Direct marketing evolved as a technique to reach pre-qualified customers at a reasonable cost—over against mass marketing in which, for every qualified customer, several hundred totally disinterested people had to be contacted. The Direct Marketing Association (DMA) speaks of an "interactive system of marketing"; direct marketing, however, grew up out of using qualified mailing lists to reach customers. The interactions, therefore, are typically a customer receiving a letter and the sender getting a phone call. Direct marketing, in other words, is as old as the hills. Companies dealing with the same customers on a narrow subject, like bicycles, learned that they could earn extra money by selling their mailing lists to others. The next phases in direct marketing was capturing such lists in computer databases and adding more information about the customer. This was then hyped as "database marketing." Direct marketing has added a proactive function of building mailing lists and databases using federal statistical sources, surveys, and telephone queries.
In a way it is easier to say what direct marketing is not. It is not direct mail, although it uses direct mail. If direct mail is used, it has to be sharply targeted. It isn't advertising, although it uses advertising—including such media as billboards. Again, specificity is important. A billboard may announce a melon sale at the next highway intersection. This is a form of direct marketing. It isn't telephone selling, although it may use telephone banks. Telephone selling is telemarketing; it is part of direct marketing only if a company is calling precious customers.
Most consumers do not understand anything particularly sophisticated by the phrase or even know what it means in detail. They simply think that direct marketing is like mail or people at the door, whereas mass marketing is on TV and in the magazines.
Indeed, in practice, distinctions are very difficult to make, and statistics on the subject are derived from members of the DMA. However, not everyone engaged in direct marketing is a member. And presumably the members also engage in other type of marketing not quite so direct—as becomes clear in the discussion below. The DMA suggests that its activities represented 10 percent of Gross Domestic Product in 2005 or $1.28 trillion. However there is no way to develop this number by an alternative means because federal sources do not report on a "direct marketing" category.
DIRECT MARKETING MEDIA
While many people associate direct marketing with direct mail, direct mail is only one of several advertising media utilized by direct marketers. Other major direct marketing media include the telephone, magazines, newspapers, television, and radio. Alternative media include card decks, package and bill inserts, and matchbooks. Within the major media, new technological developments are giving direct marketers an expanded range of choices from videocassettes (possibly advertised on television, requested by telephone or interactive computer, and delivered via mail or alternate delivery services) to home-shopping networks, interactive television, and the Internet.
Direct mail is the most heavily used direct marketing medium and the one most direct marketers learn first. Direct mail has been used to sell a wide variety of goods and services to consumers as well as businesses, and it continues to grow despite postage increases. Direct mail offers several advantages over other media, including selectivity, personalization, flexibility, and testability. It allows businesses to target individuals with known purchase histories or particular psychographic or demographic characteristics that match the marketer's customer profile. Direct mail can be targeted to a specific geographic area based on zip codes or other geographic factors. Personalization in direct mail means not only addressing the envelope to a person or family by name, but also perhaps including the recipient's name inside the envelope.
Direct mail packages come in all shapes and sizes, making it one of the most flexible of the direct marketing media. A standard direct mail package includes an envelope, a letter, a brochure, and a response device. The envelope's job is to motivate the recipient to open the package. Regardless of the volume of mail a person receives, the envelope must distinguish itself from other mail by its size, appearance, and any copy that might be written on it. The letter is a sales letter and provides the opportunity to directly address the interests and concerns of the recipient. The letter typically spells out the benefits of the offer in detail. While the letter tells the recipient about the benefits of the offer, the brochure illustrates them. Illustrated brochures are used to sell services as well as products. Finally, the package must include a response device, such as a business reply card, that the recipient can send back. Response rates are generally higher when the response device is separate from, rather than part of, the brochure or letter. Toll-free numbers are often prominently displayed to allow the recipient to respond via telephone.
Direct mail is the most easily tested advertising medium. Every factor in successful direct marketing—the right offer, the right person, the right format, and the right timing—can be tested in direct mail. Computer technologies have made it easier to select a randomized name sample from any list, so that mailers can run a test mailing to determine the response from a list before "rolling out," or mailing, the entire list. Different packages containing different offers can also be tested. Other media allow some degree of testing, but direct mail is the most sophisticated. In relation to the other direct marketing media, direct mail is considered to offer the most cost-effective way of achieving the highest possible response. Telemarketing usually produces a higher response rate, but at a much higher cost per response.
