GENERATING CUSTOMERS A mechanism for generating business is devised next. A firm can:
Buy a printed mailing list or an E-mail list from a broker. For one mailing, a list usually costs up to $50 to $100 or more per 1,000 names and addresses; if printed, it is supplied in mailing- label format. Lists may be broad or broken down by gender, location, and so on. In purchasing a list, the direct marketer should check its currency.
- Download a mailing list from the Web that is sold by a firm such as infoUSA (infousa .com), which has data on the home addresses of 100 million U.S. households. With a download, a retailer can use the list multiple times, but it is responsible for selecting names and printing labels.
- Send out a blind mailing to all the residents in a particular area. This method can be expensive (unless done through E-mail) and may receive a very low response rate.
- Advertise in a newspaper, magazine, Web site, or other medium, and ask customers to order by mail, phone, fax, or computer.
- Contact consumers who have bought from the firm or requested information. This is efficient, but it takes a while to develop a database. To grow, a firm cannot rely solely on past customers.
MEDIA SELECTION Several media are available to the direct marketer:
- Printed and/or online catalogs Direct mail ads and brochures
- Inserts with monthly credit card and other bills (“statement stuffers”)
- Freestanding displays with coupons, brochures, or catalogs (such as magazine subscription cards at the supermarket checkout counter)
- Ads or programs in the mass media—newspapers, magazines, radio, TV Banner ads or hotlinks on the Web
- Video kiosks
In choosing among media, the costs, distribution, lead time, and other factors should be considered.
PRESENTING THE MESSAGE The next step in a direct-marketing strategy is the firm prepares and presents its message in a way that engenders interest, creates (or sustains) the proper image, points out compelling reasons to purchase, and provides data about goods or services (such as prices and sizes). The message must also contain ordering instructions, including the payment method; how to designate the chosen items; shipping fees; and a firm’s address, phone number, and Web address.
The message, and the media in which it is presented, should be planned in the same way that a traditional retailer plans a store. The latter uses a storefront, lighting, carpeting, the store layout, and displays to foster an image. In direct marketing, the headlines, message content, use of color, paper quality, personalization of mail, space devoted to each item, return policy, product guarantees, and other elements affect a firm’s image.
CUSTOMER CONTACT For each campaign, a direct marketer decides whether to contact all customers in its database or to seek specific market segments (with different messages and/or media for each). It can classify prospective customers as regulars (those who buy continuously); nonregulars (those who buy infrequently); new contacts (those who have never been sought before by the firm); and nonrespondents (those who have been contacted but never made a purchase).
Regulars and nonregulars are the most apt to respond to a firm’s future offerings, and they can be better targeted because the firm has their purchase histories. For example, customers who have bought clothing before are prime prospects for specialogs. New contacts probably know less about the firm. Messages to them must build interest, accurately portray the firm, and present meaningful reasons for consumers to buy. This group is important if growth is sought.
Nonrespondents who have been contacted repeatedly without purchasing are unlikely to ever buy. Unless a firm can present a very different message, it is inefficient to pursue this group. Firms such as Publishers Clearinghouse send mailings to millions of people who have never bought from them; this is okay because they sell inexpensive impulse items and need only a small response rate to succeed.
CUSTOMER RESPONSE Customers respond to direct marketers in one of three ways: (1) They buy through the mail, phone, fax, computer, or smartphone. (2) They request further information, such as a catalog. (3) They ignore the message. Purchases are generally made by no more than 2 to 3 percent of those contacted. The rate is higher for specialogs, mail-order clubs (e.g., for books), and firms focusing on repeat customers.
ORDER FULFILLMENT A system is needed for order fulfillment. If orders are received by mail or fax, the firm must sort them, determine if payment is enclosed, see whether the item is in stock, mail announcements if items cannot be sent on time, coordinate shipments, and replenish inventory. If phone orders are placed, a trained sales staff must be available when people may call. Salespeople answer questions, make suggestions, enter orders, note the payment method, see whether items are in stock, coordinate shipments, and replenish inventory. If orders are placed by computer or smartphone, there must be a process to promptly and efficiently handle credit transactions, issue receipts, and forward orders to a warehouse. In all cases, names, addresses, and purchase data are added to the database for future reference.
Order fulfillment can also be conducted through “drop shipping,” wherein manufacturers and wholesalers handle packaging, shipping, and inventory storage functions. Drop shipping occurs when retailers have a lot of channel power relative to suppliers or when niche goods with low demand are sought by consumers. Although consumers may not know that items are drop shipped (because the invoice is from the retailer), they still expect the same level of prompt and accurate service as other goods shipped directly by the retailer.
In peak seasons, additional warehouse, shipping, order processing, and sales workers supplement regular employees. Direct marketers that are highly regarded by consumers fill orders promptly, have knowledgeable and courteous personnel, do not misrepresent quality, and provide liberal return policies.
MEASURING RESULTS AND MAINTAINING THE DATABASE The last step in a direct-marketing strategy is analyzing results and maintaining the database. Direct marketing often yields clear outcomes:
- Overall response rate: The number and percentage of people who make a purchase after receiving or viewing a particular brochure, catalog, or Web site
- Average purchase amount:By customer location, gender, and so forth
- Sales volume by product category: Revenues correlated with the space allotted to each product in brochures, catalogs, and so forth
- Value of list brokers:The revenues generated by various mailing lists
After measuring results, the firm reviews its database and makes sure that new shoppers are added, address changes are noted for existing customers, purchase and consumer information is current and available in segmentation categories, and nonrespondents are purged (when desirable). This stage provides feedback for the direct marketer as it plans each new campaign.
5. Key Issues Facing Direct Marketers
In planning and applying their strategies, direct marketers must keep certain issues in mind. Many consumer perceptions of aspects of direct marketing are negative. Nonetheless, in most cases, leading direct marketers are rated well by consumers. Factors leading to dissatisfaction include:
- Delivery problems. Customer dissatisfaction includes late delivery or nondelivery, deceptive claims, broken or damaged items, receiving the wrong items, and the lack of information.
- Clutter or “junk” mail. Most U.S. households report that they do open direct mail, but they would like to receive less of it. Firms are concerned about clutter and difficulty in being distinctive.
- Privacy concerns. Many consumers are concerned that their names and other information are being sold by list brokers and retailers. They feel this is an invasion of privacy and that their decision to purchase does not constitute permission for the retailer to make secondary use of their personal data. To counteract this, members of the Direct Marketing Association remove people’s names from list circulation if they make a request.11
Multichannel and omnichannel retailers need a consistent image for both store-based and direct-marketing efforts. They must also recognize the similarities and differences in each approach’s strategy. Postal rates and paper costs makes mailing catalogs, brochures, and other promotional materials costly for some firms. Numerous direct marketers are turning more to newspapers, magazines, cable TV, and the Web.
Direct marketers must monitor the legal environment. They must be aware that, in the future, more states will probably require residents to pay sales tax on out-of-state direct-marketing purchases; the firms will have to remit the tax payments to affected states. New laws will be contested by some retailers.
Source: Barry Berman, Joel R Evans, Patrali Chatterjee (2017), Retail Management: A Strategic Approach, Pearson; 13th edition.