Direct Marketing : An Overview
Ron Rymon Marketing Communications Program Spring 1999 IDC, Herzliya
Overview
• What is Direct Marketing • Direct Marketing vs. General Marketing • DM Campaigns : Design and Implementation • The Marketing Database and Applications
• Direct Marketing in the U.S.
Q: What is Direct Marketing?
?
Definition
“Direct Marketing is an interactive system which uses any advertising media to effect a measurable response and/or transaction at any location”
“Where all transactions are recorded in a database”
Direct Marketing Association (DMA)
Interactive Communication
• Two-way communication between marketer and prospective customer
– In: direct mail, telemarketing, any other medium – Out: exclusive use of mass media (TV, print)
• A response is required:
– In: marketing effectiveness (# sales, leads, visit) – Out: communication effectiveness (awareness, recall)
Measurable Response !!!
• Response/sale is associated with individual prospect and specific communication • Effectiveness can be analyzed in order to improve targeting • The Marketing Database is cornerstone of DM activity
Targeted Customer-centric Marketing
• Direct and continuous contact with end-customer • Relationship marketing
– New customer acquisition is very costly – 20% of customers account for 80% of revenue – Customer as the hero, less focus on product and brand
• Targeting best customers/prospects
– one-to-one communication/relationship
• Personalized everything:
– offer, message, media, timing
Only Three Types of Companies
• DM drives the business
– Mail order, catalogs, direct insurance, credit card
• DM drives the marketing strategy
– Airlines, gas stations, dept stores,
• DM used as a communication strategy
– All others
Examples
Examples
• • • • • • • • Catalogues Direct mail, telemarketing Magazine ads, mail-in cards Home Shopping Channel (TV, call-in ads) Internet banners, free sites (register, ad, and refer) Clubs, negative-option clubs Promotions, cross-selling to existing customers Cents-off coupons (newspaper, mailboxes)
Response Required, Info Collected
• Clear offer
– product – price/discount
• Response required
– mail + toll-free phone
• Collect customer info
– for future offers
Response Cards
• Image ads as triggers • Enticements to collect info • Your customer is your best salesmen
Coupons generate store traffic
• Requires response
– store visits
• Measurable response
– which store – which publication/distribution
• Entice customer
– often loss-leaders
Clubs
• Loyal customers
– 80-20 rule – lower cost of sale
• High acquisition cost
– marketing (ads, gifts, specials), screening
Monthly Selection Clubs
• Negative option • Personalization
Personalized Offering
DM- vs. Image-oriented Ads
Direct Marketing vs. General Marketing
Direct Marketing is part of the overall Marketing Strategy
General Mktg. vs. Direct Mktg.
• Communication
– – – – Mass media Impersonal Visible to competitors Controlled by cost – – – – Directly to customer Personal Less visible Cost controlled by success
• Customer response
– delayed – no clear association – immediately required – directly associated
General Mktg. vs. Direct Mktg.
• Effectiveness
– Measured indirectly: awareness, intention to buy, panels – Measured directly
• Level of Analysis
– at segment level – at individual level – decision making based on concrete measured results
• Control
– decision making based on samples, indirect measures
Summary: DM Key Competencies
• Direct, continuous contact with end-customer • Precision (cost-effective) targeting • Personalized offer and message
• Call for immediate action
• Measurable success/failure
• Long term customer relationship
• Less visible strategy
DM Campaigns: Design and Implementation
Direct Marketing Campaigns
• Target:
– Current customers vs. New customers
• Goal
– Order, and/or Response, and/or Visit to store
• Implementation : Decision variables
– Offer, Creative, Audiences and media, Timing/sequencing, Customer service
Current Customers vs. New Customers
• Retain best customers
– relationship marketing
• More of same
– based on current best
• Increase revenue
– entice upgrade
• New market segments
– also based on current – testing new ideas
• Target best customers
– based on past response – personalized offers
• Acquisition incentives
– based on LTV
• Referrals
Goal(s)
• Sale Generation (order)
– impulse decisions, or identified need
• Lead Generation (response, survey)
– expensive or complex products – lead qualification (short survey)
• Traffic Generation (visit to store)
– Store coupons, promotional catalog
• and also… Relationship Maintenance
– Product announcement, clubs
DM Decision Variables
• The Offer
• Creative
• Audiences and Media
• Timing (and sequencing)
• Customer Service
The Offer
• Required elements
– product / positioning – Terms (time frames, payment) – Risk reduction mechanisms (free return, service, upgrade) – Required action
• Optional elements
– Incentives, Multiple offers, Customer obligations
Creative
• Emphasize key selling concept
– need addressed (+/-) and solution
• Overcome primary marketing difficulty
– targeting, consumer price sensitivity, ...
