A History of Direct Marketing

A History of Direct Marketing T he history of direct marketing (and its antecedents, direct mail and mail order) reflects the socioeconomic development of the United States. This is the constant and underlying factor in the direct marketing story. This relationship is as true today as it was in 1872 when Aaron Montgomery Ward produced his first catalog, ushering in the modern era of mail order as we have known it for more than 100 years. This also explains why longterm success in direct marketing has been inextricably linked to two essential factors: 1) the ability of management to predict the impact of socioeconomic change on the market place and on lifestyles, as seen in the recession that hit the U.S. in the early 1990‘s and 2) the implementation of a sound strategy and marketing program that offers products and services that satisfy changing needs, wants, and interests of the consumer, as seen in the response by direct marketers to consumers‘ alarms regarding the environment beginning in 1990. Seed and nursery catalogs are among the oldest known. Professional gardeners traded in plants as early as the 14th century. The earliest mercantile gardening catalog extant is a printed price list issued in 1667 by William Lucas, an English gardener. By 1775, 18-page catalogs were issued by a number of English gardeners and nurseries. By this time, the nursery catalog had come to American colonies as well. A broadside catalog of fruit trees was published in 1771 by William Prince of Flushing, Long Island. It is worth noting that George Washington visited Prince‘s gardens in 1791, and that Thomas Jefferson was a habitual mail order buyerboth domestically and in Europe. Philadelphia in Franklin’s Time U nlike books in Samuel Jackson‘s time, which The Roots of Direct Marketing R esearches have traced the roots of direct marketing to Europe as it emerged from the Middle Ages (and feudalism) and entered the Renaissance. The first trade catalogs were issued by printerpublishers of the 15th century soon after Gutenberg‘s invention of moveable type (c. 1450). Credit for the oldest extant catalog (1498), which gives prices for the books offered, goes to Aldus Manutius of Venice. That year, under the logo of a dolphin and the anchor, he listed 15 texts that he had published. Called the Aldine Press, his operation became famous for its reliable and inexpensive books by Greek and Latin authors. These were printed for the intelligentsia of the day, in small octavo format, in editions of 1,000more than double the press run customary at that time. Manutius was truly the original precursor of the paperback books of today. The first known catalog in post-Gutenberg Germany appeared in the 16th century. were primarily cultural and intellectual, books in Benjamin Franklin‘s Philadelphia (the center of the book trade in the colonies by the middle of the 18th century) were more practical, perhaps a result of the Quaker influence. The local booksellers were pitching the town merchants more than the clergy in Boston or the planters in Virginia. In 1727, Franklin set up a ―social library‖ known as the Junto, which can be said to be the forerunner of the public library, as well as the book club. Members paid an entrance fee and annual dues for the privilege of using the group‘s collection of books. The Junto expanded and renamed the Library Company of Philadelphia (a subscription library) in 1731. Like today‘s book clubs, the group relied on a committee to determine the Library‘s inventory. They requested of the most learned committee members ―to favor then with a catalogue of suitable books.‖ The committee‘s selections, consisting of some 40-odd titles for 45 pounds sterling, were ordered from London on March 31, 1732. The list included dictionaries, grammars, an atlas, works of history, travel and biography, politics, and morals. About 1 A History of Direct Marketing one-third were on emphatically practical subjects: anatomy, biology, chemistry, geometry, mathematics, astronomy, agriculture, as well as a handful of ancient classics and the merest smattering of belles letters. In 1772, the librarian reported ―that for one person of distinction and fortune, there are 20 tradesmen who frequent this library.‖ During the latter half of the 18th century, newspapers were often filled with booksellers‘ ads (occasionally full pages.) In addition, catalogs and broadsides were sent directly to the country trade. In this way, literacy was sold to the colonists. B enjamin Franklin, the first important printer in colonial America, published a catalog in 1744 of ―near six hundred volumes in most faculties and sciences.‖ Perhaps the then-novel Quaker idea of selling goods at the same price to everyone induced Franklin to print the following statement on the cover: “Those persons who live remote, by sending their orders and money to said B. Franklin, may depend on the same justice as if present.” Franklin‘s catalog is remarkable, among other reasons, for its early formulation of what was later to become the basic mail-order concept of customer satisfaction guaranteed. The names of Washington, Jefferson, and Franklin in this early genesis of direct marketing are an indelible reminder of how deep its roots are in history and character of the American People. To enable him to make any sales at all, Terry used what were then unheard of techniques but that have become, in our time, standard in direct marketing. He pioneered the free trial offer, and soon thereafter, installment selling. Later, with the help of his neighbor, Eli Whitney, he learned the secret of mass production by using interchangeable parts. In three years, he sold 5,000 clocks and had reduced the price from $25 to $5an amazing achievement for the times. The ubiquitous Yankee peddlers of the 18th and 19th century were stouthearted, sturdy-legged, and strong-willed people who trudged the wild and rough countryside of New England and, later, the Middle Atlantic, Midwest, and Southern states. They were truly forerunners in the vast development of retail and mail order distribution as well as in the growth of the American economy. Suffice it to say that Adam Gimble peddled notions in Indiana before the first Gimble store was opened in Vincennes in 1842. John Jacob Astor sold bakery products door-to-door in New York before going into the fur trade. B.T. Babbitt was a peddler before his Ivory soap™ became a household word. The father of John D. Rockefeller was a peddler of patent medicine. For 200 years, the direct distribution of products by peddlers had proceeded without the intervention of the general store and other middlemen. By the middle of the 19th century, the Yankee peddler had become a paramount fact of the economic life. The Role of the Farm-to-Farm Salesman A nother potent branch in the growth of the predecessors of direct marketing developed during the end of the 18th and into a good part of the 19th centuries. It was the role of the farm-to-farm salesman, the legendary Yankee peddler. A pioneer in this process of direct selling was Eli Terry, a Connecticut custom clerk. He first made four identical clocks, packed them in saddle bags, and, in 1798, set off on an uncertain and hazardous trip to sell the clocks to doubting farmers. Forerunners of he Modern Era of Mail Order By the 1830‘s, a few mail order companies began to operate in the New England states selling sporting equipment, camping, fishing, and marine supplies. In 1844, Orvis issued its first catalog, which featured fishing lure supplies and related items. By the end of the Civil War, mail order activity had expanded to other parts of the country. In addition to books and seed and nursery 2 A History of Direct Marketing products, such items as sewing machines, dry goods, medicines, musical instruments, and other products were sold through mail order. Each firm sold a single line of products, and very few sold exclusively by mail. Mail order ads were carried by some magazines. In 1869, C.E. Allen of Augusta, Maine founded Peoples Literary Companion, which sold a selection of specialty items. In the next decade, Augusta became a thriving center of direct mail advertising and mail order. for produce they sold. This spurred populist dissent and protest, as has frequently occurred in history. Its organized expression was the National Grange of the Patrons of Husbandry, the farmers‘ principal organization with a membership of nearly half a million. The Grange trumpeted its main slogan everywhere: ―Eliminate the Middlemen.‖ The Tiffany Catalog An event that foreshadowed the rise of modern mail order was a ―Catalog of Useful and Fancy Article,‖ that appeared in 1845 from Tiffany & Company® of Fifth Avenue, New York City (then operating as Tiffany, Young & Ellis, on lower Broadway in New York City). This was an unusual and fascinating catalog in a number of respects. Its size was only 2 7/8‖ x 4 3/16‖; however, its 18 pages included listings of hundreds of items imported from ―various fancy manufactures of France, England, Germany, and China.‖ It went on to say that the company ―always [has] for sale the largest, richest, and best collection of elegant articles of taste and utility to be found on this side of the Atlantic.‖ Items offered in this catalog included French Dresden and Indian Porcelain, Berlin iron and bronze antiques, and Chinese carved ivory chessmen. The 1845 catalog was the first issued by Tiffany. This was the forerunner of the famous Blue Books, Tiffany‘s unusual annual catalogs. The 1845 catalog was; however, a one-time event, since Tiffany did not issue another until 1877, when it started publishing annually thereafter. As a traveling salesman in the Midwest, Montgomery Ward was keenly aware of the farmers‘ discontent and had observed that the general store (which has become part of the American mythology) was, in reality, a place where the range of goods was limited, the prices high because of numerous intermediaries, and the storekeeper‘s knowledge was rarely greater than that of the farmers who bought from him. Ward Returned to Chicago with a prophetic idea. He was a keen judge of human nature and saw a great opening for a company to sell directly to the consumer and save them the profit of the middleman. Ward saw that he could reduce the prices if he purchased large quantities for cash direct from manufactures and then sold for cash direct to the farmer. This was the seed of his mail order idea. The Growth of Montgomery Ward M ontgomery Ward established a direct tie with the National Grange and headlined his one-page catalog sheet listing 163 items, ―The Original Wholesale grange Supply House.‖ In the early years, most of the items, such as hoop skirts, paper collars, bustles, and even an ostrich plume were priced at one dollar. With two partners and $1,600, Ward succeeded in introducing a new method of distribution to meet the needs of the marketplacean efficient and direct way of doing business by eliminating the retailers, the longstanding general store, and other middlemen. The modern era of mail order had begun! The Modern Era In the post-Civil War decades, catalog mail order emerged and grew into a powerful force. Its main beginnings were in the Midwest at a time of rife agrarian unrest. Framers were embittered by the high prices for goods they bought and the low prices A History of Direct Marketing 3 Another factor that encouraged ward was his location, Chicago, the railroad center of the nation. Chicago was a natural place from which to reach out to the vast rural hinterlands; not surprisingly, it soon became the hub of national mail order. Within two years, the original price list became an 8-page booklet and later a 72-page catalog. By eliminating the middleman, Ward promised savings of 40 percent on fans, parasols, writing paper, needles, stereoscopes, cutlery, trunks, harnesses, and scores of other items. The catalog grew and became more vivid and enticing because of its illustrations. By the 1880‘s, a woodcut illustrated almost every item. By 1884, the Ward catalog consisted of 240 pages with thousands of items offered. Ward was a shrewd, honest, and progressive merchant whose business policies continue to have vital lessons for direct marketers today. The Ward catalog dated Spring/Summer 1875 contained one of the earliest, and certainly the strongest, pledge consumer protection by a mail order company. The inside front cover declared: ―We guarantee all our goods. If any of them are not satisfactory after due inspection, we will take them back, pay all expenses, and refund the money paid for them.‖ At a time of laissez-faire marketing, when the general rule of business was caveat emptor (let the buyer beware) or the less elegant ―never give a sucker an even break,‖ Ward‘s belief in mutual trust between buyer and seller startled businessmen while comforting customers. Ward himself gave much of the credit for his success to his customers. He noted, ―The ever-growing trade enjoy proves that, after all, the people of this country are not such fools as some merchants and manufactures think they are.