Introduction On Direct Marketing - 69554831 PDF
Introduction On Direct Marketing - 69554831 PDF
Introduction On Direct Marketing - 69554831 PDF
Hemant Kombrabail
DIRECT MARKETING
The seeds of direct marketing as we use it today were sown way back in the nineteenth century at the
birth of the US mail order industry, which served so well the needs of remote farmers, ranchers,
settlers and new townships.
Today, this geographical justification for direct marketing has been replaced by our needs for much
more cost-effective, measurable and reliable ways of managing customers. Technology has made it
so much easier for us to communicate directly with our customers, while changes in tastes and media
fragmentation have made conventional mass marketing techniques less effective in getting the
response you want from your customers - though of course they are still very powerful in developing
and sustaining branding.
Direct marketing is a form of marketing that attempts to send its messages directly to consumers,
without the use of intervening media. The key principle of direct marketing is that at least part of the
communication you have with your customer is direct - to named customers.
Direct marketing differs from regular advertising in that it does not place its messages on a third
party medium such as a billboard or a radio commercial would. Instead, the marketing of the service
or commodity is pitched directly at the consumer.
Most direct marketing is done by companies whose only function is to manage and perform direct
advertising, rather than by the advertised entity itself. Direct marketers have been long time
customers of computer databases, and they often have very sophisticated criteria of inclusion and
exclusion in their mailing lists.
Today Direct Marketing plays a broader role, that of building a long-term relationship with the
customer. Direct Marketers send birthday cards (e.g. Kesari Tours), information material (e.g. Tata
Telecom), small premiums (e.g. Reader’s Digest) to selected members of their customer base.
Airlines, Hotels, and a number of other businesses build strong customer relationships through
frequency award programs and club programs.
The key principle of direct marketing is that at least part of the communication you have with your
customer is direct - to named customers.
Direct marketing is very much part of mainstream marketing, but has three additional characteristics:
1 It is based on direct responses. Direct marketing communications invite customers to respond - by
mail, telephone, Internet, redeemable retail vouchers, etc. The response may range from enquiry and
giving information to ordering. This opportunity for monitoring feedback is critical to direct
marketing.
2 Direct marketing is measurable. In any direct marketing campaign responses are measured,
evaluated and analyzed. Responses can be through any medium - telephone, mail, Internet hits, etc.
Measuring responses leads to accountability. All costs can be related to response. Return on
investment can be calculated. Traditional advertising relies mainly on market research techniques
based on samples to measure effectiveness, though for some campaigns sales results can be
accurately measured (e.g. if run in test areas only). Direct marketers use transaction data to measure.
This is one reason why direct marketing has been called scientific advertising - direct marketers
conduct their tests in controlled environments. While environments do change, direct marketing is as
near to a science as marketing achieves.
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3 Direct marketing usually requires you to build and maintain a database of customers and prospects.
This gives you better understanding of your market and can give you competitive advantage.
DEFINITION
1. Direct marketing is an interactive marketing system that uses one or more advertising media
to effect a measurable response & / or transaction at any location.
3. Direct marketing is any activity that creates and exploits a direct relationship between a firm
and its individual customer.
5. Any Promotional activity that creates and exploits a direct relationship between an
organization and its prospect and / or customer as an individual.
Interactive system: - There is a 2-way communication between the marketer and his/her target
market. The response or non-response of the customer completes the communication loop in DM
process, e.g. the customer will fill in the response coupon & mail it.
Measurability of response: - The number of coupons indicates the response rate to marketer’s
communication.
Direct Marketing activities are not location specific: - It is not necessary for the marketer to interact
physically with the customer. He / She can establish contact through mail, phone, fax, or Internet.
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These principles view direct marketing as a continuing process of acquiring new customers,
continuing to satisfy existing customers, and developing all customers so as to achieve
greater loyalty and increased purchasing. This process is illustrated below
e.g. Many of the world's major airlines now work to these principles, particularly in the
business market, where frequent flyer programs are common. These identify best
customers on the database, reward them for their loyalty, and learn from the data
generated. They use profiles of high value customers to acquire new customers with similar
characteristics
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precisely what worked & what did not. This allows selling goods effectively and leads to a more
efficient allocation of resources.