Telephone-Based Direct Marketing (Telemarketing)
The use of the telephone in direct marketing has grown dramatically over the past two decades. Expenditures now may equal, or even surpass, those of direct mail. Telephone-based direct marketing may be outbound and/or inbound. Inbound telemarketing is also known as teleservicing and usually involves taking orders and responding to inquiries. Outbound telemarketing for consumers may be used for one-step selling, lead generation, lead qualification or follow-up, and selling and servicing larger and more active customers. In business, telemarketing can be used to reach smaller accounts that do not warrant a personal sales call as well as to generate, qualify, and follow up leads.
Telemarketing has the advantages of being personal and interactive. It is an effective two-way communications medium that enables company representatives to listen to customers. Telephone salespeople typically work from a script, but the medium allows the flexibility of revising the script as needed. It also allows for up- and cross-selling. While customers are on the phone it is possible to increase the size of their orders by offering them additional choices—something that tends to lead to confusion in other direct marketing media.
Telemarketing also has its disadvantages. For example, it is more expensive than direct mail. It also lacks a permanent response device that the prospect can set aside or use later. It is not a visual medium—though the technology to make it one may soon be available. Finally, it is perceived as intrusive, generating consumer complaints that have led to legislative actions to regulate the telemarketing industry.
Direct response print ads in magazines must make a definite offer or request that asks the reader to do something. Typically, such ads require a reader to send in a coupon or reply card, or call a toll-free number. With well over 2,000 consumer magazines now being published, magazine ads allow direct marketers to reach audiences with identifiable interests. In addition to advertising heavily in special interest magazines, direct marketers utilize mass consumer magazines and take advantage of regional advertising space to target specific audiences.
Unlike general advertisers, who measure the effectiveness of their print ads in terms of reach and frequency, direct marketers measure the effectiveness of their print ads in terms of cost effectiveness—either cost-per-inquiry or cost-per-order. Magazine ads offer the advantages of good color reproduction, a relatively long ad life (especially compared to daily newspapers), and a lower cost. Creative costs for magazine ads are also usually lower than for direct mail. But direct marketers find magazines' long lead times, slower response, and scarcer space than direct mail to be disadvantages.
While direct marketers advertise in magazines more than newspapers, newspapers have some distinct advantages. These include the variety of sections offered within a newspaper, shorter closing dates, an immediate response, and broad coverage of a large and diverse audience. Disadvantages include poor ad reproduction and the limited availability of color. Editorial content can also have more of an adverse effect on ad response than in magazines. In addition to advertising in the regular pages of a newspaper, direct marketers also advertise in free-standing inserts (FSIs) that are usually distributed with the Sunday editions of newspapers.
Direct marketing on television is increasing. Early examples of direct response advertisements on television that should be familiar to viewers include those for knives, garden tools, exercise equipment, records, and books, which ask viewers to call in and order a specific product. More recent developments in direct response television advertising include a return to a lengthier format, commonly known as the infomercial, where a product or other offer is explained in some detail over a time period extending to 30 minutes or more. Advocates of this format point out that the greater length gives the advertiser the opportunity to build a relationship with the viewer and overcome initial viewer skepticism, and at the same time present a convincing story spelling out product features and benefits in detail.
Not all direct response television involves asking for an order. Long-distance telephone companies and automobile manufacturers, among other advertisers, have included 800 telephone numbers with their television ads to get viewers to call and request more information about their product or service. Any television ad that includes an 800 number is asking for a response and qualifies as a direct response advertisement.
Thanks to the growing availability of interactive television, together with developments in the delivery of more cable channels that offer audiences with identifiable interests and demographics, direct response television promises to be a dynamic area in the future of direct marketing. Interactive digital television now includes direct response features that allow viewers to order a pizza, book a test drive for a new automobile, or order a new music CD without leaving their sofas. "It is the ultimate shopping trip for the couch potato," Rachel Miller wrote in Marketing. "Instead of walking to the shops, logging onto a computer, or even picking up a phone, they can press a button on the remote they already have in their hands." In addition to the benefits for consumers, interactive TV also offers businesses the opportunity to collect a great deal of data about their potential customers. Some experts predict that this will usher in an era of targeted, highly personalized television advertising.