‖ 1886. As a young railroad station agent, Sears was at the junction of the then-most advanced mode of transportationthe railroadsand the most important form of communicationthe telegraph. In 1886, when a package of watches sent by a Chicago jewelry company was refused, Sears saw his opportunity. The Chicago company offered these undeliverable watches at ―halfprice‖—i.e., at $12 each. The watches were stylish, gold-filled with a hunting case, and retailed for about $25. Instead of paying for the watches himself, Sears offered them by mail to other agents along his line for $14 apiece. He sent them C.O.D. subject to examination, and, since the agents bonded, there was little risk. Having made about $5,000 in six months, he gave up his station job, and, in 1886, set up the R.W. Sears Watch Company in Minneapolis. From an office rented for $10 a month, he now reached out beyond the market station agents by advertising in the newspapers. In 1887, he moved to Chicago where he enlisted the help of Alvah Curtis Roebuck, a watchmaker, who had also run a job-printing business. Such were the beginnings of the Sears, Roebuck ™ phenomenon. S ears certainly had a flair for advertising. In the early years of the Sears catalog, scrupulously honest guarantees (―Satisfaction Guaranteed or Your Money Back‖) were combined with flamboyant and improbable claims (goods were ―the best in the world‖ and would ―last forever‖). By the time the firm name of Sears, Roebuck and Company ™ came into use in 1893, the business had moved into a wide range of merchandise described in a catalog of 196 pages. The Sears business grew even during the depression years of 1893-1894. In 1907, sales were about $54 million. In the early days before 1890, Sears was doing considerable advertising in various periodicals, then known as ―mail-order‖ magazines, which circulated in rural markets. Such advertisements were aimed at popularizing the Sears name and increasing the demand for catalogs. Newspapers, 4 The Beginning of the Sears, Roebuck Phenomenon The same unprecedented pace of change that swept the country during the final third of the 19th century triggered the entry of Richard Warren Sears into the mail order business with the sale of watches in A History of Direct Marketing under pressure from the local merchants who were fighting for their livelihood against what they called ―Mail Order Trust,‖ often refused to sell space to Sears. Meanwhile, the Ladies Home Journal also refused to take Sears‘ copy because its publisher, Cyrus H.K. Curtis, claimed it was extravagant in its claims and undignified in its make-up. But the catalog itself was the key vehicle to Sears‘ success. By 1990, Sears forged ahead of Ward and never relinquished that lead. Mr. Sears was a fanatic for the catalog. For years, he wrote nearly all the copy himself. The basis for the Sears‘ business, he insisted, was the widest possible distribution of catalogs to the most likely customers. He was also, however, notorious for not tending to operations and administration, and no clear financial records of the early days exist. In 1891, net sales were near $138,000, and within five years—the year after Roebuck left the company and the more organized Julius Rosenwald became a part in the firm—sales had jumped to $1.75 million. The circulation of the general catalog increased phenomenally from some 318,000 in 1897 (the first year for which figures are available) to over one million for the spring catalog in 1904, and to over three million for the fall catalog in 1907. The total number of direct mail pieces circulated during the period just prior to the Depression of 1929 reached an annual figure of about 65 million. Roebuck.‖ These catalogs were appropriately referred to as the Farmer‘s Friend. Frequently, it was from them that farmers first learned of new mechanical equipment that would vastly increase their productivity. Their wives discovered sewing machines and other labor-saving devices that would reduce their workloads. Similarly, the seed nursery catalogs of the 19th century helped teach farmers which grains, fruits and vegetables to grow on the land they were settling. Catalogs—Gold Mines for Historians I t is obvious that above and beyond the expanding role of catalogs as an effective direct marketing tool, they were a vital cultural force. In the schools of rural communities, catalogs were widely used as textbooks, and children began to dream of products they had never seen. Later, at the beginning of the 20th century, catalogs became a key factor in the distribution of autos and radios, which helped to free families from their isolation. The Growth of the American Economy B oth Ward and Sears were aided immensely by the post-Civil War industrial growth and the phenomenal advance in manufacturing spurred by the use of the interchangeable parts. Thus, in the latter part of the 19th century, catalogs became an important and powerful sales tool, a dynamic form of direct marketing. For the widely scattered farm families of that period, a Sears or Ward catalog was often the only book at home except for the family Bible. Daniel Boorstin, the Pulitzer Prize-winning historian and former Chief Librarian of Congress, wrote about a ―familiar story of the little boy who was asked by his Sunday school teacher where the Ten Commandments came from, and who unhesitatingly replied that they came from Sears, The Postal Service was a major factor in the expanding distribution of direct mail and catalog mail, specifically with the introduction of Rural Free Delivery (RFDthe free delivery of mail to rural areas) in the 1890‘s and Parcel Post (the delivery of packages) in 1913. A political struggle over Parcel Post raged for two decades, and its establishment was due, in no small part, to the farmers and the Populist protest during that long period. At that time, the Postmaster General pronounced Parcel Post a success ―the greatest and most immediate ever scored by any new venture in the country.‖ Within 12 months, packages were being mailed at the rate of three hundred million a year. In the first year of Parcel Post, Sears received five times the number of orders it had the year before, and the increase at Ward‘s was nearly as dramatic. A History of Direct Marketing 5 RFD gradually citified the rural areas. The mailorder houses introduced farmers to the ways of the city. In 1921, more than a billion newspapers and magazines were delivered over rural routes; by 1929, the figure had reached nearly two billion. Catalogs are gold mines for historians. The Sears and Ward catalogs have been aptly called ―illustrated encyclopedias of social history.‖ The products they present give a summary of the state of technology, economics, fashions, literature, lifestyles, and even the morality of the times. The policies Sears and Ward pursued of presenting a great variety of products at a fair price with good service and customer satisfaction guaranteed helped to establish catalogs as a reliable form of direct distribution for millions of Americans. At his death in 1914, Richard Sears‘ name was a part of American folk culture, as was Montgomery Ward‘s, who died a year earlier. Rural politicians would tell their constituents, ―There are three people you an trustJesus Christ, Sears-Roebuck and me.‖ Catalogs had become fixed in the marketplace and the American psyche. Lincoln administration. Direct mail as we know it today, however, was made possible by typewriter, which was invented in 1867 and began to appear in many offices toward the end of the century. This spur to direct mail was also an impetus to the opening of the lettershops, such as the Business Address Co. of N.Y. (1880) and R.L. Polk & Co. (1890). Perhaps the big users of direct mail advertising were the National Cash Register Co. (NCR) and Burroughs Adding Machine Co. John H. Patterson, founder of NCR, pioneered the use of direct mail to get qualified business leads for his salespeople. It is reported that, in 1891, NCR mailed almost four million pieces of printed material. Home J. Buckley, who coined the term ―direct mail,‖ founded Buckley-Dement in Chicago in 1905. This was the first company to offer professional direct mail creative services. In 1921, Leonard J. Raymond established Dickie-Raymond with the idea that it made good sense for major corporations to use a direct mail agency in addition to a general agency. It was also during this period that the Direct Mail Advertising Association, predecessor of the Direct Mail/Marketing Association, now the Direct Marketing Association, Inc., was established (1917), and third class bulk mail was instituted in 1928signs that direct mail was coming of age. The Beginning of Direct Mail S ome forms of direct business communications were in existence in ancient times among the Assyrians, Babylonians and Persians. They used clay tablets and cuneiforms inscriptions. A replica of the first known envelopea Babylonian clay wrapper from the year 2000 B.C.was exhibited at the Envelope Manufactures‘ Conference in the early 1980‘s. The first beginnings in early colonial America were evidenced by orders to England for books, tea leaves, musket balls, and other products. Stage Coach and Pony Express served as vehicles for direct mail in the Old West. The Birth of the Book-of-the-Month Club T he continued growth of industrial and farm As early as the 1860‘s, a number of firms used direct mail in the form of informational circulars and handbills to advertise their wares. This advance in direct mail was aided by the introduction of penny postage in 1863 during the production and the waves of immigration that enlarged the population were the spurs to the new cultural and social winds blowing across the land in the first third of the century. A national political resurgence was slowly unfolding. So was a renaissance in philosophy and education, in literature and art. This was symbolized, in part, by Theodore Roosevelt and Woodrow Wilson; William James and John Dewey; Theodore Dreiser and Sinclair Lewis; William Faulkner; Eugene O‘Neil; Frank Lloyd Wright and others. The 1920‘s market the appearance of the Time, the New Yorker, and the Saturday Review of Literature. A History of Direct Marketing 6 Harry Sherman was an integral part of this literary and artistic resurgence. He was an author, writer and Renaissance man. In 1914, he became a member of a lively discussion group in Pleasantville, New York, whose members included Walter Lippman, the innovative publishers Charles and Albert Boni, Lawrence Langer and Josephine Meyer, both of whom later founded the Theater Guild. The Pleasantville group buzzed with ideasliterary, artistic, philosophical, political, and sociological. In 1927, the Literary Guild was established by the Doubleday Company. It offered quality books at generally lower prices than retail and is today one of the largest book clubs in the United States. In 1950, Reader‘s Digest® started its direct mail operation. It is now one of the largest and most successful operations in the direct response promotion of its magazines, books, and other products. In 1959, Bell & Howell began its direct mail operation. Over the next three decades, the company sold via direct response over two and one-half million movie cameras and related products. I t was out of this social environment that another Postwar Emergence of Specialty Firms milestone in the direct marketing was reached. Sherman and Maxwell Sackheim founded the Bookof-the-Month Club in 1926 as an adaptation of magazines subscription and mail order methods in the marketing of books. This evolved into a new direct response techniquethe negative option. Once a customer joined the club, that customer would automatically be sent a new book selection at regular intervals and billed for that selection unless he or she sent a refusal notice in advance of shipment. Both these men were veteran direct marketers. In 1916, they started Little Leather Libraryselling fine pocket-size books by mail at a dime each. They were aware of the paucity of book stress outside the big cities. They knew that over 50,000 post offices were capable of delivering direct mail and books economically and expeditiously. T he years following the World War II defeat of Nazi Germany in 1944 brought still another direct marketing advance. Goods were scarce and demand high. It was a seller‘s market. This vacuum in consumer goods gave rise to a host of specialty companies such as Miles Kimball (started in the late 1930‘s), Spencer Gifts, Sunset House, Poster and Gallagher, Hanover House, and others. These specialty item catalogs often featured new low-priced products and gadgets of both domestic and foreign manufactureespecially Japanese. This period also saw the phenomenal genesis of Fingerhut®, and the growth of a variety of cheese and food companies, nurseries, and other mail order firms. Equally, if not more important, was the increase in public secondary and higher education. Large sections of second-generation Americans were eager to develop an understanding of American traditions and experience while maintaining their European cultural links. All of this led to a vast interest in and desire for good books. Sherman and Sackheim respected the intelligence and wide reading habits of the public. In this socioeconomic and cultural environment, the Book-of-the-Month Club was founded in 1926. Expectations rose explosively during the 1950‘s and 1960‘s, extending across the entire political spectrum. It was expressed in the consumer and environmental stirrings, the student and youth rebellions, the civil rights, women‘s liberation, and senior citizen movements. These popular strivings impacted the entire social fabric, including the marketplace. A History of Direct Marketing 7 Time-Life Books Direct marketing flourished during this period. At the end of the 1950‘s, Time-Life Books got underway to supply the educated and affluent population with books of fine quality, both in content and format. They were very successful and in subsequent years they were able to expand into many different areas and specialties. A footnote to these developments was the early effort by TimeLife Books to use the parent company‘s house lists as a source for planning new products and new business, now a widespread practice in direct marketing. which began in 1955 (as Columbia Record Club) in response to the growing music marketparticularly among the mass teen, student, and youth population. On August 21, 1955, Columbia Record House published its first ad in the New York Times, offering one record free if members would buy four other records during the year. Within six months of testing various offers, they uncovered the right formula: three records free for joining the club with an obligation to buy four during the year. The factors that have made Columbia house® successful through the years included a fine product, an effective and exciting offer with acceptable terms, a reasonable membership plan, and convenience. These factors are not static; rather, they are in a state of dynamic change, which requires creative handling for the continuing success of Columbia House‘s business. Magazine Subscription Services Publishers Clearing House® is a nationally recognized direct marketing company best known as the largest source of magazine subscriptions in the world. Founded in 1953 by Harold