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Direct Marketing in Saudi Arabia
Direct Marketing
in
Saudi Arabia
By
Dr. Ahmed Al-Shumaimri
Business Administration Departement
King Saud University – AlQasseem Branch
2002
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Direct Marketing in Saudi Arabia
INTRODUCTION ......................................................................................................................................... 4
CHAPTER 1 .................................................................................................................................................. 6
DIRECT MARKETING: HISTORY AND GROWTH ................................................................................... 6
1.1 Direct marketing History ....................................................................................................................... 6
1.2 Direct marketing growth ....................................................................................................................... 9
1.3 Direct marketing around the World .................................................................................................... 10
1.4 Reasons for growth of direct marketing .............................................................................................. 12
1.5 Definition of direct marketing ............................................................................................................. 17
CHAPTER 2 ................................................................................................................................................ 21
ELEMENTS OF DIRECT MARKETING ................................................................................................................ 21
2.1 Direct Mail .......................................................................................................................................... 21
2.2 Mail order............................................................................................................................................ 22
2.3 Direct response advertising ................................................................................................................. 23
2.4 Telemarketing ...................................................................................................................................... 24
2.5 Interactive (On line) Marketing ........................................................................................................... 25
2.6 Direct marketing and other terms........................................................................................................ 28
CHAPTER 3 ................................................................................................................................................ 33
THE ROLE OF DIRECT MARKETING .................................................................................................................. 33
3.1 The major functions of direct marketing.............................................................................................. 33
3.2 Direct marketing as a promotional tool .............................................................................................. 37
3.3 Direct marketing as a distribution channel ......................................................................................... 43
3.4 Drawbacks of Direct Marketing .......................................................................................................... 47
CHAPTER 4 ................................................................................................................................................ 50
SAUDI MARKET ........................................................................................................................................ 50
4.1 Saudi economy ..................................................................................................................................... 50
4.2 Population and culture ........................................................................................................................ 52
4.3 Income ................................................................................................................................................. 54
4.4 Marketing mix ...................................................................................................................................... 55
CHAPTER 5 ................................................................................................................................................ 65
THE STATUS OF DIRECT MARKETING IN SAUDI ARABIA .................................................................................. 65
5.1 The field interviews.............................................................................................................................. 65
5.2 Descriptive Analysis ............................................................................................................................ 76
5.3 Elements of direct marketing in Saudi Arabia ..................................................................................... 78
5.4 Purposes, benefits, and barriers of direct marketing in Saudi Arabia ................................................ 82
5.5 Implications and Recommendations .................................................................................................... 86
REFERENCES ............................................................................................................................................ 90
2
Direct Marketing in Saudi Arabia
To all members
of Saudi Management Association (SMA)
3
Direct Marketing in Saudi Arabia
INTRODUCTION
Since World War II (1945) the global market has changed; the great demand
on consumer goods led to the revolution of mass production to fulfil customer
wants, that survived until recent years. Nowadays, there is a surplus of goods and
an abundance of places to buy. The customer has become the monarch again, and
those businesses that do not recognise this change and accommodate their
marketing strategy to it are in danger of failure. Since we entered the 1990s, the
competitive space has been altered dramatically. The fundamental structural
transitions in a wide variety of industries brought about by major changes such as
deregulation, global competition, technology, environmental issues, and changing
customer expectations are imposing new strains on managers around the world. Old
strategies do not necessarily work effectively. Managers, concerned with restoring
the competitiveness of their firms, are abandoning traditional approaches to
strategy; they are searching for new approaches that give guidance in a changeable
environment. The essence of strategic marketing becomes the search for the set of
factors that will yield a profitable competitive advantage in the long run. Today’s
firms must get acquainted with the customers again, learn who and what the
customer is, and market to the customer, rather than to their own biases. That is the
essence of introducing approaches such as direct marketing as a strategic discipline
that achieves sustainable competitive advantages.
In response to this pressure, direct marketing is growing rapidly, and is
considered one of the fastest growing marketing approaches during the last two
decades. In the UK for example, direct marketing expenditure increased by 100%
between 1990 and 1999. One form of direct marketing, direct mail itself accounted
for 90% of companies’ external expenditure on marketing directly to individual
households or trade clients in the UK (Key Note Report 1995). Similarly, in the
US, the overall media spending for direct marketing reached $191.6 billion in 2000.
Direct marketing advertising expenditures now represent more than half ( 56%) of
total US advertising expenditures. In Japan Catalogue sales reached $24 billion in
1996, and growth was estimated to be 10% each year.