13. DM attempts to elicit response. In the process, the communication performs both,
advertising & selling function without an intermediary
14. Because no intermediaries are needed, they reduce the intermediary mark ups & increase
profits
15. Precision Targeting – Direct marketing activities are aimed at individuals. This reduces the
waste inherent in many other types of communications.
16. The prospect is encouraged to place an order or trust information more as he is calling a
number or sending a card
Often, the most likely prospects are targeted first as this represents the lowest cost per sale in
acquisition terms
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Bitran & Mondschcin have defined LTV as 'the total net contribution that a customer generate
during his or her life time on a house list’.
The lifetime value (LTC/LTV/CLV) of a new customer can also be defined as 'the net present value
of all future contributions to overhead and profits’.
It is a measure of the total worth to an organization of its relationship with a particular customer. To
calculate it, one has to estimate the costs & revenues that will be associated with managing the
communication with that customer during each year of his / her relationship. For example, if the
expected relationship of a customer is four years then the cost of servicing the relationship with that
customer (mail, newsletter, catalog, telephone etc) should is subtracted from the revenue so
generated. There is some amount of crystal ball grazing involved since it becomes increasingly more
& more difficult to predict future costs & revenues the further one looks into the future.
The 4 most important factors contributing to a customer’s lifetime value are-
• Future Forecast Revenue
• Expenses
• Profits
• Cost of Capital
This somewhat complex looking equation merely indicates that it is necessary to calculate the likely
future contribution by a customer to each year's marketing activities, discount these future
contributions and then add them all together. The grand total is the LTV of a given customer.
Table below shows a case where the lifetime value of a customer subscribing to a fishing magazine
for an estimated five-year period has been calculated. The subscription currently costs $25.00 per
annum and there are no plans to increase this in the foreseeable future. The first row of the table
therefore indicates that the company can expect to generate 25 a year from this customer in direct
income. However, there are also plans to cross-sell the consumer with other items relating to their
interest. An analysis of historic data suggests that this consumer would be likely to spend the
amounts shown in the second row of the table on other items during each year of the relationship.
In the next two rows the likely costs of providing the magazine have been plotted (direct costs),
together with the costs associated with generating the indirect income referred to earlier (indirect
costs). In the next row the net contribution made by this subscriber each year has been calculated.
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(1+d)i
and n
∑
= C i
LTV
i
(1+d)
i=0
The example in Table above is peppered with assumptions; assumptions that the customer will
remain loyal for five years and assumptions about future revenues and costs. To take account of this
variation and the fact that the future revenue streams are not going to be worth as much as they
would be today, the value of these future contributions has been discounted. In this case, a discount
rate of 15 per cent has been applied. The resultant NPVs can then be summed to arrive at a 'lifetime
value' of 101.24 for this particular customer.
The benefits of LTV analysis
At this stage, it may not be immediately obvious why we might want to perform a calculation such
as the one alluded to above. In fact, lifetime value can be used to drive five key management
decisions:
• Assigning acquisition allowances
• Refining the targeting for customer acquisition campaigns
• Setting selection criteria for customer marketing
• Investing in the reactivation of lapsed customers
• Assigning an asset value to the marketing database
The traditional approach to answering these questions would have been to calculate the
immediate ROI for each media and consider the response rates typically received from each
media in the past. Some marketers may have gone further and calculated the cost per new
customer attracted (i.e. cost of campaign - number of customers attracted), the level of the
average purchase, etc. Such analyses suggest sub-optimal allocations of marketing resource,
because they ignore certain known customer behaviors. Customers recruited from one medium
may never buy again, whilst customers recruited by another medium might exhibit much greater
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degrees of loyalty. For example, a company marketing jeweler items might find that it generates
a better immediate return on acquisition expenditure by using DRTV in preference to Direct
Mail. By looking only at this immediate return it might therefore decide to invest heavily in
DRTV. Looking at the lifetime value of customers recruited by each medium might, however,
paint a different picture. Suppose only 10 per cent of customers recruited by DRTV ever buy
again and the organization loses about 30 per cent of those that remain each year thereafter.