Mertz, Publishers Clearing House® is located in Port Washington, N.Y., where it employs over 600 people. Mr. Mertz started with the simple idea that offering a wide variety of magazine titles at once to consumers was both cost-efficient and a successful marketing tool. The first mailing included 20 magazine offers. The effort was not profitable until the fourth mailing to the subscribers of the first three direct-mail packages. The company has been profitable ever since because of the variety of the offer, the personalized mailings, and the use of stamps and sweepstakes as involvement devices. Since the sweepstakes began in 1967, Publishers Clearing House® has awarded over $39 million in prize money. American Family Publishers is another large magazine subscription agency now widely known for its semi-annual $20 million sweepstakes. THE GREAT OUTDOORS CATALOGS The L.L. Bean Saga A review of the direct marketing industry would be incomplete without some comment on the legendary L.L. Bean®. In 1912, this entrepreneurarmed with $400 and with courage, integrity, and foresightfounded one of the soundest and most successful mail order companies, all on the strength of a unique rubberbottomed, leather-topped hunting boot he had designed. In the early years, sales grew slowly but surely as the company began offering new products in outdoor clothing and equipment. A careful examination of an L.L. Bean® catalog in 1917 (black and white, 12 pages) expressed its fundamental strategies and its marketing policy, both of which have not deviated to any degree through the years. The 1917 catalog features the Maine Hunting Shoe and other outdoor apparel along with clear explanatory illustrations. Copy is specific, informative, factual, and low-key. 8 Columbia House® T he Book-of-the-Month Club was the original impetus to the start and development of hundreds of companies in the continuity club field. Many prospered and some fell by the wayside. One of the largest and most successful is Columbia House®, A History of Direct Marketing Perhaps the most important aspect of the catalog is the guarantee, which appears in a box on the front page. It reads: ―Maine Hunting Shoeguarantee. We guarantee this pair of shoes to give perfect satisfaction in every way. If the rubber breaks or the tops grow harder, return them together with this guarantee tag and we will replace them free of charge. Signed, L.L. Bean.‖ Bean was also obsessed with building his mailing list, and for years, he put most of his profits into advertising. He placed hundreds of small ads in outdoor magazines promoting his free catalog. He developed a unique coding system to evaluate responses. His inquires became customers. John Gould, the famous Maine writer and Freeport native, said, ―If you drop in just to shake his hand, you get home to find his catalog in your mailbox.‖ By 1967, sales totaled $4.6 million. Between 1967 and 1977, sales increased twelve-fold to almost $60 million. In 1990, sales reached almost $600 million, as more new products and broadened product lines were introduced in men‘s and women‘s apparel, sporting goods, and equipment for outdoor recreation. Approximately 100 million catalogs were mailed in 1991. The company now mails more than 20 different catalogs, compared with five in 1975. During the busiest week in 1990, almost 700,000 packages were shipped. And during the same year, 10.5 million catalog orders and customer service calls were taken over toll-free lines. and women‘s quality products, displayed in fourcolor catalogs, to satisfy the emerging interests of the mass of new customers. Today, the company serves a mainstream spectrum of outdoors-oriented customers. The Rise of the Franklin Mint In 1961, the Franklin Mint began its direct mail promotion of precious metals in the form of coins and ingots. In following years, it expanded into a vast array of collectible products, fine books and records, lithographs and art objects, crystal and porcelain. These products were created and marketed by the company as it widened its manufacturing base and reached millions of new buyers of collectibles worldwide. During the 1970‘s and into the 1980‘, collectibles of porcelain became the major items for sale. These included decorative arts, home decorations, and museum reproductions. They emphasize originally designed, upscale products distributes directly and exclusively by the company The company‘s major product lines today include sculpture, porcelain collector dolls, fashion, traditional jewelry, fine-quality production die-cast replicas, home accessories, numismatics, and historic and artistic arms reproductions. Increased Direct Response Media Activity Beginning in the late 1940‘s, direct mail took a large step forward both in volume and quality. Mailers began to undertake a vast variety of formats, including more use of four-color brochures. New promotional techniquesstamps, tokens, sweepstakes, coupons, billing and package insertswere becoming widespread and were often effective than traditional direct mail techniques. Coupons, whether placed on a page, in a supplement, or in a pre-print, became effective performers. Postcard and card-deck mailings, catalog bind-ins and statement stuffers, and the old standbyco-op mailalso played a role in the growth of the industry. The basic L.L. Bean® policy today remains unchanged. Under the leadership of L.L.‘s grandson, Leon Gorman (who took the helm in 1967) trust between company and customer remains the bedrock of policy. The management of L.L. Bean® has been guided by a fundamental policy of long-term growth and profitability rather than shortterm profit. The company was quick to recognize that profound social changes were taking place during the 1960‘s that would transform the outdoor sports and recreation field from a ―class‖ to a ―mass‖ market. As the recreation boom was on its way, L.L. Bean® innovative with additional men‘s A History of Direct Marketing 9 Coupons have been around since 1898, when C.W. Post started using penny-off coupons to sell cereal. Only in recent years has the practice hit full stride. In 1990, 306 billion coupons were issued in all promotions, resulting in $4.8 billion in redemptions. During the 1960‘s, 1970‘s, and 1980‘s, direct mail continued to be the underlying base of the multimedia revolution with the mailing list at its core. This development was aided by advancing computer technologies, providing tools for market segmentation. At the same time, newspapers entered direct mail more vigorously by providing ―total market coverage‖ (TMC)the delivery by newspaper carriers of insets to all households in a particular geographic delivery area, regardless of which households are subscribers to that newspaper. The Los Angeles Times, for example, offers advertisers a choice of 130 geographic delivery areas. A new technology called ―electronic couponing‖ emerged in recent years; it could dip into the longstanding tradition of clipping and saving print coupons, ultimately leading to reductions in newspaper advertising revenue. Electronic couponing comes in many forms as well, from coupons printed on the back of sales receipts to personalized coupons sent directly to the consumer‘s home. One such electronic couponing application, claiming a 30 percent redemption rate, is the Savings Spot (Paramus, NJ). Terminals with highspeed printers are placed in supermarkets, and consumers can access these terminals to print out only those coupons that interest them. This and other electronic couponing programs are sure to change the way stores advertise in the very near future. D irect response advertising in magazines and newspapers has continued through the years. It reached a turning point in 1959, in the form of a four-page bound-in card-stock centerfold insert of a perforated BRC (business reply card) that appeared in TV Guide®. The ad was created by the agency Wunderman, Ricotta & Kline for the then-named Columbia Record Club®. This revolutionary production technique opened new print possibilities, including bind-in inserts in a wide variety of forms. It was a factor in the rapid growth of other types of direct response print advertising, including the meteoric growth in the 1960‘s of free-standing newspaper inserts. These inserts or preprints came in many forms: 4-, 8-, or 16-page ―mini‖ magazines in Sunday papers or ad inserts that are dropped or bound into a periodical. They are the most oftenused media for coupon distribution. Between 1975 and 1990, the number of free-standing inserts in newspapers, both Sunday and daily, grew from 15.8 billion to 64.3 billion. One example of the competition to reach a diverse and fragmented consumer audience is in the services offered by Advo Systems, Inc., of Windsor, CT. The company can deliver circulars to 130 markets, ranging from a single ZIP code to 100 million American households, through a service provider under its registered name Marriage Mail, (also called ―sharedmail). In the 1950‘s, radio stations began to fear over-commercialization as well as competitions from TV. Consequently, a 60-second time limit on commercials was instituted. This substantially decreased direct response dollars going into radio. However, as more specific markets emerged in the 1980‘s, direct response radio increased. Many direct marketers continue to find radio cost-effective, as witness the Wall Street Journal, that publication‘s National Business Employment Weekly, as well as Smithsonian, American Heritage, and others. A History of Direct Marketing 10 In the 1950‘s and 1960‘s, television direct response commercials were still largely heavy-handed, depending on ―pitchman‖ bravado. In the late 1960‘s and 1970‘s, TV direct-response advertising increased not only in volume, but also in quality. It was used in the direct sale of books, records, and other merchandise, in generating leads, and as a support medium for direct mail. The latter technique was introduced by Reader’s Digest® in 1969. Its success in increasing direct mail and telephone response led to a considerable growth in this type of TV support commercial by other direct marketers, including Publisher‘s Clearing House®, Time-Life Books® and Columbia House®. With the increased use of new media and new techniques in the 1960‘s, the term ―direct response‖ (or ―direct response advertising‖) came into vogue, and rightly so. the effect of both was measured. By 1969, the industry had 3.6 million subscribers, and one out of every 16 homes in the U.S. were cable equipped. In the early 1970‘s, as the numbers of cable subscribers continued to grow, advertisers began to take a good look at the potential uses that cable had to offer. There was an opportunity to develop and place programming that was geared to very specific audiences, thus the term narrowcasting was coined. Advertisers could isolate highly selective marketing targets in much the same way as selective magazines did. Subscribers of pay cable services were regarded as lucrative marketing targets. As a result, cable advertising grew and prospered through the 1980‘s. Today, more than half of American households subscribe to cable TV services. Viewers tend to upscale, and 68% of all cable subscribers watch at least one ad-supported cable system each day. Advertisers are increasingly investing their ad dollars into cable, and cable media costs are far less than traditional broadcast media. A wide variety of companies have used cable as part of their media mix with encouraging results, including package goods manufactures, continuity clubs, financial services companies, magazine publishers, and auto manufactures to name a few. In 1990, cable revenues increased 18 percent over 1989, to $15.6 billion. Cable has earned a reputation as one of the best ways to acquire a large number of new customers and qualified prospects. Cable Television Although often considered a ―new‖ advertising medium, cable television actually emerged shortly after television got underway in the 1940‘s. In 1948, the earliest cable systems were born in remote areas of Pennsylvania and Oregon. Known then as Community Antenna Television (CATV), its function was simply to bring TV signals into geographic areas where television reception was either very bad or nonexistent. In the 1950‘s, microwave-relay technology extended the range of cable television, and TV signals could now be transmitted hundreds of miles away. It began to be recognized that a function of CATV could be to supply channel diversification, and advertisers began to become interested in cable as a new advertising vehicle to reach audiences never before reachable via electronic media. Probably the greatest use of cable by advertisers in these early days was for advertising testing. In 1964, a research facility in Peekskill, NY contracted with a local CATV firm to test several commercials via ―split cable.