Direct methods work differently than media advertising. Of the four AIDA goals of advertising, the primary aims of media advertising are awareness, interest, and desire. Direct methods, on the other hand, are meant to stimulate the action component, and specifically to sell products or services to new customers, generate leads for sales force or other follow-up, or drive traffic to the retail outlet or branch.
It’s not just the goals that distinguish direct marketing from media advertising. It’s also the ability to measure whether the goals are achieved. Since media advertising doesn’t necessarily result in an immediate sale, there is rarely any swift and sure method to determine how successful it is at reaching its goals. With direct methods, you will often know how successful a campaign is within weeks (for direct mail), days (for telemarketing), or hours (for online promotions). Not only does this enable you to find out quickly whether a given promotion will achieve its goals, but it also permits you to test and make changes “on the fly” to bolster results.
Literally everything in a direct offer can be tested, from the color of the background on an HTML e-mail message to the use of a stamp or a meter on a direct mail envelope. Professional direct marketers incorporate tests into every campaign, either by breaking lists up into “cells” that test different variables, or by testing new packages against controls. By constantly testing and tweaking the package, offer, and other variables, one should, in theory, continually improve results. Although the improvements may be minor (less than 0.1 percent in some cases), a million-piece promotion that is improved by 0.1 percent will still bring in 1,000 more responses. For smaller mailings, these kinds of tests may not be as important, although it is always a good idea to test the performance of different lists.
In addition to different goals, direct marketing employs different methods of persuasion than does media advertising. One key difference is that direct methods can be personalized. Personalization can be as basic as using the prospect’s name in the salutation or as complex as greeting an online customer with a listing of recent purchases and suggestions for new purchases. The most important component of personalization is choosing the right offer for the right list. Making sure that the offer is going to the right people (or conversely, making sure that the people you are planning to reach are getting the right offer) will spell the difference between success and failure.
Finding the Best Lists
There are two basic ways of getting a mailing list of prospects: buying or compiling your own. For example, credit card companies generally buy lists from credit agencies, based on credit variables such as paying outstanding balances on time or carrying a balance. This is one reason why everyone with a certain credit score receives similar offers from different credit card companies. It is also a good reason to avoid lists that your competitors are using heavily.
Purchased lists. One of the great advantages of direct mail is that lists can be purchased for almost every variable: For example, if you’re selling college funding advice, you could buy a list of parents with children under age 10 who live in the Chicago metro region and have incomes of $50,000 or more. These lists will be of two kinds—people who have purchased products by mail, and “other.” Other lists may include subscribers to publications (for example, subscribers to Highlights magazine, broken out by age of child, location, and income of parents); membership lists (for example, the Chicago-area PTA); or cluster-type lists based on census data.
As a general rule, mail-order responder lists are better than other types of lists, for the simple reason that people who respond to one mailing are more likely to respond to another. But not all response lists will pull equally. The more similar the product purchased in the past, the better the response to the current mailing. A good list broker will help you determine the right variables to select and identify several lists that you can test before committing to a large mailing.
Compiled lists. There are several ways of compiling your own lists. One way is to run a direct-response ad in a publication, on the radio, or on cable TV. The people who respond to your offer (which could be a free consultation) are prime prospects for a product sale. For example, if you market lending services to professionals, you could run an ad in a newsletter directed to doctors or dentists offering a free booklet on financing a practice. From the group that responds, you could then follow up with a one-on-one sales call, either by phone or in person.
You can compile lists from any number of sources. It is common to compile lists of prospects who visit your booth at a trade show for follow up by the sales team. You can clip trade magazine announcements about personnel changes at various companies in your industry. A financial planner looking for parents of children under age 5 could search through the local newspaper from five years earlier and check the birth announcements, then use the phone directory to determine current addresses and phone numbers. Keep in mind, however, that mailing lists date rapidly. About 10 percent of consumer households change addresses each year, and corporate turnover is even higher. You should make sure your lists are kept up-to-date by calling the names on a periodic basis.
Factors Affecting Direct Mail Response
There is a common conception that typical direct mail response is between 1 and 2 percent. But these numbers are meaningless. There are extremely profitable mailings that may only get a 0.5 percent response. There are mailings that get a 50 percent or more response rate. In a 2003 survey, the Direct Marketing Association (DMA) found average response to direct mail campaigns was 2.5 percent. But there was wide variation by industry, ranging from below 2 percent to 5.4 percent. A follow-up survey of financial services campaigns showed that responses varied from 2.5 to 13.7 percent, depending on the offer and the type of list.2 The most important measure is not how many responses you get but the cost of getting those responses and their quality. If the campaign is profitable, even if you only get one new customer, it was a successful campaign. One of the campaigns in the DMA financial services survey had an average order size of $150,000. You don’t need too many of those to make a campaign worthwhile. It would seem a simple matter to measure the break-even point of a campaign: the sales generated through the current promotion divided by its cost. But for many direct marketing efforts, full value is not realized until well after the promotion ends. Credit card issuers, for example, may not realize profitability on any one mailing for years. They have developed metrics to enable them to estimate what percentage of new cardholders will remain, for how long, and how much profit they’ll bring. Using this estimate of lifetime value enables the issuers to include future returns in their profitability analyses.
Other ways of measuring return on a promotion include the value of referrals to the sales force. Keeping the sales channel filled with quality new leads is an important aspect of many financial service promotions on both the consumer and institutional side. Although it may take months or even years to convert a lead into a sale, the profitability analysis of the campaign needs to account for expected future sales. The most important factors affecting response are these:
The list. The list will have the greatest impact on response. Clearly, a list of your own customers will usually pull better than a list of people who have never done business with you. Lists of former customers will also usually do well. Targeting and testing are critical to raising the response of whatever lists you are using.
