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Direct Marketing : An Overview

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Direct Marketing : An Overview
Ron Rymon
Marketing Communications Program
Spring 1999
IDC, Herzliya
Overview
• What is Direct Marketing
• Direct Marketing vs. General Marketing
• DM Campaigns : Design and Implementation
• The Marketing Database and Applications
• Direct Marketing in the U.S.
Q: What is Direct Marketing?
?
Definition
“Direct Marketing is an interactive system
which uses any advertising media to effect
a measurable response and/or transaction
at any location”
“Where all transactions are recorded in a database”
Direct Marketing Association (DMA)
Interactive Communication
• Two-way communication between marketer
and prospective customer
– In: direct mail, telemarketing, any other medium
– Out: exclusive use of mass media (TV, print)
• A response is required:
– In: marketing effectiveness (# sales, leads, visit)
– Out: communication effectiveness (awareness,
recall)
Measurable Response !!!
• Response/sale is associated with individual
prospect and specific communication
• Effectiveness can be analyzed in order to
improve targeting
• The Marketing Database is cornerstone of
DM activity
Targeted Customer-centric Marketing
• Direct and continuous contact with end-customer
• Relationship marketing
– New customer acquisition is very costly
– 20% of customers account for 80% of revenue
– Customer as the hero, less focus on product and brand
• Targeting best customers/prospects
– one-to-one communication/relationship
• Personalized everything:
– offer, message, media, timing
Only Three Types of Companies
• DM drives the business
– Mail order, catalogs, direct insurance, credit card
• DM drives the marketing strategy
– Airlines, gas stations, dept stores,
• DM used as a communication strategy
– All others
Examples
Examples
•
•
•
•
•
•
•
•
Catalogues
Direct mail, telemarketing
Magazine ads, mail-in cards
Home Shopping Channel (TV, call-in ads)
Internet banners, free sites (register, ad, and refer)
Clubs, negative-option clubs
Promotions, cross-selling to existing customers
Cents-off coupons (newspaper, mailboxes)
Response Required, Info Collected
• Clear offer
– product
– price/discount
• Response required
– mail + toll-free phone
• Collect customer info
– for future offers
Response Cards
• Image ads as triggers
• Enticements to collect info
• Your customer is your best
salesmen
Coupons generate store traffic
• Requires response
– store visits
• Measurable response
– which store
– which publication/distribution
• Entice customer
– often loss-leaders
Clubs
• Loyal customers
– 80-20 rule
– lower cost of sale
• High acquisition cost
– marketing (ads, gifts,
specials), screening
Monthly Selection Clubs
• Negative option
• Personalization
Personalized Offering
DM- vs. Image-oriented Ads
Direct Marketing vs. General Marketing
Direct Marketing is part of the overall Marketing Strategy
General Mktg. vs. Direct Mktg.
• Communication
–
–
–
–
Mass media
Impersonal
Visible to competitors
Controlled by cost
–
–
–
–
Directly to customer
Personal
Less visible
Cost controlled by success
• Customer response
– delayed
– no clear association
– immediately required
– directly associated
General Mktg. vs. Direct Mktg.
• Effectiveness
– Measured indirectly:
awareness, intention to
buy, panels
– Measured directly
• Level of Analysis
– at segment level
• Control
– decision making based on
samples, indirect
measures
– at individual level
– decision making based on
concrete measured results
Summary: DM Key Competencies
• Direct, continuous contact with end-customer
• Precision (cost-effective) targeting
• Personalized offer and message
• Call for immediate action
• Measurable success/failure
• Long term customer relationship
• Less visible strategy
DM Campaigns:
Design and Implementation
Direct Marketing Campaigns
• Target:
– Current customers vs. New customers
• Goal
– Order, and/or Response, and/or Visit to store
• Implementation : Decision variables
– Offer, Creative, Audiences and media,
Timing/sequencing, Customer service
Current Customers vs. New Customers
• Retain best customers
– relationship marketing
• Increase revenue
– entice upgrade
• Target best customers
– based on past response
– personalized offers
• Referrals
• More of same
– based on current best
• New market segments
– also based on current
– testing new ideas
• Acquisition incentives
– based on LTV
Goal(s)
• Sale Generation (order)
– impulse decisions, or identified need
• Lead Generation (response, survey)
– expensive or complex products
– lead qualification (short survey)
• Traffic Generation (visit to store)
– Store coupons, promotional catalog
• and also… Relationship Maintenance
– Product announcement, clubs
DM Decision Variables
• The Offer
• Creative
• Audiences and Media
• Timing (and sequencing)
• Customer Service
The Offer
• Required elements
– product / positioning
– Terms (time frames, payment)
– Risk reduction mechanisms (free return, service,
upgrade)
– Required action
• Optional elements
– Incentives, Multiple offers, Customer obligations
Creative
• Emphasize key selling concept
– need addressed (+/-) and solution
• Overcome primary marketing difficulty
– targeting, consumer price sensitivity, ...