‖ Two similar commercials were fed via cable to two samples of cable subscribers, and The Role of Telemarketing As direct marketers turned to multimedia in the 1970‘s, telemarketing began to emerge as a vital component of the mix, essential to the success of any direct marketing campaign. It has been used to complement and support such diverse media efforts as newspaper and magazine campaigns, radio and television commercials, cable systemsalmost all sorts of direct marketing campaigns. A History of Direct Marketing 11 Telemarketing can be traced back as early as the 1920‘s, when financial services marketers use the telephone to give investors daily, and even hourly, information updates. In the 1930‘s and 1940‘s, many businesses developed telephone sales operations because many of their mostly male sales force were drafted into the armed services, and sales visits had to be restricted. Magazine publishers began to use the telephone to generate new subscribers and reactivate old ones during the 1950‘s. DialAmerica, one of the largest telemarketing agencies in operation today, was a pioneer. In 1955, Reuben H. Donnelley, used a telemarketing program to solicit tallow pages advertising form small businesses. Today, telemarketing generates 60 percent of advertising and one-third of revenue for the yellow pages nationally. The airline industry was also a forerunner in the development of telemarketing. When Pan American World Airlines set up a 24-hour inbound facility for customer reservations in 1956. During the 1960‘s, the telemarketing industry continued to make great advances. In 1960, AT&T™ introduced wide area telephone service (WATS). This high-volume, discount outbound calling service paved the way for the development of permanent regional and national telemarketing centers. meet the needs of a new generation of busy, verbally oriented consumers and business people. Today, this service is also offered by MCI™ and Sprint™. Oddly enough, 800 numbers, which are so popular today, caught on slowly. Not until two years later, in 1969, did the Sheraton corporation became the first company to offer and, more importantly, promote a toll-free 800 number. Sheraton‘s tollfree number now generates nine million calls annually throughout the world. In the 1990‘s, telemarketing is playing a very diverse role in almost all companies‘ business plans. Its applications include order processing, customer service, sales support, account management, even fundraising and political appeals. The Evolution of the Term ―Direct Marketing‖ A s far as can be determined, the first use of the I n September 1967, the term ―telemarketing‖ is term ―direct marketing‖ occurred on October 1, 1961, in a speech by Lester Wunderman to the Hundred Million Club (now the Direct Marketing Club of New York). The term was used again and elaborated on by Wunderman in a speech al MIT on November 29, 1967. He said, ―I believe the term ‗direct marketing‘ is more appropriate than ‗mail order selling‘…direct marketing where the advertising and buying become a single action.‖ In May 1968, Pete Hoke changed the name of The Reporter of Direct Mail to Direct Marketing Magazine. From then on, he became the outstanding proponent and missionary for the term ―direct marketing,‖ helping to define its meaning and to broaden its scope and significance. The term ―direct marketing‖ has been accepted in advertising, marketing, and business circles, in print and in electronic media, in academia, and, not least, in increasing numbers of consumers. The Direct Marketing Association was also acutely aware of the wave of change in the industry. As mentioned earlier, DMA began in 1917 as the 12 said to have first appeared in print. C. Dickey Dyer III, a management consultant from Princeton, NJ, wrote about telemarketing in a trade publication, Industrial Distribution News. Dr. Dyer wrote that inbound and outbound telemarketing would have important implications in the field of distribution. However, he realized that telemarketing was still in its rudimentary stages. He advocated more professional use of telemarketing methods and techniques. AT&T™ introduced toll-free 800 service, also in 1967. This breakthrough technology gave businesses a new advertising medium that would A History of Direct Marketing Direct Mail Advertising Association, which located the focus of the industry on direct mail. By 1973, the name changed to Direct Mail/Marketing Association, which reflected the broader scope of the membership brought about by the emergence of new media. Although the traditional mail order components of DMA will always be its staple, in 1983, it became the Direct Marketing Association, Inc., reflecting the evolution of multimedia approaches of direct marketing. marketers began to realize that they should exploit the time-saving offered by catalog shopping and that they should offer merchandise that appeals to working women. As two-income families became the norm, women began to control more discretionary income and to desire better products. Direct marketers began to see a need for upscaling their products to appeal to this new market. Minority Markets Changes in the Marketplace Throughout the first half of the 20th century, catalogers experienced tremendous success simply by selling discount merchandise out of one huge catalog that appealed largely to rural consumers. However, increasing competition and declining sales in the 1970‘s caused marketers to look more closely at the marketplace, and they found that some dramatic changes were taking place that warranted gross adjustments in the way they did business. Rising Postal costs and technological advances in database technology in the 1980‘s led direct marketers to realize the value of scrutinizing trends in demographics of the U.S. population in order to optimally target just the audience they are looking for. The minority population in the U.S. has undergone tremendous growth in the past decadeespecially among Black, Hispanic and Asian Americans. It is estimated that by the 21st century, one-quarter to one-third of the U.S. population will be comprised of ethnic minority groups. Although these groups have primarily been ignored by marketers in the past, the 1990‘s marketer has realized the tremendous spending power of these minority markets. Black, Hispanic and Asian Americans collectively spend over $250 billion a year on retail purchases. Black Americans spend $30 billion annually in the travel industry. They buy 34 percent of all hair products sold in the U.S., and represent 19 percent of the toiletries and cosmetics market. As these groups increased in numbers, they are also increasing in urbanization, affluence, and education. By presenting direct response ads – in all mediain such a way to directly appeal to minority cultures, direct marketers are in a good position to target and move products versus the mass approach of general advertising. Direct marketers worldwide can be certain to benefit from challenges and excitement of a very diverse America as the 21st century approaches. The Increase in Working Women Probably the most dramatic socioeconomic change occurring during the mid1960s has been the increase in the proportion of women working. It has completely transformed markets, products, families, homes, workplace conditionsessentially, the fundamental lifestyles of the entire U.S. population. More than 60 percent of women over the age of 16 now earn paychecks, compared with 43 percent in 1970. By the year 2000, it is estimated that 82 percent of all women between the ages of 25 and 34 will be in the labor force. More mothers than ever before are also entering the workforce50.8 percent of mothers with children under one year old are working, and that percentage increases as children get older. This trend has been a real boon to direct marketers. Lack of time is a primary dilemma cited by many women today. They do not have enough time to go shopping or to relax during leisure time. Catalog A History of Direct Marketing 13 Specialization of Markets The steady proliferation of markets during the three decades that followed World War II was paralleled by the enhanced ability of the compute to zero in on particular groups of consumers, who were seeking products that met their expectations and interests. This accounts for the enormous growth in the variety and quantity of specialized catalogs (as well as, for that matter, special-interest magazines and the emerging ―narrowcasting‖). Even during the uncertain inflationary economy of 1979-1980, many wellmanaged specialty catalogs expanded over virtually the whole gamut of products and services (except for dome low-end products), while the rate of growth of Sears, Ward, and JC Penny slowed. As more players enter the marketplace and consumers become more and more diverse, specialization continues to be a factor to catalogers trying to distinguish their offerings from those of competitors. GENERAL MERCHANDISING Sears® One of the first general catalogers to attempt to adapt to the dramatic changes in demographics and lifestyles was Sears. Sears‘ management felt an urgent need to upscale its merchandise and to produce more specialty catalogs that would cater to the demands of an increasingly diverse America. However, upscaling was not the answer for all catalogers, as Sears discovered in its attempt. F rom Horchow‘s exquisite gifts, housewares, and In their best-selling book In Search of Excellence, Thomas J. Peters and Robert H. Waterman state, ―For years and years, Sears, Roebuck thrived under the flag of quality at a decent price. It perceived a need to upscaleand failed.‖ They conclude their quotation, from Gordon Weil, author of Sears, Roebuck, USA: ―Imagine McDonald‘s™ introducing a sirloin steak, raising the price of its Big Mac and withdrawing its plain hamburger. That was Sears‘ growth strategy. In short, Sears was trying to do two things at once.‖ To overcome the limited growth in its mail order sales, Sears streamlined its customer database, put greater emphasis on its ―specialogs‖ (such as Big & Tall Men‘s Apparel and Lawn & Garden), and changed its fashion merchandise to align with rapid lifestyle changes. However, Sears has still struggled to establish an identity, being sandwiched between discount stores and mid-range retailers. In 1989, the company tried adding national brands and a strategy of low prices, but it has not attracted new shoppers. In 1990, Sears mailed fewer catalogs than in 1989, announced a salary freeze, and laid-off 10 percent of its workforce. In early 1991, rumors circulated that Sears was on the verge of eliminating the catalog division entirely. However, the company fashions and Lillian Vernon‘s personalized home items and accessories (some as low as $5 and $10), to Eddie Bauer‘s outdoor sportswear and equipment, to Garden Way‘s garden equipment and supplies, literally thousands of specific and segmented consumer markets responded to mail-order appeals. New companies entered the mail order field, and the range of products in style, price and country of origin was growing. For a lover of African violets or Swiss music boxes, a large-sized man or woman seeking proper apparel, a devotee of collectibles or gourmet food, for the inlaid Serbian chess sets and Portuguese Madeiraall tastes and needs were easily satisfied by mail order. So were medium- and high-priced items from the Metropolitan Museum of Art and from Lincoln Center, from Bloomingdale‘s Chinese collection to Gucci® watches and Sony® stereosall from American Expressto Neiman Marcus‘ His and Hers gifts. In a short period, Franklin Mint‘s deluxe edition of ―The World‘s 100 Greatest Books‖ had over $100 million in front-end sales by direct mail. By the end of the 1970‘s, a wide variety of miniaturized electronic, space age, and new technology items and accessories were available to arm-chair shoppers. A History of Direct Marketing 14 still intends to continue to be a major player in the catalog business. J.C. Penney® J.C. Penney™, a publicly held mail order and retail company, entered the catalog business in 1963 with the purchase of General Merchandise. It is today the second largest general merchandise catalog marketer in the United States. Unlike Sears, Penney‘s attempts to upscale its merchandise and specialize its marketing efforts were quite successful. The company now carries more national brands than ever. Their advertising has also been focused to appeal to an upscale audience; current ads emphasize consumer lifestyles and feature scenes shot outside the store. more and more women entering the work force, catalog shopping could become the best way to shop for families with discretionary income but without adequate time. Spiegel needed to transform itself to appeal to a more upscale consumer. To do that, it began to trade up from low-price private label merchandise to better brands and designers (Liz Claiborne®, Perry Ellis®, Anne Klein®, and others). It also began to screen its circulation and customer acquisition by ZIP code quality. In the early 1980‘s, Spiegel led the way into even more upscale merchandise and targeted mailings through specialty catalogs. One of its newest specialty ventures in Crayola Kids, a line of children‘s apparel launched in 1991 in response to growing spending in the children‘s market. Spiegel continues to innovate and to ground all of its innovation in research and the cataloger‘ greatest asset: its database of information about its customers. Much of its current strategy revolves around the 500+ page general catalog with its high response rate and five-month order life. The Spiegel catalog is pertinent to its customer‘s lives; they keep it in their homes and refer to it often. Spiegel and its Eddie Bauer® subsidiary are breaking ground in the ways a chain of specialty stores and a catalog business can support each other. In 1990, Spiegel was ranked first among catalogs in buyers, with 3.8 million buyers in 1989 and an average order of $106. In 1990, J.C. Penney™ sent out 43 mailings, up from 21 in 1988. They have also added a full line of upscale and unique specialty catalogs to their offerings. In Detail was launched several years ago and features merchandise selected from 26 countries. Some items are designed specifically for this catalog. Easy Dressing Fashions features clothing designed for arthritic women. Its new marketing slogan, ―Fashion Comes to Life,‖ reflects Penney‘s commitment to national designer labels. In another new marketing venture, Penney‘s now offers its merchandise through CompuServe interactive videotex service. They also have their own television shopping channel (JCPTV) that reaches 12.5 million cable households. This effort is a sure boost to position Penney as a state-of-the-art merchandising network, and is another method of combating rising postal rates. Neiman-Marcus Co. Upscale marketing has been the key to success for the Neiman-Marcus® mail order venture. Five months after the store‘s opening, the company entered the mail-order business with an ad in the Daily Morning News on February 2, 1908 that stated, ―Neiman-Marcus will fill all mail orders with the outmost care. Garments will be fitted on models in sizes ordered before sending, assuring satisfactory garments.