Although this growing appeal is witnessed in several developed countries,
direct marketing in the developing countries such as the Gulf States (Saudi Arabia,
United Arab Emirates, Kuwait, Qatar, Oman, and Bahrain) is still in its infancy. In
Saudi Arabia, official statistics for direct marketing are still not available, and up to
2002 there were fewer than 10 agencies in the whole country classified as direct
mail services agencies. Mail order and catalogue businesses are also scarce. Most
of the existing mail order companies are branches or agencies of major
international companies such as Freeman’s, Quelle, MotherCare, JC Penney, Avon,
Next, and Great Universal. Banks and financial services are the primary users of
direct mail. According to the chief executive of the Post Office in Saudi Arabia,
banks account for more than 40% of the total business-to-business direct mail. The
remaining users are companies involved in retailing, health services, hotels, and
travel services. There is a growing need to attract the attention of marketers as well
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Direct Marketing in Saudi Arabia
as researchers to the significance of using the approach.
The objective of publishing this book is to provide a profile of the supply side
of direct marketing in Saudi Arabia. It will present a descriptive analysis of the
practice of direct marketing, its purposes, incentives, and the barriers to using the
technique. Unlike the situation in Western countries, where a considerable amount
of research work has been conducted on both the supply and demand side of direct
marketing, to the best of the author knowledge, no research about direct marketing
has been carried out in Saudi Arabia. Therefore, such a descriptive profile is
expected to provide insights, and has implications to improve the understanding of
direct marketing in Saudi Arabia in particular and the Gulf States that have similar
characteristics in general. And finally, it will provide researchers as well as
practitioners with general views and useful information about the characteristics of
direct marketing.
This book is divided into five chapters. The first chapter provides a brief
presentation of direct marketing’s history, and reasons for its growth. Also, it
provides a clarification of the conceptual meaning of direct marketing, as well as a
brief discussion of its definition among academics and practitioners. The second
chapter presents a brief explanation of the elements of direct marketing. Also, in
this chapter, the relationships between direct marketing and other marketing
approaches are explained, and the characteristic differences among these
approaches are distinguished. The third chapter highlights the strategic role of
direct marketing along with a discussion of its advantages and disadvantages. The
chapter concludes by explaining that although direct marketing has been used
commonly as a promotional tool, it is extensively used as a distribution channel.
The fourth chapter presents a brief background about Saudi Arabia’s market. It
presents a detailed description of channel structure in Saudi Arabia and some of the
major determinants of marketing strategy including population, income, and
culture. Furthermore, this chapter throws some light on the marketing mix in Saudi
Arabia and the physical infrastructure related to direct marketing. In the fifth
chapter, the results of the author's empirical research into the status of direct
marketing in Saudi Arabia will be discussed and the major findings will be
highlighted. It discusses the significant findings regarding the purposes, incentives,
and barriers to using the approach. Lastly, it explains the possible implications of
these findings, and provides a number of managerial implications and remarks.
Dr. Ahmed AlShumaimri
[email protected]
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Direct Marketing in Saudi Arabia
CHAPTER 1
DIRECT MARKETING: HISTORY AND GROWTH
1.1 Direct marketing history
Researchers have traced the roots of direct marketing to Europe as it emerged
from the middle ages and entered the Renaissance. The first trade catalogues were
issued by printer-publishers of the 15th century soon after Gutenberg's invention of
moveable type in 1645. Credit for the oldest extant catalogue (1498) goes to Aldus
Manutius of Venice. He listed 15 texts that he had published. Called the Aldine
Press, his operation became famous for its reliable and inexpensive books by Greek
and Latin authors.
Seed and nursery catalogues are among the oldest known. The earliest
mercantile gardening catalogue extant is a printed price list issued in 1667 by
William Lucas, an English gardener. By 1775, 18 page catalogues were issued by a
number of English gardeners and nurseries. By this time, the nursery catalogue had
come to American colonies as well.
In 1744, Benjamin Franklin published a catalogue of nearly 600 volumes in
most faculties and sciences. As he printed on the cover of his catalogue a guarantee
statement, Franklin's catalogue is considered as the base of what was later to
become the basic mail order concept of customer satisfaction guaranteed.
By the 1830s, a few mail order companies had begun to operate in the New
England states selling sporting equipment, camping, fishing, and marine supplies.
