The development of Direct Marketing

 

Direct Marketing is a field whose time has come. It has grown from obscure beginnings to become one of the most important tools in the kit of a marketing manager. The attraction of direct marketing has been it’s ability to focus directly on, and to service, customer needs. In addition unlike so much else in marketing, it is highly quantifiable. In other words, because results can be measured, this allows for substantial cost savings, accurate allocation of expenses and better customer relationships. In addition direct marketing is not just about traditional mail & catalogue methods; it has become a field using advanced technology, quantitative applications, call centers and the Internet to get these results. Number crunching, data mining and quantified forecasting are the main tools a direct marketer uses. Over $100Billion alone are spent every year in the USA on direct mail promotions with the result that today it has become a $1000Billion industry.

(from A guide to Direct marketing in the 21^st Century by Baber Khairi due for publication in early 2008)

 

Direct Marketing is one of the five tools of the promotion mix. The five tools of the promotion mix are:

 

1.    Direct Marketing

2.    Advertising

3.    Sales Promotion

4.    Marketing public relations (and publicity)

5.    Personal selling

 

Each tool in the promotion mix has unique, sometimes overlapping, characteristics:

 

 

As you can see, each tool is not only different but is utilized differently. For example although sales promotion campaigns are frequently conducted alongside advertising, they have different objectives. Sales promotion tools provide the customer an incentive to purchase. By contrast advertising gives the customer a reason to buy. Both objectives focus on the short term. Direct marketing is used as a short-term tool but whose objectives are long term. If advertising gives a a customer a reason to buy,

 

Direct marketing provides a customer reasons to go on buying - even after the initial incentive has long gone.  Now although advertising has been the primary promotion tool a marketer used with sales promotion coming a close second, direct marketing has gained popularity for its measurability and its flexibility. A definition of what direct marketing means to us can be:

 

 

Direct Marketing is

 

when a product or service is marketed to the end user, bypassing all  intermediary channels. Direct Marketing allows for intense focus; selectivity, personalization and customization of the marketing offer

 

Professor Philip Kotler also describes Direct marketing as “an interactive system of marketing which uses one or more advertising media to effect a measurable response and / or transaction at any location”

 

In this course we develop a concept of this tool that is far more advanced than Philip Kotler’s basic definition. This is because, as the marketing concept has developed, direct marketing has acquired much greater importance. It is a tool that allows a manager to focus on a specific target market; to measure the results of such focus and to make one’s efforts both cost effective and hard hitting. Even in Pakistan, it has become the primary tool of choice in the fast growing consumer banking sector.

 

 

 

 

 

         

Direct marketing bypasses channel members

 

 

 

 

 

 

 

 

Figure 1-1 - The manufacturer bypasses the normal distribution chain to contact the End user directly. This may be done through a variety of direct marketing tools

 

Direct marketing has also sometimes been referred to as 1:1 marketing. Marketers have always been confronted by the problem of not being able to face their customers and adjust selling their requirements due to the high expense associated with gathering, tracking, monitoring and digesting customer information at such a finite level. Fortunately advances in technology have led to solutions such as CRM (Customer Relationship Management software) that enable direct marketers to understand and influence customer behaviour through meaningful communication. This in turn has helped improve customer retention, customer loyalty levels as well as profitability per customer.

 

A number of direct marketing tools are:

 

i.                    Direct mail

ii.                  Telephone marketing – also known as telemarketing

iii.                E-mail

iv.               The Internet

v.                 SMS – messaging over mobile cell phones

vi.               Direct selling

 

We will begin by looking at the first one – direct mail -- as this is where direct marketing starts its development.

 

Imagine a Raja of Multan writing to the Raja of Lahore, offering his daughter in marriage. These are the beginnings of direct mail. The letter he sends forth is customized with an offer of marriage, it states the dowry and it is made for a single customer – the Raja of Lahore. It is highly selective in its choice of audience and creates a channel of communication between the two Rajas. The letter uses three basic elements of direct mail:

 

1.    The mailing List

2.    The offer

3.    The copy

 

Without these a direct marketing communication cannot be carried out. Let us study these one by one:

 

1.    THE MAILING LIST

 

Our Multan Raja may write to only the Raja of Lahore, in which case he will need a mailing list of one. Or he may decide to improve his chances of marrying off his daughter by contacting Rajas all over the country. The mailing list will then include all eligible Rajas who are in want of wives as well. All this effort might also be wasted if his daughter chooses a husband herself. That is why direct marketers regularly monitor their customers, developments in their product and try to identify changing market trends.

