Today, sophisticated companies use the skills developed by direct marketers to establish, nourish, and maintain relationships, not just with customers, but with all stakeholders.
GEICO, for instance, uses TV advertising as one of its linkage media—media that help prospects and customers link up with a
Because millions of consumers are comfortable shopping on the Web, direct-response messages only need to provide a compelling benefit and a memorable web address. Priceline.com is successful at both of these objectives.
Source: The Priceline Group
The famous gecko shown in this direct response ad from Geico uses a softer, less edgy style to describe the benefits of saving on insurance. These types of direct-response ads allow Geico to save marketing dollars and also to help save money on a personal sales force.
Source: GEICO
direct-response advertising An advertising message that asks the reader, listener, or viewer to provide feedback straight to the sender. It can take the form of direct mail, or it can use a wide range of other media, from matchbook covers or magazines, to radio, TV, Internet links, or billboards.
$25 billion on direct marketing efforts annually. Britain comes in second at more than $17 billion, fol-
lowed closely by France. Inter- estingly, outside the United States, Japan is by far the num- ber one market for direct market- ing, with estimated annual spending close to $70 billion.13
Telephone companies worldwide pro- vide toll-free numbers for customers to place orders or request information. Toll- free numbers give companies immediate, di- rect responses and help them collect information to create and refine their databases.
GEICO relies heavily on a toll-free number to sell insurance.
Certain challenges in foreign markets have limited the growth of direct marketing efforts. There are, of course, a wide variety of legal and regulatory environments to contend with. Likewise, payment and postal systems in different countries vary considerably, as do conventions for address- ing mail. And finally, cultural nuances and language can get in the way.
company—to inform prospects how to in- quire about its products. Next, it uses these responses to build its database of names, ad- dresses, and e-mail ad- dresses. Then it uses the database to communicate with prospects, open a dialogue, and establish a relationship. It may send a mail piece with ordering information or direct people to its website to enable prospects to con- nect with GEICO directly.
The Evolution of Direct Marketing
Direct marketing is the oldest marketing method, and today it is growing incredibly fast, propelled
by the major social and technological changes of recent decades. Sixty percent of American women now work out- side the home.11 So while families have more income, they have less time to spend shopping, thus making the conve- nience of telephones and the Internet an important factor in direct marketing.
Likewise, widespread use of credit cards has revolutionized the way consumers buy goods and services. Electronic, cashless transactions make products easier and
faster to purchase.
Companies spent an estimated $163 billion on direct marketing in the United States in 2016 (Exhibit 15–1 shows the largest direct-response agencies in the United States). This accounts for over 52 percent of total advertising spending in this country. Marketer interest not surprising, given that the return on investment for direct mar- keting is estimated to be $12.03 of sales per dollar spent, compared to $5.24 for general advertising.
Much of the growth is driven by online media.
Those expenditures generated $1.96 trillion in sales in 2011, or 8.7 percent of the total U.S. gross domestic product.12
Direct marketing is also popular in other parts of the world. Today, Germany is by far the largest national market in Europe, spending more than
THE COMPANY THAT UNDERSTANDS ITS CUSTOMERS’ NEEDS AND WANTS . . . WILL CREATE A SUSTAINABLE COMPETITIVE ADVANTAGE.
E X H I B I T 1 5 – 1 Largest direct-response agencies in the United States (2014).
2011 2013 Agency (Company) U.S. Revenue
(Millions) 2014 Percent Change from 2013
1 1 Epsilon $1,298 7.2%
2 2 Wunderman* 1,175 3.8
3 3 Experian Marketing Services 881 0.8
4 4 DigitasLBi* 871 7.8
5 5 Acxiom Corp.* 810 0.6
6 6 Rapp* 760 5.9
7 7 OgilvyOne Worldwide* 631 10.8
8 8 Proximity* 586 9.5
9 9 Harte-Hanks* 499 −0.9
10 11 Merkle 448 15.1
Source: Ad Age Datacenter.
© Comstock/PunchStock RF
CHAPTER 15 | IMC: Direct Marketing, Personal Selling, Packaging, and Sales Promotion 369
reduced attrition by 20 percent, and the reduction in cost of sales alone paid back the entire direct marketing investment.14 In another situation, a company might determine from its CLTV analysis that its best course of action is simply to drop the most unprofitable customers.
Loyalty (or continuity) programs reward customers for fre- quent and continuous patronage. The frequent flyer club, intro- duced by American Airlines in 1981, is the model for today’s continuity programs. Consumer purchases are tabulated on a company’s database and discounts, free products, or services are awarded when specific levels are reached. The database can also provide the company with a demographic profile and pur- chase history for each customer.
The database is the key to direct marketing success, especially in an IMC program. It enables marketers to target, segment, and grade customers. It is the corporate memory of all impor- tant customer information: name and address, telephone num- ber, e-mail address, source of inquiry, history of purchases, and so on. It should record every transaction across all points of contact with both channel members and customers. The
The Impact of Databases on Direct Marketing
Computer technology enables marketers to compile and ana- lyze important customer information in unprecedented ways.