‖ Spiegel® S piegel has led the way through the more recent phases of catalog development. In the 1970‘s, it was one of the first companies to realize that being the ―price-oriented store of last resort for the rural market‖ was no longer an enviable position. With A History of Direct Marketing 15 The earliest existing catalog is from 1926, when the store issued a 5‖ x 3‖ booklet with 16 pages of Christmas gift suggestion. The small catalog established a philosophy that was to become the basis of future catalogs through the present. The catalog showed unusual articles, many of which were imported, at a wide range of prices, with emphasis on selectivity and taste. It was the company‘s first effort to establish itself as a preeminent gift store with a desire to enhance its gifts with beautiful and exciting gift-wrapping. Neiman-Marcus® was testing unknown waters, because direct mail was not in vogue in high fashions, expensive apparels and gifts. In the 1920‘s, the larger direct mailers like Sears and Ward‘s were doing a thriving catalog business mainly in work clothes and hardware items. The high quality of the Neiman-Marcus catalogits superior paper and printing, typography and graphics, art and illustration, with cover designed by well-known artistshas enhanced its image and prestige. Such artists as Ben Shahn, Robert Indiana, Andre Francois, and Searle have been commissioned to design covers. the store and to add new customers to its mailing lists. Stanley Marcus has commented, ―My father was very convinced that you make money as a byproduct of rendering a service. And he wanted to make money. But most businesses say ‗Our objective is to make a profit,‘ and they forget that you have to do something to make that profit. Defining which objective comes first is very important. By being consistent, Neiman-Marcus has earned a position of respect, and, I think, affection.‖ T he overriding factor in the catalog‘s success however, has been the attractiveness and uniqueness of the merchandise. To this end, its merchandise buyers are sent around the world to come back with exclusive articles. The company has 75 buyers and merchandise managers covering markets around the world, with 20 buying offices in the most important world buying centers. Final decisions are made carefully for the 400 or so items that presently appear in the book, after they have been doublechecked for taste, fashion, and value. Encouraged by the improving economy after the Great Depression, as well as by the beneficial effects of Texas Centennial in 1936, the first large-size Christmas catalog was published in 1939. It was 12‖ x 10.5‖, in two colors, with gold cover and 13 merchandise pages displaying 256 items. In 1959, Stanley Marcus (son of the founder) developed the idea of placing a newsworthy gift for that year‘s catalog, which began making news as well as sales. It became a powerful selling toolboth to publicize Neiman-Marcus extends another lesson to direct marketers. Over the past years, it has received more favorable and priceless publicity than any other department store mail order organization through the introduction of trademark products from time to time. Perhaps the most famous Neiman-Marcus‘ trademarks is its exciting concept of His and Her gifts, which first appeared in 1961 featuring His and Her Beechcraft planes. Since then, the company has won the international recognition for such gifts as His and Her camels, His and Her windmills, His and Her submarines, and in 1989, His and Her Cloudhopper air balloons. Bloomingdale’s By Mail® B loomingdale‘s desire for profitable sales growth, along with its plans for national expansion, were the driving force for its entry into direct marketing at the end of the 1970‘s. Three key elements for entering the business were in place for this famous department store: a nationally recognized name and reputation; unique merchandise that had a point of view and fashion authority in a wide spectrum of products; and a substantial list of credit card customers. In 1978, the store sent out its first eight catalogs to 18,000 consumers around the country. Approximately $3.5 million in orders resulted from this experiment with direct mail. In 1980, 16 A History of Direct Marketing Bloomingdale‘s mail order began accepting credit cards other than its own and introduced a toll-free 800 number. By 1982, Bloomingdale‘s mail order operations achieved autonomy and became known as Bloomingdale‘s by Mail, Ltd. Until 1983, apparel and cosmetics were the catalog‘s main offerings. In 1984, a full line of domestic products was introduced, including linens and home furnishings. The Bloomingdale‘s by Mail strategic objective is to select, for middle- to upper-income customers, merchandise that has highly perceived value and fashion authority, some of which is unique, and to offer it via specialty catalogs. rapidly entering the field of mail order. A caveat is in order here because some retail merchants are slow to recognize the differences between a retail store and a catalog operation. Lillian Vernon® The Lillian Vernon Corporation is one of the largest and most successful specialty catalog firms in the United States. It was founded by Lillian Vernon in 1951 with an ad for a monogrammed purse and belt. She decided to try mail order because little investment was needed, the potential for growth was unlimited, and she could handle the business form her own home. The response from the ad brought in $16,000. She quickly reinvested the money into the business, and the Lillian Vernon® enterprise was born. Forty years later in 1991, more than 140 million catalogs were mailed in 15 editions, and sales topped $150 million. Lillian Vernon is a direct marketing pioneer. She recognized early that mail order would become a popular way for time-pressed consumers to shop. She was one of the fist catalogers to offer personalization. She is also a promoter of causerelated marketing, and each year the company donates merchandise to more than 500 charities, religious and civic organizations. The company also features in the catalog a selection of Third World crafts made by artisans from underdeveloped countries and has donated a portion of the catalog profits from the sale of a stuffed panda bear to the World Wildlife Fund. In addition to building charge file and outside lists, Bloomingdale‘s continuously finetunes its database to ensure a strong foundation for continued growth and profitability. It is zeroing in with a merchandise offer that is tuned in to the purchase behavior of the target audience, making for high levels of response and appreciable return on investment. It focuses on primary market customers and aims to attract similar individuals into its mail order operation. Its 23 catalogs cover a wide range of product categories, form fashion apparel to house furnishings, housewares, gifts, linens, furniture, food, intimate apparel, jewelry, cosmetics, children‘s wear. It anchors its operation with the widely distributed and highly successful Christmas catalog. In its program to roll out store and mail order sales on a national basis, and interesting fact has emerged: A high percentage of catalog customers are from areas without Bloomingdale stores. The catalog enables the company to test the potential for a market before a store opens in a new location. Few department stores have the unique ingredients for success of Neiman-Marcus and Bloomingdale‘s, but the fact is, most department stores have the basic elements for a successful mail order operation that can be quite profitable. That is why many stores are expanding their mail order activities, and others are The company specializes in products that help run a comfortable home and that are appropriate as elegant gifts. Most of the products are imported, and many are customized and exclusive to Lillian Vernon. They are affordably priced. Lillian Vernon herself travels many weeks a year searching for unique items, and her buyers search for new products by scouting international trade shows and foreign design markets. Products that solve problems are particularly favoredspace organizers, 17 A History of Direct Marketing entertaining aids, fuel savers, and new gourmet tools. Although considered a low-price item cataloger, the company also markets to upscale consumers. Lillian Vernon At Home, and upscale catalog launched in 1989 (featuring home-oriented products form decorative accessories to fine linens), has generated strong results. the appearance of the catalog itself, Lana Lobell began to reap profits and expanded rapidly during the 1950‘s. During this period, Lana Lobell was one of the first to record names and addresses of its customers, the kinds of items purchased, and the value of those purchases. These records were continually analyzed, and the catalog was changed to properly meet the demands of the consumer. The Horchow Collection W hile part of the Neiman-Marcus mail order In 1962, a second catalog, Hanover House®, was launched. This catalog, a collection of household gadgets and novelty items, also was highly profitable. At the time, it was a major diversification for the company, since almost all of its prior expansions had been in women‘s fashions. In 1968, the company entered the garden nursery filed with the purchase of Lakeland Nurseries. In 1972, Hanover House took the first step into the high-ticket market with the development of the Adam York catalog. The company took a new direction in 1977. The retail stores that gave birth to Hanover House closed. The company had sales of about $30 million, was operating at about breakeven, and was mailing four different catalogs: Lana Lobell, Hanover House, Lakeland Nurseries, and Adam York. Total catalog circulation was 30 million per year. Management sensed that Hanover House‘s future would rest on two pillars: further diversification to assure that overheads would not stifle the growth of individual catalog division, and further expansion in the high-ticket market to ensure that inflationary pressure could be offset by higher revenue. This two-pronged strategy resulted in the addition of 22 new catalogs over the following year, including: Domesticationshousewares; International Malemen‘s apparel; Silhouetteslarge-sized women; and Essence By Mailblack women‘s fashions. organization, Roger Horchow observed items that appeared to sell better in the catalog than in the retail store and vice versa. He believed that a singlepurpose company could be successful. He founded the Horchow Collection® in Dallas in 1971, and by 1990, he had built a house list of 2 million names. Interestingly, the company was acquired in October 1988 by the Neiman-Marcus Groupthe same company where Roger Horchow cultivated his mail order ideas. The profile of the average Horchow customer is female, 48 years old, income of $75,000. She wants unique items, has time to shop but prefers the convenience and fun of mail order. The catalog is characterized by a clearness of line and an understated format that communicates a quiet luxury and fine quality. Horchow tracks information on customer buying, and has used this to produce special catalogs for fine linens, apparel, antiques, and stationary. Mail Order EntrepreneurshipHanover House® Hanover House® started in 1934 as a single retail dress shop in Hanover, PA to sell middle- to lowpriced goods in a bargain atmosphere. Over the next 10 years, the company expanded to about a dozen stores in Pennsylvania and Maryland. Newspaper advertising to promote retail merchandise led naturally into mail order advertising. By 1946, mail order sales far exceeded retail volume. The next logical step was to start a catalog. In 1950, Lana Lobell®a low-ticket dress catalogwas mailed for the first time to 50,000 print media buyers. After much experimenting with merchandise and refining A History of Direct Marketing 18 I n 1988, Jack Rosenfeld signed on as president and CEO of the company, and within a year profits increased by a record $7 million. He attributes this tremendous growth to increased marketing efforts and to improvements in the company‘s creative and customer service departments. The 22-book catalog division, which the company now operates, mailed 286 million books in 1989. It has a total customer mailing list of about 15 million names. Sales in 1990 were approximately $556, 000,000. At the same time that the company expanded its catalog division, it also became a major print media advertiser. The catalogs functioned both as a profit makers and sources of product information for print space media. The print space media, in turn, was a profit center and a source of customer names for the company‘s various catalogs. The company‘s strategy now encompasses a sophisticated database that enables it to selectively promote to its customers and also aids developing special knowledge of customer‘s needs. One of the reasons the company has been able to implement its multi-division strategy is its segmentation of customers based on product choice. same problem. He placed an ad in a photography magazine announcing that he had assorted lenses at reasonable prices. His supply sold out almost immediately. By 1948, the company expanded and offered a complete line of scientific items. While the original target market for Edmund was the technical consumer and hobbyist, the company also served the industrial and educational markets since its earliest days. In 1983, the original digest format catalog was divided into two different editions, one geared to the consumer and the other larger-format technical edition to industry and education. In 1985, Edmund Scientific decided to reduce its consumeroriented operation (today, 25 percent of its business) and to concentrate on the business-tobusiness and educational market (today, 75 percent of its business). In 1990, the company mailed approximately 2 million catalogs to engineers, research scientists, and science teachers throughout the U.S. and internationally and approximately 1.5 million catalogs to technical hobbyists. Prices ranged from a few dollars to more than $10,000 for a high-tech video microscopy system. Edmund Scientific‘s optical components traveled to the moon during the Apollo program. They can also be found today in a broad range of sophisticated technical equipment and in many science laboratories. Since his election to president of the company, Robert Edmund, son of the founder, further expanded its laboratory, engineering, manufacturing, marketing, and fulfillment facilities. Edmund Scientific has earned a reputation as an innovator, as sound researcher, and