 

2.    THE OFFER

 

A direct marketing communication cannot function without some kind of offer, for this is what makes the communication demand a response. It is what the buyer is responding to. The Rajas of Lahore are not responding to the offer of a wife, for there are millions of women they too can choose, but to the chance to acquire the hand of a Raja’s daughter.

 

 

3.    THE COPY

 

The Copy is the text of the direct marketing message. It is used to convert an ordinary communication into a selling message. Unlike in advertising where we tend to build up the message and save the best for the last, here we start with the best and wind down. This is because the average customer only has a limited attention span of 10 to 15 seconds. Any communication made in writing has to get his attention in the first few seconds and then hold it long enough to get the message across.

 

For example in order to get someone to respond, the Raja of Multan would have to put in his address to which the other Rajas might respond. If he was a smart marketer, he would add a self addressed envelope – that is an envelope with his own address on it, with postage paid, so that if his customer felt like replying he could do so at once. If he were living in the 21^st century, he might also put down a phone number, an e-mail address or an invitation to a party that would encourage others to reply as quickly as possible. Better still he would have a user friendly website with an FAQ section, a testimonials section, a call center number where the Raja or their sons could call into to get more information on the wedding of the year.

 

This means that direct marketing requires the use of three elements and a response tool. The moment a marketing message uses a response tool it becomes a direct marketing tool. An advertisement that includes a phone number or some method of responding, becomes a part of the scope of direct marketing. We now move to the catalogue and its role in the actual development of modern direct marketing.

 

The Catalogue: The Beginnings of Direct Marketing

 

Now let us take another example of direct mail. In the late 19^th century direct marketing underwent substantial development through the introduction of catalogues. Potential customers were sent catalogues with various offerings, they would rummage through them and find everyday items of use that they needed and would then order them by mail from the company in question. The first such pioneers were Montgomery Ward and Sears. In the 19^th century railways had opened up the North American hinterland and hundreds of thousands of young men had set up homesteads in the new territories. There were thousands of small farms all over the American Midwest and as they developed they began needing home comforts.

 

One of the first items of comfort they needed was to have a wife to run the home. Men had left their homes in their youth and worked their farms to become self-supporting. They found they had the money but not the companions. The Catalogue companies seized on the opportunity and began offering mail order brides. Catalogues would have black and white photographs of eligible young women who wanted husbands. The company would charge a fee for placing the bride plus postage and delivery charges. The customer would then order a bride of his choice and send along a money order to the company.

 

Thousands of both young and old bachelors ordered brides for themselves through these catalogues. They would arrive by stagecoach and be married in the nearest church. Then the wife would settle down and manage the home. We may ask how this benefited the catalogue companies? Because once enough men had ordered brides this market would cease to exist.

 

Fortunately the catalogue companies had other plans. The new bride was merely the bait and the start of a lifelong customer relationship. Each mail order bride had needs of her own. As much as her husband could afford to, she would start ordering other items that the catalogue companies had on offer. She would order shoes, bed sheets, curtains, bed covers, babies cots, pots, pans and clocks. She would order blankets, toys, books and new clothes. Each mail order bride would create new markets of one by herself. Eventually the quality of life in these homesteads got better and the catalogue companies grew bigger.

 

As it was, the nearby towns were too far away or their shops too poorly stocked. If a farmer’s wife needed choice she would either have to go to a bigger town -- which meant planning for a major journey --- or she would browse through a catalogue. The companies soon had mailing lists of thousands of households which were getting bigger all the time.

 

 

Thus by using catalogues, Sears and its competitors had used the 3 elements of direct marketing to good effect: List, Offer, Copy.

 

 

Sears used a mailing list of eligible bachelors to start. Then they offered them mail order brides and finally they used easy to read Copy to make the sale. They also used their address as a response tool so that farmers could order their brides. Then by supplying an acceptable product (brides) that made their bachelor customers happy and which allowed these companies build up a personalized relationship with their customers. Soon their customer base grew to include not only the farmers but their wives and later on any children as well. To enrich this relationship, the catalogue companies made a broader range of offerings. Their catalogues were comprehensive, their prices were reasonable and their target market exercised high loyalty levels.