• Choose message strategy
– target market, positioning, benefits, risk reduction
• Indicate desired action !!
• … while adhering to corporate constraints
– legal, consistency, etc.
Choice of Audience
• Input
– Customer database (house file)
– External lists and databases
• Use
– Segmentation techniques to identify and target
key segments, each with own DM mix
– Predictive models to drive mailing/contact
Choice of Media
• Direct mail
– leader in sales to consumers
• Telephone marketing
– leader in business-to-business sales
•
•
•
•
Catalogs
Print media (newspapers, magazines)
Broadcast media (TV, Radio)
Internet !
Other Factors
• Timing
– High recall of problem/need, positive attitude
– Seasonality
• Sequencing
– First info request, then sale/call
– “Curriculum Marketing”
– Pulsing vs. steady flow
• Customer Service
– Make it easy
– Reduce risk
Example: Design a Solicitation Campaign for
a Credit Card Issuer
• Extremely competitive industry in the U.S.
– Most Americans hold several cards
• Significant economies of scale
– In processing, cost of information
• Revenue sources
– Interest on revolving balances
– Use of credit card (merchant fees)
– Usage fees, penalties (consumer)
Example of a Credit Card Solicitation
• Highly
targeted
• Attractive
offer
Example: Define Target Audience and Goal
• Target : “revolvers”
– New customers that carry significant balance
• Goal: direct “sale”
– provide heavy revolvers with our card
– have them transfer their balances to our card
Example: Decision Variables
• Offer
– Risk reduction: pre-approved
– Convenience: hefty line of credit
– Value incentives:
• low interest rate for 6 months
• double points for immediately transferred balance
• Creative
– emphasize savings afforded by lower rate,
convenience of consolidated loan
Example: Decision Variables (cont.)
• Audiences:
– Create profile: extract characteristic features of
revolvers from current customers
– Use credit bureau information to select based
on profile
• Media:
– Direct mail
– Telemarketing to top 5% candidates
Example: Decision Variables (cont.)
• Timing / sequencing
– Telemarketing before direct mail
– Two direct mail campaigns:
• Initial solicitation
• “How much you could have saved if …”
• Customer service
– Just sign your name
– Easy balance transfer procedure
– Service and perks that come with the card
Test, Test, Test !!!
• Very hard to predict success of a given mix
– regular market research methods + experience +
common sense
• Temporal effect
– changing consumer preferences
– natural dwindling of good segments
– new opportunities appear, or are discovered
• Set and evaluate goals: cost of sale/lead/visit
• Use split runs to test new ideas
Survey:
What’s most important to a DM success?
Right Person
Right Offer
Right Ad Elements
Right Timing
20%
10%
50%
20%
“DM Marketplace”, Direct Marketing, 1986
The Marketing Database
The Marketing Database
• Comprehensive collection of interrelated data ...
• Arranged around each customer ...
• Allow timely and accurate retrieval ...
• Support analytical, predictive, operational needs ...
• Serving multiple applications …
Both Strategic and Tactical Applications
• Strategic: Management Level
– Segmentation to design product, communication
– Market Intelligence
– Personalization of product and offering (tactical?)