In 1844. Orvis issued its first catalogue, which featured fishing lure supplies and
related items. By the end of the Civil War, mail order activity had expanded to
other parts of the country. In addition to books and seed and nursery product, such
items as sewing machines, dry goods, medicines, musical instruments, and other
products were sold through mail order. Each firm sold a single line of product, and
very few sold exclusively by mail. Mail order ads were carried by some magazines.
In 1845 Tiffany & Company, New York, issued a modern mail order catalogue,
"Catalogue of Useful and Fancy Articles". Its 18 pages included listings of
hundreds of items imported from various fancy goods manufacturers in France,
England, Germany, and China.
In the Post-Civil War decades, catalogue mail order emerged and grew into a
powerful force. Montgomery Ward opened a company that sold directly to the
consumer and saved them the profit of the middleman. He purchased large
quantities for cash directly from the manufacturers at reduced retail prices and then
sold for cash direct to the farmer. At that time his first one-page catalogue was
issued. It was a sheet listing 163 items, "The Original Wholesale Grange Supply
House". In the early years, most of the goods, such as hoop skirts, paper collars,
bustles, and even an ostrich plume, were priced at one dollar. Within two years, the
original price list became an 8-page booklet and later a 72-page. By eliminating the
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Direct Marketing in Saudi Arabia
middleman, Ward promised savings of 40 percent on fans, parasols, writing paper,
needles, stereoscopes, cutlery, trunks, harnesses, and scores of other items. By the
1884, the Ward catalogue consisted of 240 pages with thousands of items offered.
The Ward catalogue dated Spring/Summer 1875 contained one of the earliest
pledge of consumer protection by a mail order company. The inside front cover
declared:
"We guarantee all our goods. If any of them are not satisfactory after due
inspection, we will take them back, pay all expenses, and refund the money paid for
them"
In 1886 Richard Warren Sears entered the mail order business with the sale
of watches. By 1893 Sears, Roebuck and Company had moved into wide range of
merchandise described in a catalogue of 196 pages. In 1907 the circulation of the
fall general catalogue was over three million and sales were about $54 million. The
period just prior to the Depression of 1929 reached an annual figure of about 65
million.
The postal service was a major factor in the expanding distribution of direct
mail and catalogue mail, specifically with the introduction of Rural Free Delivery
(RFD-the free delivery of mail to rural areas) in the 1890s and Parcel Post (the
delivery of packages) in 1913. In 1921, more than a billion newspapers and
magazines were delivered over rural routes; by 1929, the figure had reached nearly
two billion.
As early as the 1860s, a number of firms used direct mail in the form of
informational circulars and handbills to advertise their wares. In 1905, Homer J.
Buckley, who coined the term "direct mail", founded the first company to offer
professional direct mail creative service. Also, during this period the Direct Mail
Advertising Association, predecessor of the Direct Mail/Marketing Association and
now the Direct Marketing Association was established (1917). On October 1, 1961
the first use of the term "Direct Marketing" occurred, in a speech by Lester
Wunderman to the Hundred Million Clubs. In May 1968, Pete Hoke changed the
name of The Reporter of Direct Mail to Direct Marketing Magazine. From then on,
he became the outstanding proponent and missionary for the term "direct
marketing", helping to define its meaning and to broaden its scope and significance.
The term "direct marketing" has been accepted in advertising, marketing, and
business circles, in print and in academia, and, not least, by increasing numbers of
consumers.
In the United Kingdom, direct marketing activities have been in evidence
since the latter part of the nineteenth century. The early history of direct marketing
is a little obscure, but the Mail Order Traders’ Association believes it originated
towards the end of the last century in the South East of Lancashire, where an
entrepreneurial businessman took to the streets with a barrow piled with various
clothes and household goods. The attraction of being able to purchase goods from
their own distributors proved irresistible to many housewives, and so the present
direct marketing gradually developed from these early beginnings.
However, the last 30 years is a period during which the function of direct
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Direct Marketing in Saudi Arabia
marketing activity has changed, along with its place overall retailing scene. The
1960s are widely acknowledged to have been the heyday of mile order activity.
During the Wilson administration, conspicuous mail order houses – Great
Universal Stores ( GUS), Littlewoods, Freemans, and Grattan – and a host of
smaller, now extinct, companies, offered the only credit facilities then available to
consumers on restricted incomes.
At that time, most businesses engaged in mail order activity were operations
registered as mail order businesses. They include general and specialist concerns.
Comparatively few retail businesses, and even fewer major multiples, were
involved in mail order activity. In term of sales value, the sector was dominated by
general mail order houses, almost all of which used the agency arrangement.