a ready source for science-related products. Edmund Scientific Company™ One of the recurring themes of the history of direct mail order is the Horatio Alger success story in which a determined young entrepreneur creates a thriving business out of nothing but his own ingenuity. This theme expresses itself in a number of ways. This is particularly true of Edmund Scientific Company, founded in 1942 by Norman W. Edmund, from a card table desk in a bedroom. Today, the company has expanded to a building occupying 78,000 square feet, including the most recent addition, a facility for optical design and production. Edmund, an amateur photographer, began the company because he was having trouble finding adequate camera supplies in his area and realized that other photographers might be experiencing the A History of Direct Marketing 19 Editorial Matter in Catalogs – Magalogs A growing trend in specialty catalogs is magalogseditorial matter that reflects the customer‘s lifestyle combined with promotion of merchandise. Many catalogers feel that this promotion tool helps increase customer loyalty by establishing in customer‘s minds that the catalog offers interesting information that pertains directly to their lifestyles. In 1990, Eddie Bauer® added a unique magalog to its offerings that narrates the history and heritage of the company and its products. J.C. Penney® also introduced its first magalog in 1990, called ―First Baby,‖ which offered helpful information on children and first-time parenting and infant apparel and accessories. Paul Stuart, an upscale cataloger and retailer, created a series of mystery ―whodunit‖ magalogs to establish its image as appealing to the innovative and adventurous consumer. The books challenge customers to solve murder mystery for prizes. The clothes worn by the stories‘ characters are described and priced in the back of the book. Several other catalogers, including Land‘s End®, are experimenting with magalogs. There have been various successful applications of advertorials in recent years. In 1989, Time-Life books used and advertorial to promote a book series on the paranormal entitled ―Mysteries of the Unknown.‖ This eight-page advertorial beat the single sheet projected order goal with a lift of 65 percent. The National Geographic Society used and advertorial with a coupon in the February 1989 issue of National Geographic Magazine to promote its 1,200-page index. Although double the price of other indexes, it achieved more than a 50 percent more orders than any publication advertised in National Geographic in the previous five years. Telephone Switch Newsletter, a periodical that advises mutual fund investors, mails a 24-page booklet packed with informative articles on investing. An enticing cover and table of contents lure the reader inside. Since implementing this advertorial technique, paid circulation for the newsletter increased from 28,000 to 45,000. There are some drawbacks to this technique, however. Advertorials are expensive to produce and require long lead times. Making copy changes is difficult. There has also been quite a lot of controversy surrounding the ethics of advertorials, since they blur the line between editorials and advertising. Legally, advertorials must be labeled with the word ―advertisement‖ so consumers do not get confused. However, many consumers seem quite satisfied with this form of marketing and enjoy the extra information given to them in this format. Advertorials Because of the increasing competition in the direct marketing industry, advertisers are constantly searching for new ways to market their products to capture the consumers‘ attention. In the 1980‘s, diversity in the use of mail order advertising increased. One increasingly effective technique has been the advertorial. An advertorial (a combination of advertisement and editorial) is an advertising message presented in an editorial format, and is the print space equivalent of a magalog. Many advertisers found that giving credible, detailed information about a product or relating to a product boosts responses. Consumers also distinguish advertorials from more typical direct mail pieces, and they are reluctant to throw them out because they are informational. A Major Corporation Enters the Mail Order FieldAvon® Not all successful mail order companies began as humble, one-person operations out of an inspired entrepreneur‘s garage. Avon Products® started Avon Family Fashions (later called Avon Fashions) in 1973 as a mail-order 20 A History of Direct Marketing catalog division selling apparel and other merchandise to the corporation‘s millions of beautycare customers. It became one of the few success stories of a mail-order company starting from scratch by a large corporation. By the early 1980‘s, the division had established Avon Fashions as a leading women‘s apparel specialty catalog with a customer base of more than four million. Taking advantage of the industry‘s strong growth, two new catalogs were launchedJames River Traders in 1983 and Brights Creek in 1984. By 1986, Avon Products had become a major player in the direct response market, generating over $200 million in sales. In 1987, however, the company decided to expand its beauty product line into the retail sector. To finance this expansion, the company decided to sell its direct response division. A management team led by Avon Fashion‘s own Bill Willett bought the threecatalog division in November 1987, and called the new company New Hampton. Willett worked out a 10-year licensing agreement with Avon for the rights to the Avon Fashions name, and the sale has had little affect on the momentum the catalog had established under Avon‘s wing. The company has achieved strong gains since becoming independent. Sales in 1987 totaled $229 million. In 1990, sales were estimated to be $30 million. Each of New Hampton‘s three catalogs is targeted to a different, and very specific audience. Avon Fashions remains the leader in the women‘s readyto-wear market, selling moderately priced contemporary apparel and accessories. Its customer base now totals more than seven million. Its typical customer is a young working woman with a relatively modest income and an interest in fashion. James River Traders (now called JRT), initially launched as a men‘s apparel catalog, is now primarily directed to the upscale women‘s market, although it continues to have a strong male franchise. The typical customer is older and more affluent than the Avon Fashion‘s customer. Brights Creek is one of the largest specialty children‘s wear catalog in the country. It also sells moderately priced apparel and accessories. The typical customer is a young mother with children in the newborn to 12-year-old age range. New Hampton operates a state-of-theart fulfillment center in Hampton, VA. The company devoted much of its attention to inventory management, and it ensures that the fulfillment center is equipped with the latest technology to make sure the fulfillment process runs as smooth as possible. New Hampton is one of a growing number of catalogers that feels that speedy fulfillment and good customer service is key to a successful business. Gourmet and Gift Food By Mail T he mail order gourmet and gift food markets continue to operate on both consumer and business fronts. According to a 1991 study by FIND/SVP, a New York-based business research company, there are 3,600 mail order food companies competing for $1.2 billion orders. However, the top 10 companies currently control over 46% of the market. Here is a list of a few of these gourmet and gift food products: For cooks, there are herbs, balsamic vinegar, olive oil, sun-dried tomatoes, fresh pasta; from the sea, there are smoked salmon, Pacific oysters, and specialty seafood. There are a variety of cheeses and snacks, fruits, baked goods, and breakfast items. Thank to the speedy package delivery services that are now available, and the new methods of keeping perishable foods from spoiling, it is possible to have the sweet, succulent lobsters caught off the Maine coast on Monday in Texas on Tuesday, creamy, old-fashioned New York-style cheesecake in California overnight, and fresh basil form Michigan all winter. Omaha Steaks International®, Figi®, Harry and David®, Clambake Celebrations®to name just a feware not only developing new products with more effective and dramatic packaging, but they also realize the importance of quality and service in 21 A History of Direct Marketing promoting their merchandise and in getting customers to continue to pay premium prices for items that are readily available in local food stores. Sloan. Their efforts were immediately rewarded. Harry alone returned with orders for 467 gift boxes of pearsand the Harry and David mail order business was born. Omaha Steaks International® Omaha Steaks International® is an example of this trend. The company was formed in 1917 in Omaha, Nebraska (the heart of beef country) by the Simons, a father-and-son team who immigrated to the U.S. from Latvia in 1987. They began by selling their beef to popular restaurants, hotels, and institutions in the area. In 1952, at the request of local meat lovers, the company began its mail order business to tap the consumer market. Since mailing its first catalog in 1963, the company established itself as a leader in the gourmet food industry. Their marketing strategy has been to target an audience that can both appreciate and afford top-grade beef and then pamper their customers with quality and service so they keep coming back for more. Omaha Steak‘s meat is aged for tenderness and is of only topgrades, which must go through seven points of inspection. Nationwide concerns about the perils of eating red meat have caused the company to make some merchandise changes. It now offers a triple trim steak that is extra lean and a selection of smaller steaks. Since the early 1970‘s, the product line has been expanded to include seafood, poultry, appetizers, and desserts. Today, Harry and David is one of the world‘s leading shippers of fine food and fruit gifts, and it has been particularly successful with its famous Fruit-of-the-Month Club. It also maintains great concern for quality and good customer service. The company grows its own fruit, puts up its own preserves, bakes its own cakes, and even weaves most of its own gift baskets. The company also has a state-of-the-art order entry system and impeccable sorting and delivery systems. There are no extra charges for shipping, handing, or gift packaging. All perishable gifts are shipped under controlled temperatures to one of 50 major cities nationwide, and then released to a post office or parcel service for rapid, final delivery. Harry and David had 681,000 buyers in 1989 and an average order of $65. Clambake Celebrations® Harry and David® Brothers Harry and David Holmes inherited Bear Creek Orchards in Oregon in 1914. They were quite successful exporting their exclusive hybrid pears to grand hotels in Europe. The Great Depression forced the two men to search for new markets, so they decided to try their hand at selling by mail. According to legend, on a rainy November morning on 1934, Harry set forth to New York and David to San Francisco. Each carried simple gift boxes of their rare fruit, which they delivered to such VIPs as Walter Chrysler, David Sarnoff, and Alfred P. Clambake Celebrations, located in Massachusetts‘ Cape Cod, is one of the most thematic gourmet foods by mail. The company sells ready-to-heat, overnight-delivered clambakes, including such delectables as lobsters, steamers, New England clam chowder, and old-fashioned fudge, as well as necessities like lobster claw crackers, seafood forks, bibs, and wetnaps. Other related merchandise offerings are flounder-shaped serving bowls, lobster earrings, lobster-imprinted aprons, a lobster centerpiece, and a seafood cookbook. A History of Direct Marketing 22 Business-to-Business Direct Marketing Until the 1970‘s, most direct marketer essentially sold their wares via direct response only to consumers. There were very few business-tobusiness marketers. Today, however, there are many business-to-business catalogers that have sales volumes upwards of $200 million, putting them among the top 25 to 50 mail order firms in the country. Business-to-business marketers face different challenges form their consumer counterparts. The buying behavior of businesspeople is different from that of consumers. Although the average dollar order is usually higher, the buying process is also more complex. Purchasers are more knowledgeable about the products they buy and less inclined to act on impulse, since they must justify their purchasing decisions to management. Business buyers scrutinize ad copy; therefore, business-to-business direct mail gets higher readership and attention than consumer mail. Also, direct mail formats and copy are less like advertising and more businesslike. Telephone scripts are more pinpointed, and mailings are more targeted. Some causes of the tremendous increase in businessto-business direct marketing include the constantly rising cost of face-to-face sales calls (most recently estimated by McGraw-Hill Research to be more than $250), fast changes in product technology, and lead qualification. The business-to-business catalog has emerged as the ideal method of introducing and selling products to the business community. Although business-to-business mail order does not get the same visibility as consumer mail order, it is a huge marketgenerating upwards of $7 billion in sales each year and representing close to 30 percent of USPS third-class volume. Quill Corporation The Quill Corporation is the nation‘s largest supplier of office products, with gross sales reportedly at more than $250 million. The familyowned and operated company began in 1956 in the back of a poultry packaging store, where Jack Millerfounder and chairmanpicked up office supplies from dealers and shipped them to customers. Later that year, Miller mailed out 156 postcards promoting five sales specials, and the Quill mail order business was born. By the early 1980‘s, the company was growing by leaps and bounds. Sales jumped 40 percent between 1981 and 1982. Quill‘s success is due to a commitment