Further suppose that 40 per cent of customers recruited by direct mail will buy again and only a
20 per cent attrition rate will be experienced each year thereafter. In this case, a consideration of
lifetime value assuming average purchase levels were similar might lead the organization to
favor direct mail over DRTV.
profitable customers
------------------------------------------------------------------------------------------------
unprofitable
customers
It is not at all unusual for a company to be doing business with a percentage of customers who
will never be profitable. In some cases this figure can be as high as 30 per cent of the total
customer base. Clearly, this is an unsatisfactory state of affairs and, in practice there are
alternative strategies for handling this group of customers:
• Attempts could be made to upgrade the lifetime value of the individuals concerned, perhaps by
employing up selling or cross selling techniques.
• The individuals could be offered a new channel of distribution—perhaps instead of including
them in the standard mailing program or contacting them by using a sales-force, they could be
managed more cost effectively through the Internet.
• The individuals could simply be deleted from the database and ongoing business contact could
be refused.
that marketing can be regarded as a cost, it could also be seen as an investment Using LTV
analyses, organizations can explore the future behavior of their database, this information can be
used to place an overall value on customers as intangible assets This can have a remarkably
sobering impact on those responsible for the organization's financial management The
justification for customer recruitment activity suddenly becomes clearer, and the rationale for
doing more for customers than simply writing to them with 'sales offers' is suddenly illuminated
The organization could follow a strategy of 'benign neglect' and terminate all outgoing
communication with the individuals concerned. This differs from (c) in that incoming requests
for purchase would continue to be processed, but repeat business would not actively be
encouraged.
The analysis depicted in Figure above could also be used to assign individuals who do have
satisfactory LTVs to particular standards of care. It makes good sense for the airlines, for example,
to develop frequent flier programs to reflect the value of individuals who fly frequently. In essence,
the airlines are recognizing that the balance of their marketing effort should follow the balance of
their revenue. Losing a customer who flies only once every five years might be sad, but ultimately it
is of little significance. Losing a customer who flies transatlantic three times a month is quite another
matter. The balance of organizational effort should reflect the value of different categories of
customers and hence LTV analysis can help guide an organization's retention expenditure to the
customers who warrant it.
Press is still the most important medium. It includes national and regional dailies and Sundays,
weekend supplements and the TV guides. Inserts are a distinct medium, which use press as a carrier
Direct response TV advertising has not enjoyed the spectacular success. Given the limited supply of
TV time, direct response advertisers have to compete with the high spending, above the line
advertisers. However, this is changing as satellite and cable TV increase their penetration of
households
Radio is fast improving as a direct response advertising medium. In particular, local radio serves
local, highly targetable audiences. However, as a single-sense (hearing) medium, its ability to
produce response is limited
The medium most readily associated with direct marketing is mail. This medium gave birth to direct
marketing and it still dominates direct marketing expenditure
In the US, telemarketing is the most important direct marketing medium. In the UK, telemarketing
expenditure is much lower per capita, but rising fast as new technologies, new suppliers and a new
breed of telephone-oriented consumers come into the market.
sold in stages as a continuity product, or if the sale is made by asking for an enquiry and then
following up repeatedly. Equally, a product you could not sell easily for cash might do very well if
you offered it on free trial. So let's look through the possibilities.
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This kind of selling does not, in fact, represent the largest segment of the direct marketing
industry. Indeed, as you've already gathered (if you didn't already know) any company that
depends on this activity alone to make money is unlikely to prosper long. But the one-stage sell
is a way you can establish the initial relationship with a customer (or, in the case of a political
party or charity, a sympathizer).