At the peak of popularity of the general mail order houses, that is, in the late
1960s and early 1970s, the ratio of agents to clients was 1:10. It now stands at 1:2,
which suggests a market contraction of the trading base.
The general mail order houses were made particularly vulnerable by their
predominantly CD consumer profile, as the spending power of this group was
severely curtailed by the recession. Thus, by the early 1980s, the general mail order
house group was in serious decline and although consolidation and rationalization
activity did much to improve profitability at both company and group level,
economic revival in 1983 offered the group little in the way of relief.
By 1985, however, most of the United Kingdom’s leading mixed retail
businesses had re-appraised both their selection and their merchandising techniques
in order to compete effectively with the specialist operation, and reflect more
accurately the increasing sophistication of the UK consumers from all
socioeconomic groups. On the other hand, in the direct marketing sector, the
process of fundamental re-appraisal commenced only comparatively recently. This
has come about largely as a result of the direct involvement of leading retailers in
direct marketing by means of either acquisition, joint ventures, or by the launch of
their own mail order operation.
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Direct Marketing in Saudi Arabia
1.2 Direct marketing growth
Direct marketing is often cited as the fastest growing area of marketing. In the
European Countries the direct marketing spend is more than 20 billion per year,
and the UK accounts for about 12% of the total spend. According to the Direct
Marketing Association (DMA) expenditure on direct mail has increased by over
200% in the last 10 years (The Letterbox Factfile 2000). While some of the
increase is due to inflation in the costs of materials, wages, and postage, part can be
attributed to a greater commitment to direct mail. In the US direct marketing
expenditure reached $191.6 billion in 2000. However, direct marketing annual
expenditure growth began to fall behind sales growth in the five-year period from
1995-2000. Earlier in the nineties, both direct marketing expenditure and sales
annual growth rates were similarly reported in the 8.0 percent per year range.
Significantly, expenditure growth in the next five years, 2000-2005, will grow at a
slower annual rate of 7.1 percent, while revenue will grow much higher by 9.6
percent per year.
In fact, there are different estimates of direct marketing growth. Perhaps there
are no exact statistics analysing media expenditure on direct marketing alone.
Differences are mainly due to the diverse views as to what exactly constitutes direct
marketing. Does it include only direct mail, outbound telemarketing, house-to
house distribution and direct response advertising? Or does it also include
information technology and the maintenance?
In general, trends indicate that the growth will continue in the direct
marketing industry. A conservative estimate indicates that direct marketing sales as
a whole are estimated to grow by 9.6 percent annually to reach more than $2.7
trillion through 2005. In particular, business-to-business advertising expenditures
grew by 8.5 percent per year from 1995 -2000 and are forecast to grow at close to
the same rate at 8.2 percent annually from 2000-2005 -- to $145.9 billion. In
addition, spending growth for consumer direct marketing, in the next five years,
will be significantly more conservative than in the previous five years. From 19952000, consumer expenditures grew annually by a rate of 7.0 percent. The growth
rate up to 2005 is expected to be 5.9 percent per year.
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Direct Marketing in Saudi Arabia
1.3 Direct marketing around the world
The trend toward globalisation of marketing efforts is affecting everyone. The
United States is considered to be in the forefront of most aspects of direct-response
marketing. However, many of the same trends experienced in the States are driving
the development and growth of direct marketing in the industrialised nations
around the world. The global mail order market is estimated to worth over US$ 200
billion. Over 50% is accounted for by the US market, followed by Germany, Japan,
France, and the United Kingdom respectively. These five markets account for 87%
of all global mail order sales by value. The world’s two largest mail order
companies are German-owned Otto Versand and Quelle. The third largest mail
order company, JC Penney, is U.S owned and followed by La Redoute, a French
owned company. The fifth largest mail order company in the world is UK-owned
Great Universal Stores (GUS).
The bulk of mail order sales are still based on clothing, although it is agreed by
general mail order houses that other sectors, such as household and leisure goods,
will probably show greater growth in the future. The product profiles vary from
country to country but general mail order catalogues normally focus on family
purchases such as clothing, kitchen goods, small electrical and electronic
appliances, home furnishings, toys and leisure equipment. Also, the product mix
varies greatly even in established markets, and depends to some extent on which
companies pioneered the concept of ordering by the post. In much of Latin
America, book clubs are the main mail order companies, while in Europe, Japan
and the USA, clothing companies developed the market.