• Choose message strategy
– target market, positioning, benefits, risk reduction
• Indicate desired action !! • … while adhering to corporate constraints
– legal, consistency, etc.
Choice of Audience
• Input
– Customer database (house file) – External lists and databases
• Use
– Segmentation techniques to identify and target key segments, each with own DM mix – Predictive models to drive mailing/contact
Choice of Media
• Direct mail
– leader in sales to consumers
• Telephone marketing
– leader in business-to-business sales
• • • •
Catalogs Print media (newspapers, magazines) Broadcast media (TV, Radio) Internet !
Other Factors
• Timing
– High recall of problem/need, positive attitude – Seasonality
• Sequencing
– First info request, then sale/call – “Curriculum Marketing” – Pulsing vs. steady flow
• Customer Service
– Make it easy – Reduce risk
Example: Design a Solicitation Campaign for a Credit Card Issuer
• Extremely competitive industry in the U.S.
– Most Americans hold several cards
• Significant economies of scale
– In processing, cost of information
• Revenue sources
– Interest on revolving balances – Use of credit card (merchant fees) – Usage fees, penalties (consumer)
Example of a Credit Card Solicitation
• Highly targeted • Attractive offer
Example: Define Target Audience and Goal • Target : “revolvers”
– New customers that carry significant balance
• Goal: direct “sale”
– provide heavy revolvers with our card – have them transfer their balances to our card
Example: Decision Variables
• Offer
– Risk reduction: pre-approved – Convenience: hefty line of credit – Value incentives:
• low interest rate for 6 months • double points for immediately transferred balance
• Creative
– emphasize savings afforded by lower rate, convenience of consolidated loan
Example: Decision Variables (cont.)
• Audiences:
– Create profile: extract characteristic features of revolvers from current customers – Use credit bureau information to select based on profile
• Media:
– Direct mail – Telemarketing to top 5% candidates
Example: Decision Variables (cont.)
• Timing / sequencing
– Telemarketing before direct mail – Two direct mail campaigns:
• Initial solicitation • “How much you could have saved if …”
• Customer service
– Just sign your name – Easy balance transfer procedure – Service and perks that come with the card
Test, Test, Test !!!
• Very hard to predict success of a given mix
– regular market research methods + experience + common sense
• Temporal effect
– changing consumer preferences – natural dwindling of good segments – new opportunities appear, or are discovered
• Set and evaluate goals: cost of sale/lead/visit • Use split runs to test new ideas
Survey: What’s most important to a DM success?
Right Person Right Offer Right Ad Elements Right Timing 20%
10%
50%
20%
“DM Marketplace”, Direct Marketing, 1986
The Marketing Database
The Marketing Database
• Comprehensive collection of interrelated data ... • Arranged around each customer ...
• Allow timely and accurate retrieval ...
• Support analytical, predictive, operational needs ...
• Serving multiple applications …
Both Strategic and Tactical Applications
• Strategic: Management Level
– Segmentation to design product, communication – Market Intelligence – Personalization of product and offering (tactical?)