Some one-stage selling - the least sophisticated form of direct marketing - is as simple as
offering a product for sale in exchange for the full cash price, to be sent in advance of the goods
being delivered. However, as you can appreciate, any way in which you can soften or delay the
awful moment when the customer actually has to part with money tends to pay off. Nobody likes
paying for anything; even less do they like sending money off to someone they have never met
for something they have never actually experienced or held in their hands.
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Collector's offers, where one starts with the first of a series of collectible items, and carries on
through to the end, unless one wishes to cease.
Of course, exactly the same sort of financial offers you make to encourage a one-stage sale apply
to a continuity sale.
Equally, you can offer your prospect a free trial-period of three months. Generally, I have found
that offering the opportunity to fill in a post-dated direct debit form in the advertisement or the
order form pays off. By the time it comes to cancel the mandate, the customer doesn't bother. This
is really a sophisticated variation of the technique I mentioned previously, used by Joe Karbo to
sell his book. It is really a free trial offer with a hidden pitfall.
From your point of view a continuity relationship gives you a much greater margin with which to
finance the original sale. Obviously, if you are making a single sale, then the margin to pay for the
promotion has to be built into that one item. But when you know that over a period of time you
may sell as many as 40 or 50 items, or receive payments over a period of years, you can afford to
finance the initial sale to a greater degree.
3. Multi-stage selling
Flexibility of a different sort governs the third category we are going to consider - multi-stage
selling. When you make a one-stage sale, then once the prospect has either responded or not
responded, that's it. Either you've made money, or you've lost your chance to make money until the
next time that reader sees your ad or mailing.
If you are merely going for an inquiry, then once that prospect has responded and you have his or
her name on your database, you have an infinite number of opportunities to turn that inquiry into a
sale. In fact, even if you don't sell the product or service you originally offered, you can try and
sell an alternative.
Moreover, a one-stage sale predetermines the way in which the respondent buys: either they react
in the way you suggest at the price you quoted or they don't. But multi-stage selling is much more
flexible and in one form or another is probably the area with the greatest potential for most
businesses.
Suppose you generated an inquiry and followed it up with a letter and brochure. If those don't
produce a sale, there's nothing to stop you following up with a phone call or a salesman. For that
matter, if you followed up the inquiry with a salesman who did not succeed, there is no reason to
believe that a letter later on may not achieve the desired effect. It's worth remembering that to get
that sale you can vary terms, reduce the price, or make a free trial offer and further follow-ups.
Indeed, you can keep contacting that prospect for as long as it is economically worthwhile for you.
And like so many other simple examples in the consumer market this principle applies to the
business-to-business market. If you are trying to sell an expensive piece of office equipment with a
great deal of margin built in, once you have that original inquiry put onto your database, you can
keep on exploiting it many times, in many different ways. Let us therefore look at some simple
multi-stage operations:
Sales follow-ups, where information about a product is advertised, information is sent out
and a salesman follows up. Common examples in the consumer field are double-glazing and
other home improvements, in business-to-business, computers, copying machines or
typewriters would apply.
Retail combination, where a product may be advertised in the press (or in a catalogue sent
out by the store) and the respondent may go into the store rather than buy direct.
Catalogue offers, which may be divided into those where:
the prospect sends for a catalogue to buy things from;
the prospect sends for a catalogue for which he or she may become an argent,
deriving commission (savings);
the prospect buys and is later offered the chance of becoming an agent.
Agent's offers, other than the ones outlined above, where the agent will represent a given
line of products and may or may not have to buy the merchandise in advance, with or without a
guarantee of money back if the goods are not sold successfully.
Recruitment, where the respondent replies to an ad, gets information and then goes for an
interview (as with the armed services) or may go directly to an interview.
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As in so many other areas of business, some of these categories merge into each other, for
instance, Avon recruits ladies who become spare time agents. The company also has a permanent
sales force that 'runs' the sales in given areas.
In December 1984, Avon's business in Germany was not doing very well. How could direct
marketing revitalize it?