DIRECT MARKETING LISTS AND DATABASES
Lists are commonly used in direct mail and telemarketing. The two basic types of lists are response lists and compiled lists. Response lists contain the names of all the prospects who have responded to the same offer. These individuals typically share a common interest. Names on a response list may include buyers, inquirers, subscribers, continuity club members, or sweepstakes entrants. They may have responded to an offer from one of several media, including direct mail, television, or a print ad. Response lists are not usually rented; rather, they are an in-house list compiled by a particular business. Compiled lists are often rented by direct marketers. Compiled mass consumer, specialized consumer, and business lists are available for a wide range of interests.
Direct marketing databases are similar to mailing lists in that they contain names and addresses, but they go much further. They are the repository of a wide range of customer information and may also contain psycho-graphic, demographic, and census data compiled from external sources. They form the basis of direct marketing programs whereby companies establish closer ties with their customers.
Database marketing became one of the buzzwords of the direct marketing industry in the 1980s, and it has continued to evolve in the twenty-first century. Whether it is called relationship marketing, relevance marketing, or bonding, the common theme of database marketing is strengthening relationships with existing customers and building relationships with new ones. Databases allow direct marketers to uncover a wealth of relevant information about individual consumers and apply that knowledge to increase the probability of a desired response or purchase.
As with mailing lists, there are two basic types of marketing databases, customer databases and external databases. Customer databases are compiled internally and contain information about a company's customers taken from the relationship-building process. External databases are collections of specific individuals and their characteristics. These external databases may be mass-compiled from public data sources; they may contain financial data based on confidential credit files; they may be compiled from questionnaires; or they may be a combination of all three sources.
Database marketing, and especially the prospect of using confidential information for marketing purposes, has made privacy an important issue in the direct marketing industry. Some states have passed legislation limiting access to previously public data or limiting the use of such data as automobile registrations, credit histories, and medical information. In order to avoid excessive government regulation, the direct marketing industry has attempted to be self-policing with regard to the use of sensitive data. However, the struggle between industry self-regulation and government regulation will probably continue for some time.
SUCCESSFUL DIRECT MARKETING FOR SMALL BUSINESSES
Thanks to its relatively low cost, its ability to reach specialized target markets, and its ability to provide immediate and measurable results, direct marketing can be an important tool for start-up businesses. It can also be used effectively as a supplement to a small business's traditional sales efforts. Entrepreneurs interested in starting a direct marketing program can consult with advertising and direct marketing agencies for help in evaluating their sales potential and preparing materials for a campaign.
In the Macmillan Small Business Handbook, Mark Stevens identified three steps for a small business owner to take in initiating a direct marketing effort: 1) create promotional tools (such as catalogs, advertisements, or direct mail pieces) that emphasize the benefits of the product or service; 2) identify the target market and select mailing lists and advertising media to reach it; and 3) monitor the results of each campaign and revise the tactics as needed to find the optimum mix of price, copy, and audience. Stevens noted that entrepreneurs might also find it helpful to give consumers an incentive to act, such as a free gift or special price; promote to existing customers—who usually provide the highest response rate—as well as new prospects; and build on successful promotions by broadening the product line.
There are certain situations where direct marketing is more likely to work than others. First, the direct marketer must be able to identify the target audience in terms of shared characteristics. Are they likely to read a particular magazine? Live in a certain geographic area? Have a certain minimum income? Be a certain age or gender? The more characteristics of the target audience that can be identified, the more likely it is that a direct marketing campaign targeted to those individuals will work.
Since direct marketing relies on one-to-one communications and motivating the recipient to act, it is essential to be able to reach the target audience. It is no use identifying a target market if there is no mailing list or print or broadcast medium available to reach them. Some other situations in which direct marketing works well are when there is a lot to say about a product or service; when the product or service has the potential for repeat sales; and when there is a need to have greater control over the sales message.
The success of a direct marketing program depends on delivering the right offer at the right time to the right person in the right way. Direct marketing is a complex discipline that requires expertise in several areas to achieve success. It involves identifying the target market correctly and selecting the appropriate media and/or lists to reach it. The offer must be presented in the best way, and direct marketers must use the most effective creative execution to successfully motivate customers and prospects. At its most effective, direct marketing is an ongoing process of communication to maintain relationships with existing customers and build relationships with new ones.
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Hillstrom, Northern Lights
updated by Magee, ECDI