• Tactical: Operations Level
– Target new/existing customers
– Personalize communication
– Manage resources/risk
The U.S. DM Industry
The U.S. DM Industry
• Total Sales: $1.2T
– Consumer=$685B, B2B=$542B
– grows faster than total U.S. sales, expenditures
• Total expenditure: $153B (8% cagr)
–
–
–
–
–
57.8% of total spending on advertising
More than 50% of telephone call volume is toll-free
Generate leads=56%, order=32%, traffic=12%
Total employment: 23 Million
Internet spending: $275M to 2.8B in 2000 (66% cagr)
DM and General Advertising
(U.S. 97, by media, total $153B, 58%)
100
DM
Other
80
60
40
Other
Radio
Teleision
Magazine
Newspaper
Telephone
0
Direct
Mail
20
Growth of DM-related Sales
(U.S �97 $Bil)
1 992
1 996
1 997
1 998
2 002
D irect O rd er
1 61
2 11
2 25
2 38
3 14
L ead G en eratio n
2 26
3 08
3 31
3 56
4 89
T raffic G en eratio n
93
1 21
1 29
1 36
1 75
T o ta l D M S a les
4 80
6 40
6 85
7 31
9 79
T o ta l U .S . S a les
4 445
5 462
5 739
6 029
7 343
1 0 .8 %
1 1 .7 %
1 1 .9 %
1 2 .1 %
1 3 .3 %
P ercen tag e
U.S. DM: Return on Investment
• ROI = $8.01 per $1 investment
• Consumer=$8.96, B2B=$7.07
• Media:
–
–
–
–
–
$10.42 for direct mail
$7.31 for telephone
Newspaper=$11.54, Magazines=$8.40
Television=$4.90, Radio=$5.83
Other=$4.80
U.S. DM : Key Industries
• Consumer
–
–
–
–
–
Retailers : dept stores, catalogs
Finance: lenders, brokers, credit card, insurance
Manufacturing: auto, food, home
Services: education, real estate, healthcare
Charity
• Business to Business
– Services: financial, insurance, healthcare
– Wholesalers
• Really: almost every company (see Bressler)
Reasons for Growth
• Social reasons
– Fragmentation of society, individualism
– New communication alternatives
– Consumer sophistication/demands
• Business reasons
–
–
–
–
Need to reach out to more customers
Reduced and accountable distribution costs
Customer loyalty reduces high acquisition costs
Lower technology cost/barriers to implement DM strategy
Other Interesting Facts (DMA)
•
•
•
•
•
•
•
•
70% of U.S. adults order by phone/mail every year
Catalogs are most frequent order generators
Magazines are the most popular DM offering
Direct mail attracts the most DM dollars
Coupons are most common promotion (5.8B/year)
Average consumer receives 21 mail pieces a week
Almost half mailers sell/rent their lists
10% of U.S. adults are members in book clubs
DM and The Internet
• Interactivity
• Measurability
• Low-cost 24-hour communication, customer service
– web site, e-mail
• Virtual communities / clubs
– loyalty
– easy segmentation
•
•
•
•
•
Personalization: communication, offering, coupons
Push technology
Targeted advertising in related sites
Tracking and analysis of web site traffic
Global market reach
19 Things All Successful Direct Marketing
Companies Know (Wunderman)
• Direct Marketing is a strategy, not a tactic
– commitment to getting and keeping best customers
• The Consumer, not the product, is the hero
– product must satisfy their unique needs
• Communicate with each customer/prospect
– segments of one
• Answer the question: “Why should I?”
– incentivize consumer to take an action
• Advertise to change behavior, not just attitude
19 Things All Successful Direct Marketing
Companies Know (Wunderman)
• The next step: profitable advertising
– accountable results, an investment in profits
• Build the “brand experience”
– total service of individual needs, all the way
• Create relationship
– relationships grow, encounters don’t
• Know and invest in each customer’s LTV
– loyal car buyer = $332,000 over life time
• “Suspects” are not “prospects”
– prospects are able, ready, and willing to buy.
19 Things All Successful Direct Marketing
Companies Know (Wunderman)
• Media is a contact strategy
– Out: “reach”, “frequency”, In: “contacts”
• Be accessible to your customers
– so they can tell you what they want
• Encourage interactive dialogues
– listen, let them “advertise their needs”
• Learn the missing “when?”
– Avoid the “Not Now”=“Not This” syndrom
• Create an advertising curriculum
– teach, one step at a time, why your product is superior
19 Things All Successful Direct Marketing
Companies Know (Wunderman)
• Acquire customers intending to loyalize them
– promotions attract wrong buyers, repeat buyers are best
• Loyalty is a continuity program
– retention is cheaper, more effective, than acquisition
• Profit = share of loyal customers, not market share
– 90% of profits come from repeat customers
• You are what you know
– Data is expense, knowledge is a bargain
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