• Tactical: Operations Level
– Target new/existing customers – Personalize communication – Manage resources/risk
The U.S. DM Industry
The U.S. DM Industry
• Total Sales: $1.2T
– Consumer=$685B, B2B=$542B – grows faster than total U.S. sales, expenditures
• Total expenditure: $153B (8% cagr)
– – – – – 57.8% of total spending on advertising More than 50% of telephone call volume is toll-free Generate leads=56%, order=32%, traffic=12% Total employment: 23 Million Internet spending: $275M to 2.8B in 2000 (66% cagr)
DM and General Advertising
(U.S. 97, by media, total $153B, 58%)
100 80 60 40 20
Newspaper Telephone Magazine Teleision Direct Mail
DM Other
Other
Radio
0
Growth of DM-related Sales (U.S ‘97 $Bil)
1992 Direct Order Lead Generation Traffic Generation Total DM Sales Total U.S. Sales Percentage 161 226 93 480 4445 1996 211 308 121 640 5462 1997 225 331 129 685 5739 1998 238 356 136 731 6029 2002 314 489 175 979 7343
10.8% 11.7% 11.9% 12.1% 13.3%
U.S. DM: Return on Investment
• ROI = $8.01 per $1 investment • Consumer=$8.96, B2B=$7.07 • Media:
– – – – – $10.42 for direct mail $7.31 for telephone Newspaper=$11.54, Magazines=$8.40 Television=$4.90, Radio=$5.83 Other=$4.80
U.S. DM : Key Industries
• Consumer
– – – – – Retailers : dept stores, catalogs Finance: lenders, brokers, credit card, insurance Manufacturing: auto, food, home Services: education, real estate, healthcare Charity
• Business to Business
– Services: financial, insurance, healthcare – Wholesalers
• Really: almost every company (see Bressler)
Reasons for Growth
• Social reasons
– Fragmentation of society, individualism – New communication alternatives – Consumer sophistication/demands
• Business reasons
– – – – Need to reach out to more customers Reduced and accountable distribution costs Customer loyalty reduces high acquisition costs Lower technology cost/barriers to implement DM strategy
Other Interesting Facts (DMA)
• • • • • • • • 70% of U.S. adults order by phone/mail every year Catalogs are most frequent order generators Magazines are the most popular DM offering Direct mail attracts the most DM dollars Coupons are most common promotion (5.8B/year) Average consumer receives 21 mail pieces a week Almost half mailers sell/rent their lists 10% of U.S. adults are members in book clubs
DM and The Internet
• Interactivity • Measurability • Low-cost 24-hour communication, customer service
– web site, e-mail
• Virtual communities / clubs
– loyalty – easy segmentation
• • • • •
Personalization: communication, offering, coupons Push technology Targeted advertising in related sites Tracking and analysis of web site traffic Global market reach
19 Things All Successful Direct Marketing Companies Know (Wunderman)
• Direct Marketing is a strategy, not a tactic
– commitment to getting and keeping best customers
• The Consumer, not the product, is the hero
– product must satisfy their unique needs
• Communicate with each customer/prospect
– segments of one
• Answer the question: “Why should I?”
– incentivize consumer to take an action
• Advertise to change behavior, not just attitude
19 Things All Successful Direct Marketing Companies Know (Wunderman)
• The next step: profitable advertising
– accountable results, an investment in profits
• Build the “brand experience”
– total service of individual needs, all the way
• Create relationship
– relationships grow, encounters don’t
• Know and invest in each customer’s LTV
– loyal car buyer = $332,000 over life time
• “Suspects” are not “prospects”
– prospects are able, ready, and willing to buy.
19 Things All Successful Direct Marketing Companies Know (Wunderman)
• Media is a contact strategy
– Out: “reach”, “frequency”, In: “contacts”
• Be accessible to your customers
– so they can tell you what they want
• Encourage interactive dialogues
– listen, let them “advertise their needs”
• Learn the missing “when?”
– Avoid the “Not Now”=“Not This” syndrom
• Create an advertising curriculum
– teach, one step at a time, why your product is superior
19 Things All Successful Direct Marketing Companies Know (Wunderman)
• Acquire customers intending to loyalize them
– promotions attract wrong buyers, repeat buyers are best
• Loyalty is a continuity program
– retention is cheaper, more effective, than acquisition
• Profit = share of loyal customers, not market share
– 90% of profits come from repeat customers
• You are what you know
– Data is expense, knowledge is a bargain