to quality service ad products. Products are priced 15 percent to 40 percent below manufacture‘s list prices. Orders are filled within eight to 32 hours upon receipt, and there is a 90-day guarantee on all products. Inventory management is superb, and it has to bethere are approximately 9,500 office products listed in each of its two semi-annual catalogs. Customer service is a major priority, and the company even publishes and distributes free reports and brochures that educate the customer on money-saving techniques and price trends within the office products industry. Inmac® Inmac (International Microcomputer Accessories Corporation), one of the world‘s leading marketers of computer-related products and accessories, is another success story that has its roots in good quality and customer service. Inmac was established in 1975 by Kenneth Eldred and James Willenborg. The two entrepreneurs, who met as students at Stanford University, were among the first to recognize the potential for marketing computer supplies and accessories. So, with a grocery bag full of cable connectors and an initial investment of $5,000, 23 A History of Direct Marketing Inmac was launched in a small rented office in Palo Alto, CA. Eldred and Willenborg, drawing heavily for marketing inspiration on David Ogilvy‘s Confessions of an Advertising Man, wrote catalog copy each morning from 7AM to 9AM, using the popular Norm Thompson catalog of outdoor clothes and equipment as a direct response communications model. The rest of the day was devoted to developing mailing lists and locating resources of products that would provide solutions to the microcomputer end-user‘s problems. The first Inmac catalog was mailed in Spring1976, and the operation was immediately profitable. Sales surpassed $50,000 within three months. The company experienced extremely rapid growth into the early 1980‘s and expanded into the international market with ease. They currently have more than a dozen headquarters set up to serve England, France, Germany, Sweden, the Netherlands, Italy, Japan, and Canada. The international business constitutes more than 50 percent of the firm‘s total business. In 1989, the company published 35 million catalogs in eight languages. Certain catalogs contain products that are geared toward that country‘s computer market. experienced staff can answer a full gamut of product-related questions. Direct Marketing and Package Goods Because of declining effectiveness of traditional media, the struggle for shelf space, and erosion of brand royalty, package goods manufactures, particularly tobacco companies (due in large part to broadcast media advertising restrictions), have long used direct marketing to promote their products. Although the standard promotion vehicle for these companies has traditionally been coupons, more and more packaged goods marketers have discovered direct marketing for its databasebuilding potential. High standards of service and quality, both domestic and foreign, are priorities that have certainly contributed to catapulting the company to the top of the computer accessories market. All Inmac items are manufacture by the company in its own production facilities or under third-party contract against strict guidelines and specifications. All products are rigorously tested before they are offered for sale. The company also offers tough product guarantees. All items carry a no-hassle return policy for one year and a two-year minimum product performance guarantee. Some items, such as floppy diskettes, are guaranteed to a last a lifetime. Inmac recently instituted and express six-hour metro delivery. Eighty-five percent of all orders are shipped on the same day that the order is received. If a delivery is shipped late, a $50 credit is issued for use on future orders. The company maintains a hotline on which Kraft General Foods (KGF), a division of Philip Morris Companies, is the largest U.S. manufacturer of packaged goods with more than 30 food brands. The company‘s success with using the targeted approach of direct marketing has energized sagging sales of several of KGF‘s brands lines, including Kool-Aid™ and Maxwell House Coffee™. To revamp Kool-Aid‘s image and to build loyalty among pre-teens, the Wacky Wild Campaign was launched. By collecting points found on every soft drink package, children could order products from the Wacky Warehouse. KGF was then able to capture the child‘s name, address, and birthday. As a result of this campaign, KGF has experienced a 20-point gain. Philip Morris, RJR Nabisco, Colgate-Palmolive, Eastman-Kodak, and Sara Lee are few of the many large packaged goods corporations that are using state-of-the-art direct marketing methods successfully to promote their products. As technologies become more advanced, these companies are realizing the database-building opportunities offered by direct marketing and participation in the medium will likely increase in the future. A History of Direct Marketing 24 Credit Cards Spur Growth The credit card evolution that began in the 1950‘s has resulted in an enormous impact on direct response marketing across virtually every media sector. There are currently an estimated 830 million cards in circulation in the United States. The average American currently holds 2.8 cards. The issuance of credit cards has spanned the retail, travel, oil, and financial services industry. Retail and oil company cards were among the first issued to meet the growing demands of their customers. Travel and entertainment cards were established in 1950 with the introduction of the Diners Club Card®, followed by American Express® in 1958 and Carte Blanche® in 1959. The Bank of America issued BankAmerica® in 1958; banks throughout the country in the 1960‘s and 1970‘s followed suit. Credit cards and charge cards have enjoyed enormous growth in recent years through the introduction of many enhancements. These cards, regardless of the issuing company, now provide consumers the ability to increase warranties on merchandise, subscribe to various insurance options, use ATM cards, participate in frequent shopper programs and sweepstakes, join athletic and dining clubs, and numerous other benefits. New enticements crop up constantly due to the fierce competition among credit card-issuing companies brought on by market saturation. AT&T™ recently introduced a multipurpose credit card that combines a telephone calling card and a general-purpose Visa® or MasterCard®. Its attractions include no annual fee if the cardholder uses the card for at least one purchase per year, a 10 percent discount off regular calling card rates, plus free collision-damage insurance coverage on rental cars, and a free extension of the manufacture‘s warranty on products purchased with the card. Large companies such as AT&T, which can afford such extra benefits and which also have huge advertising budgets to market their products and services, are proving to be quite a threat to smallerbudget financial services companies. Another symptom of credit card saturation is the 2,600 affinity cad programs for members of frequent flyer plans, unions, political organizations, and even fans of sports teams. One of the most successful program types has been bank‘s associations with airline‘s frequent flyer programs. In most of these programs, the consumer gets a frequent flyer mile for every dollar spent. The emergence of database technologies, however, has enabled banks to discover credit worthy prospects who were untapped by competitors. Credit card marketers are beginning to think in terms of long-term strategies, and they search for direct marketing strategies that will increase business 10 years down the road. These strategies include offer enhancements, mailings to the open market using outside lists, and the television advertising to soften up the consumer for direct mail pitches. As we proceed into the 1990‘s, we may begin to see a downturn in the astronomic expansion in certain card programs, due largely to competition and the economy. The Discover Card Despite expert‘s claims of market saturation and the domination of the credit card market by Visa®, MasterCard® and American Express®, Sears introduced the Discover® credit card in January 1986. Surprisingly, the card has been quite successful, and is now considered one of the four main players in the credit card market. During the first year of operation, Discover lost $106 million. However, because Sears was committed to the program, it kept putting money into the card. The Discover card now boasts a market share of 6.2 percent. Some reasons for the card beating the odds include no annual fee, a rebate program, and the industry‘s lowest fees (averaging below 2 percent of charges) for merchants. A History of Direct Marketing 25 Consumer Financial Services Change is coming in many ways. Direct marketing itself will become fundamentally different as new, powerful entrantsbolstered by the innovative application of technologychange the nature and scope of the industry. Through a variety of marketing devices, including 900number telephone service promotions and ―smart cards,‖ large consumer products companies are gathering customer information and targeting their marketing efforts directly to their costumers. In addition, these companies are likely to form partnerships with retailers, their main channel of distribution, to improve the effectiveness of retail promotions. This changing relationship between retailers and their suppliers will likely have considerable impact on direct marketing by bringing new players into the field who are large enough to change some of the rules of the game. Growth in direct marketing fostered advances in technology that have enabled direct marketers to take advantage of the changing market conditions and mange the direct marketing process. Today, the direct marketer can use technologies to perform functions related to every element of business:  Advances in computer hardware and sophisticated database management systems enable direct marketers to store, access, and manipulate data cost-effectively.   Direct marketers can perform complex analysis on workstations on their desks. Innovations in communicating information to and receiving a response from consumers include 800 and 900 numbers, electronic kiosks, complex call management, and integrated voice and telecommunications networks. Marketers can cost-effectively produce marketing materials through in-house desktop publishing and electronic prepress. Function-rich software is available to improve the marketer‘s ability to respond to consumer inquiries and complete consumer transaction. 26 No area of direct marketing has made such a leap during the past decade as consumer financial services. The deregulation of the banking industry, the meteoric rise in two-income families, and the large increase in the number of middle-income Americans have brought about this upsurge. Until recently, bank‘s involvement in direct marketing often consisted of an insert into monthly statements or an occasional price of direct mail. Now, banks, insurance companies, and brokerage firms have invaded each other‘s territory with cross-selling programs that cover financial services from insurance to managing the household budget. Some are developing customer service departments that will link customers with the financial institution through a combination of telephone, personal computer, and the company‘s mainframe computer and database. With an estimated $13 billion in direct marketing financial services sales in 1989, the largest corporations (Sears, American Express, Prudential Insurance, to name a few) are expanding their operations through mergers and acquisitions. The deregulation process of the early 1980‘s allowed financial service institutions much more freedom in structuring their services. It has led to the development of many innovative deposit and loan services. Deregulation has also made the marketplace much more competitive. Direct Marketing and the New Technologies Forecasting the future, particularly where technology is concerned, is a difficult task. While technology has always had an impact on direct marketing, its impact had never been greater. Nor has the rate of technology-driven change ever been so faster than it is today. One doest not need a crystal ball to see that the future of the industry, and the survival of many of its current players, will be dictated by the use or neglect of technology.   