The goal. Direct mail seeking leads is usually going to generate a higher response than that seeking outright sales. Offering a free consultation or the chance to win a sweepstakes is going to draw more response than the sale of a life insurance policy.
The offer. The cost, value, and uniqueness of the product or service will affect response. A $49 book will get more response than a $1,200 newsletter. The first affiliation-based credit card offer will get more response than the fifteenth.
Integrated marketing. Other marketing efforts that supplement your direct mail will lift response. Advertising and public relations will help build your brand identity, making prospects more responsive to your direct mail pitch. Outbound telemarketing before and/or after a mailing can lift response by a factor of 5. Including your website URL on a mailing piece will also increase response, because it gives prospects the opportunity to get more information without committing themselves to a call.
The company making the offer. A familiar company is going to get a greater response than an unknown company. If your company is not well known, you may want to implement an integrated marketing strategy before and during your direct marketing efforts. Another option is to find a better known partner for co-marketing.
Re-mailing. A second try will increase response. People don’t always respond to the first offer and may put it aside for later action. Studies have shown that it can take five mailings to get a satisfactory response.
One investment company raised the number of re-mailings to those who had responded to an offer for a free portfolio analysis from two mailings to five. Doing so raised the number converted from leads to clients from 30 to 66 percent.
Creative. The creative aspects of a mailing—the letter, the artwork, the number of pieces, and so forth—are less important than the factors cited above. Sending a poorly conceived offer to a good list will result in far more responses than sending a brilliant concept to a bad list. But creative issues can make a difference. For example, a clever teaser line on the outer envelope will get more people to open the mailing, thus improving response. Response will increase with each piece in the mailing, such as a “lift” letter (an additional piece designed to improve response by giving the reader just one more reason to buy), business reply card (BRC), reply envelope, involvement device (such as a peel-off sticker), and other tricks of the trade.
Getting Past the Gatekeeper
Mailings to institutional prospects have long been problematic. Personnel move around from position to position and company to company, but the major barrier to using direct marketing to high-level executives is getting past the gatekeeper. Many companies’ mailrooms, for example, will not deliver third-class mail or mail that is addressed to a title rather than an individual. Once your piece gets through the mailroom, it then has to get by the executive’s assistant or secretary, who often opens the mail and discards anything that looks like junk. There are several schools of thought as to the best way to get past these gatekeepers. One tactic is to make the mailing look as much like a regular business letter as possible: a number-10 envelope with return address and no other copy, metered, or stamped first class. This will get it through the mailroom, though perhaps not past the secretary. If the letter really is personal—say from a salesperson to someone she met at a conference—it will be read by the assistant and passed on if it looks genuine. It’s very important to make sure that it does not contain misspellings, incorrect grammar, typos, and other flaws that could get it tossed in the trash. Another approach is to enclose something valuable—even if the value is minimal. One mailer enclosed a $1 lottery ticket with a survey and increased response sevenfold.
A surefire way to get past most gatekeepers is to send the mailing via courier or overnight express. However, this is an expensive solution best saved for very targeted, high-value prospects. Prospects may handle their own mail, so marketers sometimes use a postcard or other type of self-mailer—that is, something that does not need to be opened. The idea here is that the executive may take a quick look at the offer. If there were an envelope instead, he might just toss it out without opening it.
Dimensional, Premiums, and Other Gimmicks
A more expensive solution is a dimensional mailing, which is something sent in a box or other container. Dimensional are expensive even if the item itself is not. Usually the container must be custom-made and printed, the items individually packed and mailed. But clever dimensionals can be effective in getting through the door—in one study, using a dimensional improved response rates by 75 percent.3
Sending a series of items can be a good foot-in-the-door technique. For example, a person looking for foreign-exchange business could send one attractive granite bookend in the shape of a dollar sign with a cover note explaining that he would bring the other bookend, in the shape of a Euro sign, to a personal meeting with the prospect. A technology company selling to commercial banks used this technique when DVDs were new. The chief technology officer received a promotional DVD disc, with the promise of a DVD player to be delivered by the sales rep at their first meeting. Be sure, however, the item is consistent in tone and content with both your image and the recipient. Obviously, expensive premiums should be limited to A-list targets only.
A word of caution: if your promotion is too valuable, it may run afoul of corporate gift policies and IRS regulations limiting the deductibility of gifts to $25. Although the IRS would generally allow companies to treat such promotional items as advertising expenses, it may be best to add your corporate logo to the item to avoid any question. As to whether this would satisfy the rules of the receiving organization, it may be wise to check with your own legal counsel for guidance.
How much should a direct response campaign cost? Clearly, there is a wide variation, based on the type and size of the promotion. Costs per unit can range from pennies for a multimillion-piece mailing or telemarketing campaign to hundreds of dollars for limited distribution of a dimensional.
While some marketers try to equate the cost of direct methods to common advertising charges, CPM (cost per thousand) is not a useful metric for most efforts. On an overall CPM basis, direct mail costs are far higher than media advertising. However, on the basis of targeted CPM—reaching those who are likely to buy the product—costs are usually lower than for comparable media buys. Similarly, return on investment (ROI) is generally higher for direct response.
Direct mail is expensive because it is complex. These are just the major elements that need to be budgeted:
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