Among the major problems were insufficient new Avon ladies; lack of motivation amongst the
new recruits; and not enough time and effort from the area sales, force devoted to handling and
motivating these ladies. The reason was that the area salespeople were so worried about trying to
find new Ladies. Each year, for every twelve they hired they would lose two. The solution, quite
simply, was to motivate the new ladies. They were written letters when they joined and welcomed
to the organization. They were congratulated on their individual achievements, all of which could
be monitored through the database.
But how could new ladies be recruited? The answer was to run advertisements in the form of
questionnaires. These were based upon what was discovered about the psychological structure of
the perfect Avon lady. Depending on the answers to the questionnaires, the respondents were
handled in two different ways.
Those who did not fit in with the profile of a good Avon lady were simply given a free gift and
thanked for their interest, together with news of what had emerged from the quiz they had replied
to. Those who did sound like perfect Avon ladies were written to and told that they would do
extremely well with the company, and that they should go to their local area representative and
collect a free gift. At the same time, a computer profile of the lady was sent to the local area
representative who was then able to deal more effectively with her new recruit.
This project was particularly interesting. It used original thinking to create and utilize a database
containing details of both the potential new recruit and the existing sales representative, leading to
an intelligent personalized approach. A few years ago it would have been difficult to have
accomplished anything like this. Technology has made the difference.
Earlier I gave an example where Ford in America send out a long series of mailings of which the
earlier ones are not looking for a sale, but designed to build an opinion which will lead to one. This
is similar in thinking to the concept of general advertising. You are building a preference over a
period of time. If, for example, you know it takes two years on average from the time when
somebody buys a new car to the time when they buy another one, then you can stage a series of
communications to keep them loyal to your brand.
The simplest form of sequence probably would be where you send out an advance mailing or make
a telephone call to say you are going to make a very generous offer to someone; you then make the
offer; and then you may follow up with another call or mailing to remind people to take advantage
of the opportunity before it lapses.
In some cases you may find it worthwhile to send out a series of newsletters or regular mailings,
which are intended to inform, educate and persuade people of the virtues of your product or service
or, for that matter, your company.
This sort of approach is particularly appropriate for a profession like accountancy, the law or
advertising. People do not wake up every morning and decide they need a new advertising agency
or lawyer. You are simply trying to make sure that when they do have to make such a decision,
they will choose in your favor.
4. Sales promotion linked opportunities.
Many companies - perhaps most companies that are reasonably sophisticated - make offers of one
kind or another, which can with a little ingenuity be turned into direct marketing opportunities.
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What they all have in common is that a list of names can be generated. Names can be very
valuable. So if your company is engaged in any of the following activities, you have a direct
marketing opportunity:
Competitions, where the respondent may or may not have to offer proof of purchase.
Discounts and free offers, where a coupon may have to be redeemed at the store, or
by post. These may be offered in advertisements; in the package, as with a cigarette pack, or on
the back of the pack as with sugar cartons.
Self-liquidating offers, where a product may be offered cheaply as long as you prove
you have purchased the brand.
Direct offers of merchandise bearing the brand name, as with offers of Guinness
sweaters, or Coca Cola beachwear, or London Transport T-shirts.
In all these cases, either direct contact is involved, or it can be introduced. Thus, for instance, if
you are running an advertisement, which bears a redeemable coupon, then if you require that
people give the name and address when redeeming that coupon you are able to capture a name and
address.
In fact, one of the most powerful weapons at the direct marketer's disposal has come about as a
result of this sort of activity. This is the building of large files of consumers with details about their
brand preferences, household characteristics and purchasing patterns incorporated
MARKETING MIX
PROMOTION MIX
DIRECT SALES
MARKETING PROMOTIONS
D. M. programs afford the company the opportunity to make one-to-one contacts with current
customers and potential customers. These contact points are times to spell out, reinforce, and
promote the firm’s image and theme. Therefore, beyond simply selling goods and services, DM
programs can utilize the information developed in various databases to make sound connections with
customers of all types. DM is especially valuable to the marketing team looking for ways to
complement and supplement the IMC efforts such as advertising, personal selling and consumer or
trade promotions.
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