Pitney Bowes, for instance, was the dominant company in the postal meter business. However, its growth rate and profitabil- ity were flattening. So the company used its database to iden- tify its best customers, their value to the organization, and their needs and buying behavior. From this, Pitney Bowes created a customer lifetime value (CLTV) model based on the custom- er’s historical and potential worth. Computing and ranking the lifetime value of all of its 1.2 million customers showed that more than two-thirds of the customer base value resided in fewer than 10 percent of the customers. The company also found it had a major retention problem within its low-volume, low-cost accounts. Cancellation rates were running as high as 40 percent per year in some segments. This analysis led Pitney Bowes to develop a distinct direct marketing strategy for both its best and its worst customers. It began a sophisticated loyalty program for its best customers and a retention program for its problem accounts. By the end of the first year, the program had
customer lifetime value (CLTV) The total sales or profit value of a customer to a marketer over the course of that customer’s lifetime.
loyalty (continuity) programs Programs that reward customers with discounts and free products in return for frequent and continuous patronage.
Consumer purchases are tracked on a company’s database.
Database marketing was much more difficult before the development of personal computers because of the intense data management requirements. Today, with the low cost of personal computers, even the smallest companies can engage in complex database building and marketing strategies.
Source: Salesforce.com, Inc Most business is conducted with repeat customers. This places a
premium on customer retention. Retention can be achieved by offering special benefits to loyal customers, effectively rewarding and thanking them for business, and providing an incentive for a continued relationship in the future. Retail food giant Kroger successfully retains its customers with their community rewards program. The more a customer spends, the more Kroger gives back to a customer’s preferred nonprofit organization.
Source: The Kroger Co.
more cost-effective method than the database-driven, direct- response media.
Finally, unlike the public mass media, direct-response media can be more private. A company can conduct a sales letter cam- paign without the competition ever knowing about it.
Drawbacks to Direct Marketing
At the same time, direct marketing still faces some chal- lenges. In the past, direct marketers were sales oriented, not
relationship oriented. This gave direct marketing a bad reputation in the minds of many consumers.
Some people also enjoy the experience of vis- iting retail stores and shopping. They like to
see and feel the goods personally, and they are hesitant to buy goods sight unseen.
This is why the objective of many direct marketing campaigns is now to help drive traffic to retail locations.
Direct marketing efforts often have to stand on their own without the content sup- port of the media that advertising enjoys. They don’t always get the prestigious affiliation of- fered by some media. This makes it more difficult (and costly) to build an image for the product, some-
thing mass media advertising is particularly good at.
Direct marketing also suffers from clutter. People are deluged with mail from commercial sponsors and drum- beating politicians. Cable channels are filled with infomer- cials for food processors. Telemarketing pitches intrude on consumers at home and at work. Internet ads and e-mails per- meate our daily lives.
Many consumers are also concerned with privacy. They don’t like having their names sold by list vendors. At one national forum of direct marketers, attendees were told they must self-
regulate, give consumers more control, and treat pri- vacy like a customer service issue—or risk legislation restricting access to the information they desperately need.19 Wise marketers have heeded these warnings and developed methods for responsible direct marketing.
company that understands its customers’ needs and wants better than any of its competitors will create a sustainable competitive advantage.
The database also lets the company measure the efficiency of its direct-response advertising efforts to determine, for instance, which radio or TV commercials, or which mailing lists, perform the best.
The Importance of Direct Marketing to IMC
Perhaps the greatest reason for direct marketing’s current growth is that marketers and agencies realize they can’t do the job with just one me- dium anymore. As the mass audience frag- mented and companies began to integrate their marketing communications, customer databases became key to retaining and grow- ing customers.
Direct marketing is the best way to develop a good database. The database enables the marketer to build a relationship by learning about customers in-depth: their nuances, what and where they buy, what they’re inter- ested in, and what they need. With a data- base, companies can choose the prospects they can serve most effectively and profit- ably—the purpose of all marketing. “You don’t want a relationship with every customer,”
says Philip Kotler. “In fact, there are some bad customers out there.”15 Retailer Best Buy uses direct mail to send sales promotions materials, but only to its best customers.16
People like to see themselves as unique, not part of some mass market. Through direct marketing, especially addressable electronic media, companies can send discrete mes- sages to individual customers and prospects.
With different types of sales promotion (dis-
cussed in the last part of this chapter), a company can en- courage individuals, not masses, to respond and can develop a relationship with each person. By responding, the prospect self-selects, in effect giving the marketer permission to begin a relationship.17 The direct marketing database, then, be- comes the company’s primary tool to initiate, build, culti- vate, and measure the effectiveness of its loyalty efforts.18 By providing a tangible response, direct marketing offers ac- countability. Marketers can count the responses and determine the cost per response. They can also judge the effectiveness of the medium they’re using and test different creative executions.
Direct marketing offers convenience to time-sensitive consum- ers, and it offers precision and flexibility to cost-sensitive mar- keters. For example, to reach small B2B markets, there is no
1. What are the key characteristics that differenti- ate direct marketing from most other forms of marketing tools?
2. What role do databases play in direct marketing?
check yourself ✓
© Comstock Images/Alamy RF
CHAPTER 15 | IMC: Direct Marketing, Personal Selling, Packaging, and Sales Promotion 371
callers. The information collected is also used to update the company’s customer database. Tele marketing is the major source of income for some companies and organizations, such as nonprofit and charitable causes, political candidates, and home-study courses. In 2013, marketers are expected to spend
$52.4 billion on telemarketing to consumers and businesses, making it the third largest spending category behind television and sales promotion.21
The reasons for this are economics and consumers’ acceptance of teleculture. First, telemarketing costs a lot less money than personal selling. In the insurance business, for example, the ex- pense ratio for car and home insurance is currently running at 27 percent for all insurers. The most efficient insurers, like LO15-3 Explain the various types of direct
marketing activities.