In preparing a direct-marketing campaign, marketers must decide on their objectives, targets, offer strategy, various tests, and measures of campaign success. Here we will review these decisions.
Objectives:
The direct marketer normally aims to secure immediate purchases from prospects. The campaign success is judged by the response rate. A response rate of 2% is normally considered good in direct marketing sales campaign. Yet this rate also implies that 98% of the campaign effort was wasted.
That is not necessarily the case. The direct marketing presumably had some effect on awareness and intention to buy at a later date. Furthermore, not all direct marketing aims to produce an immediate sale. One major use of direct marketing is to produce prospects leads for the sales force. Direct marketers also send communication to strengthen brand image and company preference; examples include banks that mail birthday greetings to their best customers. Some direct marketers run campaign to inform and educate their customers to prepare them for later purchases; thus Ford send out booklets on “How to take Good Care of your Car”. Given the variety of direct marketing objectives, the direct marketer needs to carefully spell out the campaign objectives.
Target customers:
Direct marketer needs to figure out the characteristics of customers and prospects who would be most able, willing, and ready to buy. Bob stone recommends applying the R-F-M formula ( recency, frequency, monetary amount) for rating and selecting customers from a list. The best customers target who bought most recently, who buy frequently and who spend the most. Points are established for varying R-F-M levels, and each customer is scored; the higher the score, the more attractive the customer.
Direct marketers can use segmentation criteria in targeting prospects. Good prospects can be identifies on the basis of such variables as age, sex, income, education, previous mail-order purchases, and so forth. Occasions also provide a good segmentation departure points. New mothers will be in the market for baby clothes and baby toys; college freshmen will buy computers and clothing and newly married will be looking for housing, furniture, appliances and bank loans. Another good segmentation departure points are consumer lifestyles. There are consumers who are marketers have targeted these groups and won their hears and minds. Companies and industries 24-1 provides the survey findings of Japanese consumer who tended to purchases through direct mail.
Once the target market is defined, the direct marketer needs to obtain names of good prospects in the target market. Here is where list acquisition and management skills come into play. The direct marketer’s best list is typically the house list of past customers who have bought the company’s products. The direct marketers can buy additional lists from list brokers. Manes on these lists are priced at so much a name. But external lists have problems, including name duplication, incomplete data, obsolete addresses, and so on. The better lists include overlays of demographic and psycho graphic information, in addition to simple addresses. The main point is that the direct marketer needs to test in advance to know their worth.
Offer strategy:
Direct marketers have to figure out an effective offer strategy to meet the target’s needs. Nash sees the offer strategy as consisting of five elements-the product, the offer, the medium, the distribution method, and the creative strategy. Fortunately all of these elements can be tested.
Each medium has its own rule for effective use. Consider direct mail. In developing a package mailing, the direct marker has to decide of five components. Each component can help or hurt the overall response rate. The outside envelope will be more effective if it contains an illustration, preferably in color and /or a catch reason to open the envelop, such as the announcement of a contest, premium, or benefit to the recipient. Envelopes are more effective—but more costly – when they contain a colorful commemorative stamp, when the address is hand typed or handwritten, and when the envelope differs in size or shape from standard envelopes.
The sales letter should use a personal salutation and start with a headline in bold type in the form of a news lead, a how/what/why statement, a narrative, or a question to gain attention. The letter should be printed on good-quality paper and run for as many pages as are necessary to make the sale, with some indented paragraphs and underlining of pertinent phrases and sentences. A computer –type letter usually out pulls a printed letter, and the presence of a pithy P.S. at the letter’s end increases the response rate, as does the signature of someone whose title is appropriate and impressive. A colorful circular accompanying the letter will also increase the response rate in most cases by more than its cost. The reply should feature a toll-free number and contain a perforated receipt stub and guarantee of satisfaction. The inclusion of a postage-free reply envelope will dramatically increase the response rate.
Consider on the other hand, a telemarketing campaign. Effective telemarketing depends on choosing the right telemarketers, training them well, and incentivizing them. Telemarketers should have pleasant voices and project enthusiasm. Women are a script and eventually move toward more improvisation. The opening lines are critical. They should be brief and lead with a good question that catches the listener’s interest.
The telemarketer needs to know how to end the conversation if the prospect seems to be a poor one. The call should be made at the right time, which is late morning afternoon to reach business prospects, and the evening hours between7 to 9 to reach households. The telemarketing supervisor can build up telemarketer enthusiasm by offering prizes to the first one who gets an order to the top performer. Given the higher cost per contact telemarketing, and privacy issues, precise list selection and targeting is critical. Clearly, other media, such as catalog mail order, TV home shopping, and so on, have their own rules for effective use.
Testing direct-marketing elements:
One of the great advantages of direct marketing is the ability to test under real marketplace conditions the efficacy of different components of the offer strategy. Direct marketers can test product features, copy, pric3es, media, mailing lists, and the like. Although direct-marketing response rates are at the single-digit level, testing these components can add substantially to the overall response rate and profitability.
The response rate to a direct-marketing campaign typically understates the long-term impact of the campaign. Suppose only2% of recipients of a direct-mail piece advertising Samsonite luggage place an order. A much larger percentage became aware (direct mail has high readership), and some percentage formed an intention to buy at a later date (the purchase will occur at a retail outlet). Furthermore some percentage of the audience may mention Samsonite luggage to others as a result of seeing the promotion. Some companies are now measuring the impact of direct marketing on awareness, intention to buy, and word-of-mouth to derive a larger estimate of the promotion’s impact than is measured by the response rate alone.
Measuring the Campaign’s success:
By adding up the campaign costs, the direct marketer can figure out in advance the needed break-even response rate. This rate must be net of returned merchandise and bad debts. Returned merchandise can kill an otherwise effective campaign. The direct marketer needs to analyze the main causes of returned merchandise, such as late arrival, defective merchandise, and damage in transit, not as advertised and incorrect order fulfillment.
By carefully analyzing past campaigns, direct marketers can steadily improve their performance. Even when a specific campaign fails to break even, it might still be profitable.
Suppose a membership organization spends $10,000 on a new-member campaign and attracts 100 new members, each paying $70. it appears that the campaign has lost $3,000 (=$10,000-$7,000). Bit if 80% of new members renew their membership in the second year, the organization gets another $5,600 without any effort. It has now received $12,600 (=$7,000+$5,600) for its investment of $10,000. to figure out the long-term break-even rate one needs to figure out not only the initial response rate but the percentage who renew each year and for how many years they renew.
This example introduces the concept of customer lifetime value. The ultimate value of a customer is not revealed by the customer’s purchase during a particular mailing. Rather the customer’s ultimate value is the profit made on all the customer’s purchases overtime less the customer acquisition and maintenance costs. For an average customer, one would calculate the average customer longevity, average customer annual expenditure, and average gross margin, properly discounted for the opportunity cost of money, les the average customers whose expected lifetime value the company wants to assess.
After assessing customer lifetime values, the company can focus its communication efforts on the more attractive customers. These efforts include sending communications that may not even sell the customer anything—but maintain the customer’s interest in the company and its products. Such communications include free newsletters, tips and birthday greetings, al serving to build a customer relationship.
Direct marketing has spawned a growing body of theory, measurement, and competent practice. It adds a number of communication concepts and capabilities to the marketer’s toolbox. When tied to a carefully developed customer database, it can increase sales and profit yields and strengthens customer relationship. It can provide more accurate prospect leads and trigger new sales at a lower cost. Ultimately, marketers will make direct marketing and database marketing an integral part of their marketing strategy and planning. Yet they must do this responsibility.