 

As the market developed, large numbers of people began to move to the cities and away from farms, Sears too moved with them. Because prices were kept reasonable and the quality was good, customer loyalty levels remained high. Moreover when telephones came into everyday use, telemarketing was introduced. At first telephones were used mainly to remind customers to mail their orders or to make timely payments. Later the field of telemarketing developed the phone as an independent selling tool. Still later companies began to use the television to show off their products and in our day the internet has become another very effective direct marketing medium.

 

The 4 P’s of Direct marketing

 

Now just as we use 4 P’s in marketing, so in Direct marketing we use 4 quite different P’s as well.  The 4P’s of marketing are: Product – Price- Promotion – Place. The 4P’s remind a marketer to cover as many bases as possible when making out a plan of marketing. The 4 P’s of Direct marketing do the same. They are: Picture – Promise – Prove – Push. These can be described as follows:

 

                             The 4P’s of Direct Marketing

                  

 

1. Picture     The cover letter forms a picture in the mind of the customer    .

 

b.    Promise   Description of the benefits in the customers mind             .   

 

c.     Prove                 Showing value: what is the marketer’s argument?            .

 

d.    Push                  Make the sale and sign the customer up by making a sale

 

 

 

In the 4 P’s above, Direct marketers need to project an image of the product being purchased and then let the customer imagine that it will work in the way it is supposed. The marketer makes a promise to the customer that it will in fact perform in the way it has been promised to and then proof is provided. This may be in the form of showing evidence of consumer tests, providing testimonials by famous people or by simply giving a warranty to show that you will stand behind the claims you have just made.

 

Finally the direct marketer has to push the customer to make the sale. The push may be in the form of a time based offer or it may be in the for of a threat which advises the customer to buy while stocks last. This may seem mercenary but after all, the purpose of a marketing communication is to get the attention of a customer and then to interest them through relevant arguments so that they are sufficiently motivated to purchase the product or service of a marketer.

 

The tools available to a direct marketer are as follows:

 

1. Direct Mail           2. Catalogues        

 

3. Telemarketing    4. E-mail

 

5. Internet                      6. Infomercials

 

7. Direct selling              8. SMS

 

9. Direct response 9. Chat Rooms

 

 

 

 

 

 

 

Measuring Direct marketing

 

Direct marketers search out specific markets for specific products. As a result not all products can be successfully marketed through this medium. The reason is because Direct marketing is essentially as long term, strategic tool. When marketers use direct marketing their vision is way over the horizon and as a result they are willing to wait a long time for results. This means that time frames that would be unacceptable for other tools in the promotion mix are quite acceptable in Direct Marketing. The fact is that a response of 3% is considered quite good for a Direct Marketing campaign. In advertising, sales promotion, publicity and personal selling, 3% would not only be unacceptable, the marketer would probably lose their job. But in Direct marketing the impact of a campaign is rarely immediate: instead it occurs over a long period of time. To measure the success or failure of a direct marketing campaign we use 2 basic formulas:

 

 

I.                   The response rate

 

II.                The cost per order

 

 

 

 

 

I. The response rate  enables a marketer to know how many people in a potential market have responded to his efforts. This is measured by dividing the number of replies by the number of people the mail was sent to:

 

 

Response Rate = The number of people responding

                             --------------------------------------------  X 100 =   %

                             The number of people mailed

 

 

 

II. The cost per order  lets a marketer know how much the mailing program for each customer cost. If the cost of mailing per customer was higher than the profit from each order placed, there will be loss. Otherwise the marketer will know at one glance that the direct mail campaign has been a success:

 

Cost Per Order =         The cost of each individual mailing  X  The total number mailed

          ________________________________________________

                             The total number of orders received

 

 

Customer Focus:                                   Segmentation                       

 

Direct Marketing targets a product buying market. In order to enable customer fulfillment to occur effectively a marketer must know who the customer and what the characteristics of that customer are. This is about STP = Segmentation , Targeting and Position. What a direct marketer is looking for in the mailing list is the following information:

 

 

 

 

 

 

 

 

 

 

Knowing the customer thus requires an extensive, accurate and detailed mailing list. That list must be laid out in a way that it can be mined for data so that useful information is extracted from it.

However these points are insufficient, as a direct marketer also has to quantify his customer analysis.

 

 

The Critical Success factors in DM – CSFs -- are normally as follows:

 

1.    Customer retention is a key element in a marketing campaign

 

2.    Inadequate customer profiling is a key weakness

 

3.    Value provided to customers must be kept on increasing

 

4.    Loyalty schemes must be launched in order to kill loyalty to other firms and enhance loyalty toward the marketers’ own products