A History of Direct Marketing  A number of technologies are oriented toward labor-saving and rapid response to support fulfillment, including barcoding and electronic data interchange. Database Marketing In the coming years, technology will bring many large and powerful new entrants to direct marketing. The industry will change radically as consumer products companies and retailers gain expertise in direct marketing methods. Both of these new players will bring significant marketing experience and well-developed technology infrastructures to the field. They will change the way that consumers and direct marketers do business. Technology improvements in the 1980‘s resulted in the growth of the most powerful tool today in direct marketingthe database. Keeping track of a consumer‘s preferences and purchases became increasingly affordable as the cost of accessing and maintaining data fell dramatically this decade. Marketers could now capture an amazing amount of information electronically that could help make them much more efficient. Today, databases include not only names, addresses and phone numbers of customers, but also credit status, language preference, how often a customer buys, when last bought, how paid, even feelings about the company and its products. Customer information can also be overlaid with geographic, demographic, and lifestyle information. So future offers can be targeted to just the right person. It is also the answer to responding to an American society that has become fragmented into many specialized niches. Thus, database marketing now makes it easy to promote sales, cross-promote, explore new channels of distribution, built lifetime customer loyaltythe possibilities are endless. Database marketing is a prime example of how technology has and will change the scope of direct marketing from mass marketing to an exact science. Videotex C onsumers are also participating in the direct marketing technology boom by using videotex. Anybody with a personal computer and a modem can use videotex to access a variety of information providers and can interactively perform various functions, such as home banking and ordering items from train tickets to flowers. Although these interactive services have not caught on as rapidly as predicted, some services have had early success, and industry experts are standing by videotex as a vital marketing medium of the future. Prodigy P rodigy, a videotex system introduced in 1988 in a joint venture between Sears and IBM, saw a 125 percent increase in subscribers from 1989 to 1900, the year it rolled out nationally. Prodigy collects advertising revenue from the 200+ consumer product/service companies that put their messages on its screens, enabling these advertisers to track as response to the household level and gather qualified sales leads. Because Prodigy is subsidized by advertising revenue, the cost for subscribers is a modest $12.95 per month. Such advertising benefits, coupled with rising postal rates, may continue to bolster the efforts of Prodigy and other videotex services. Impact of Social Change One other factor should not be neglected in a history of direct marketing is the profound impact on the marketplace of many social upheavals, beginning in the 1960‘s. Dr. Hazel Henderson, a well-known economist and futurist, regards direct marketing as an attractive option for consumers in our era of high-cost energy. She sees an information network of communications and organizations developing among consumers throughout the country, many of whom lead alternate lifestyles and are concerned with selffulfillment and the quality of life. The American 27 A History of Direct Marketing Association of Retired Peoplewith 31 million membersis one dramatic example of the depth and breadth of the marketplace among 30.4 million Americans aged 65 years or over. That number is expected to reach 34.9 million by the year 2000. The remarkable growth of Rodale Press, Garden Way, and other companies that use direct marketing companies reflects the new American lifestyles. A Renewed Emphasis on Consumer Privacy A dvances in database technology have given Rodale Press rise to a growing misperception among consumers and regulators about the type of information and methods direct marketers use in target marketing. The thread of these misperceptions, which manifest themselves as restrictive privacy regulations, is a leading concern among direct marketers in the 1990‘s. Self-regulation, with adherence to guidelines for ethical business such as those offered by the DMA, appears to be more critical now than ever. In response to growing concerns, DMA assembled a Task Force on Privacy in 1989. The Task Force has had an aggressive study schedule involving interviews with credit reporting and data collection representatives, executives of major credit bureaus, some academics and researchers who are involved in the study of privacy, and legislators and regulators. A dramatic example of the new wave in consumer attitudes is the success of Rodale Press. In 1930, J.L. Rodale set up a research farm with a vision that the declining health of America‘s soil relates to the declining health of Americans. Twelve years later came the journal Organic Gardening, and in 1950, Prevention was born. This magazine is devoted to the preservation of health and prevention of disease through nutrition and exercise. Today the company publishes seven magazines, six newsletters, and an average of 50 books annually. Its annual revenues are over $200 million; 85 percent of its sales are through direct response (primarily direct mail). Rodale‘s magazines are leaders in their fields. They include Prevention, circulation 3.1 million, Organic Gardening (1 million), Bicycling (385,000), and Runner’s World (438,000). In total, Rodale reaches over 16 million readers each month and has sold books and magazines to more than 20 million American households. Rodale is engaged in a number of research projects dealing with America‘s food and healthcare systems. It is a company that does not take its sense of social responsibility lightly. Task Force investigations have also led to updating and reissuing the DMA‘s Ethical Guidelines for Ethical Business Practices, Telephone Marketing, Mailing List Practices, and Personal Information Protections. The focus of the new guidelines is the marketer‘s responsibility to disclose list rental practices and to offer name removal options, as well as to manage, protect, and use in an ethical manner information that may be considered personal by the consumer. The Task Force recognizes the continuing power of the Mail and Telephone Preference Service (MPS and TPS) and has launched new consumer and trade campaigns to create greater visibility for the name removal services. A History of Direct Marketing 28 Results of a 1990 study conducted by Equifax substantiate the need to build awareness of direct marketer‘s efforts to ensure privacy protection. The Equifax Report states that ―Consumer attitudes about direct marketer‘s use of information about individual consumers depend on how American perceive their relationship with direct marketers. When consumers are made aware of the various protective measures that are currently being used or could be applied by list-making companies, and of the benefits consumers could enjoy, very large majorities of the public approve of direct marketer‘s use of information about individual consumers.‖ Direct Marketing and the Environment Seventh Generation, a catalog that sells ―products that promote a healthy environment‖ has undergone a tremendous expansion as a result of the company‘s new environmental awareness. The company maintains an active role in the environment, educates its customers on environmental fact and fiction, and bases many business decisions on their anticipated impact on the environment. For example, the company chooses to use paper tape to increase the recyclability of its paper packaging, and it chooses local suppliers to reduce transportation costs, energy consumption, and air pollution. It also participates in AFA‘s Global ReLeaf program. The company contributes one percent of its gross sale to various environmental organizations. Many new environmental magazines that are devoted solely to Earth issues cropped up in the early 1990‘s. Two such periodicals, Garbage and Buzzworm, had paid circulations of 86,000 and 75,000, respectively, within a few months of their introductions. Late in 1989, DMA formed a Task Force on Environmental Issues as a natural outgrow of the concern expressed in the one-on-one communication between direct marketers and their customers. The task force is served by a number of industry leaders and focuses on the role that direct marketing businesses should play with the consumer to make the direct marketing process environmentally sound. By self-regulating, marketers can relieve public concerns about direct marketing‘s environmental impact and avoid governmental legislation, which could prove harmful to the way they do business. On April 22, 1990, the 20th anniversary celebration of Earth Day renewed public concern about the state of the environment. Prior to the celebration, a paperback called Fifty Simple Things You Can Do to Save the Earth was published, and it became an immediate best-seller and was one of the most talked-about publications of the year. The book listed ―Stop Junk Mail‖ as the first action consumers can take to save our planet. This caused a tremendous media and public outcry against direct mail. Although this attack ignored the environmental benefits of direct marketing and shopping at home, and the fact that more than 50 percent of the U.S. population purchased merchandise by mail or telephone in 1990, the industry has responded, and many direct marketers are taking proactive stances. Somesuch as Sears, Land‘s End, and Patagoniahave established recycling programs and some are printing their catalogs, or portions of their catalogs, on recycled paper. Several catalogers are participating in Global ReLeaf, a tree-planting program sponsored by the American Forestry Association, and several catalogers are adding environmentally conscious products to their merchandise offerings. Many new packaging methods have emerged to eliminate the waste of non-recycled plastic ―peanuts‖ to package products. RecessionPostal Increases As the 1990‘s were ushered in, an economic recession hit the country, slowing consumer spending and alarming marketers from coast to coast. Adding to the impact of the recession, direct marketers, especially catalogers, have had to deal with substantial postal rate increases. In 1988, third-class rates increased, on 29 A History of Direct Marketing average, by 20 percent. However, rates for catalogs rose almost 32 percent. In 1991, the average thirdclass increase was 25 percent, but again, cataloger‘s rates rose more, in some cases in excess of 40 percent. Quite a few catalogers, including J. Crew, L.L. Bean and Spiegel, reported disappointingly slow sales during the 1990 Christmas season. To remain afloat, direct marketers have had to adapt rapidly to changing market conditions. In order to keep customers buying, many catalogers have concentrated on improving communication with their customers, convincing them that their catalog is the best source for their items. Others are dedicating their efforts to target potential customers as efficiently and cost-effectively as possible. Customer service is emerging as one of the single most important factor in keeping customers loyal. In 1990, the Council of Better Business Bureau reported they received 29,840 complaints against direct marketing firms, placing the industry third in numbers of complaints. However, this is a marked improvement over 1980, a year in which direct marketing was the leading complaint-getter among U.S. consumers. It appears the self-regulation practices suggested by the Direct Marketing Association are working. DMA maintains that self-regulatory measures are preferable to governmental mandates wherever possible. Self-regulatory actions are most readily adaptable to changing techniques, economic and social conditions, and they encourage widespread use of sound business practices. DMA‘s Ethics Policy Committee has established Guidelines for Ethical Business Practices that are intended to provide individuals and organizations involved in direct marketing with standards of conduct that are generally accepted nationally and internationally. The committee‘s goal is to create a positive environment in which to market. Direct marketers around the world have an obligation to the industry to self-regulate and to implement these Guidelines for Ethical Business Practice. A Caveat A t this point in the direct marketing odyssey, a caveat is in order. While the prospects for the growth of direct marketing are auspicious, dangers lies ahead. One immediate threat comes from backlash against companies that perpetrate fraud and deception or engage in direct response advertising that is misleading or hyperbolic. While these nefarious activities involve a very small percentage of direct marketing companies, their impact is widespread and adversely affects millions of consumers and industry members. Dreams that Money Can Buy U ndoubtedly, catalogs contain the dreams that Unfortunately, there are fly-by-night post office box mail order schemes. According to the chief USPS crime fighter, the nation‘s elderly are particularly vulnerable to these schemes perpetrated through the mail. The most prevalent frauds targeted to older people are land sales, workat-home ―deals,‖ insurance frauds, worthlesssometimes even dangerousmedical ―cures,‖ and get-rich-quick programs. Chain letter scams are a widespread form of deception. money can buy, treasuries of hope and wishes. Mail-order buyers run the entire gamut of the population, including farmers, small town and urban folk, blue collar and white collar workers, professional and middle class, men and women, young people and senior citizens, as well as small, medium, and big businesses. Mail order buyers comprise a roster of America‘s Who‘s Who in every field of endeavor. This includes, for example, Burt Reynolds, the self-styled ―catalog buff of the world,‖ Liza Minelli and Natalie Cole, Robert Redford, the Kennedys, the Rockefellers, Nancy Reagan, the late Malcolm Forbes, and Julia Child. A 1990 Time Magazine cover story concludes that direct mail ―can provide an antidote to loneliness, access to hard-to-find goods and a convenient 30 A History of Direct Marketing answer to a housebound or time-pressed shopper‘s prayers.‖ According to Simmons Market Research Bureau, 54.4% of the U.S. population ordered items by phone or mail in 1990. The USPS, in its annual study of consumer‘s attitudes regarding their mail, reported that a full 93 percent of people who purchased an item through mail were satisfied with the merchandise received. In a society where energy is high-cost, where time and convenience are of the essence, it is inevitable that catalog shopping has become more popular and widespreadand mail-order companies, more profitable. That is why more than 150 of the Fortune 500 companies are now engaged in direct marketing. The history of direct marketing amply confirms that understanding the changing socioeconomic environment, and its impact on the marketplace is the basis for success and long-term profitability for direct marketers. From Aaron Montgomery Ward, Richard Sears, and Julius Rosenwald to L.L. Bean; from Harry Sherman of Book-of-the-Month Club to Robert Rodale, Lillian Vernon and Stanley Marcusentreprenuers and leaders have been and are men and women of foresight, courage, and integrity. They are people with an understanding of and respect for the consumer and a sense of social responsibility. This is the way direct marketers will meet the great challenge and opportunities that they face heading into the 21st century. *ClipArt by Microsoft Clip Gallery 5.0 A History of Direct Marketing 31