TABLE (1-1) MAJOR MARKETS IN WORLD BY PRODUCT PROFILE 1995
% of sales
US
UK
Germany
France
Japan
Clothing
21
43
34
37
36
Household
6
16
10
20
25
Furnishing and Household
electric
7
13
7
7
-
Footwear
1
6
3
3
-
Housewares
1
6
3
3
-
Books and Gifts
1
3
7
15
-
Toys
4
1
-
2
-
Cosmetics, Health
4
-
2
5
-
Other
50
14
34
11
39
Total
100
100
100
100
100
Direct marketing is becoming important in Eastern Europe and is also traditional
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Direct Marketing in Saudi Arabia
in Latin America. About a quarter of the world’s book market is supplied by book
clubs and mail order, and in the USA, nearly 40% of the market is through these
channels. It is expected to increase dramatically especially with the entrance of
successful companies such as Amazon.com through the Internet.
TABLE (1-2) THE MAJOR ECONOMIC GROWTH CATEGORIES FOR BOTH DIRECT MARKETING AND THE
TOTAL U.S. ECONOMY
Compound Annual
Growth Rates
Categories
Economic Growth Category
1995 - 2000
2000 - 2005
Direct Marketing Ad Expenditures
7.8%
7.1%
Total U.S. Ad Expenditures
7.7%
6.6%
Direct Marketing Sales Revenue
10.3%
9.6%
Total U.S. Sales Revenue
5.9%
5.4%
Direct Marketing Employment
5.6%
4.7%
Total U.S. Employment
2.1%
1.3%
European countries are considered as leaders in the direct marketing field.
Growth of transborder direct marketing in Europe has grown for two reasons. First,
as the 1992 elimination of national barriers in Europe approaches, so individual
national markets have become more cohesive. Second, within individual European
countries, there has been steady growth in direct mail activities. Indeed, direct
marketing’s progress has been so marked that the fifteen major European countries
joined together in the mid 1980s to establish a multinational business reply service
called Free Post. Prior to this, prepaid business replies had only been available on a
country-by-country basis and were not available internationally. The new
arrangement made it possible to send direct mail anywhere within a 15 country
area.
In Sweden, direct marketing expenditures have grown an average of 20% per
year. There are three reasons given for this consistently high growth rate. Perhaps
the most important reason has been Sweden’s very efficient postal and telephone
services which have kept costs down for direct marketers. The second reason is the
availability of computerised personal data systems and the fact that there are few
restrictions on its use for direct marketing purposes. The sum total of these
conditions has resulted in Sweden being labelled “the direct market’s paradise”.
Trends in Continental Europe generally indicate that growth will continue in the
direct marketing industry for foreseeable future. In Belgium and Holland, direct
marketing in 1996 increased from 30 to 39 percent of all marketing expenditures
over 1995.
In France, direct marketing currently represents about 25 percent of the country’s
marketing expenditures and is said to be growing at 25 percent per year. Part of this
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Direct Marketing in Saudi Arabia
increase has been due to the successful introduction of the Minitel Videotext, an inhone telemarketing service. Presently, the system gives around 4 million
subscribers a choice of over 10,000 information services, including telephone
directory assistance, electronic banking, shopping, and other services. Currently,
mail order houses, specialist retailers, and wholesalers all use Minitel which
enables them to take order 24 hours a day. La Redout, one of France’s most
successful catalogue merchants, takes hundreds of thousands of orders daily, 45
percent of them by mail, 52 percent by phone, and 3 percent through Minitel.
Indeed, the future growth in France is assured, especially if it continues its push to
become the world’s first totally computer-literate country.
Direct marketing has become popular in Japan. The primary factor promoting
direct marketing use is its efficiency in getting goods into consumer hands.
Traditionally, Japanese distribution channels are complicated and inefficient
compared to those in Western Countries. Still, in many industries, the passage of
goods from producer to consumer involves three wholesalers and a retailer. The
advantage direct marketing has is that it circumvents these channels. Japanese
consumers have not been slow in taking advantage of this. Since 1985, exchange
rates have made overseas products cheaper in Japan, and some Japanese consumers
are taking advantage by importing U.S. and European goods directly into Japan.
Grey imports have also resulted as Japanese tourists are able to buy exported
Japanese goods 40 to 50% cheaper abroad than at home.
In countries such as Thailand, Singapore, and Malaysia, direct marketing has
become well established. Research of infrastructure availability in developing
markets has indicated that direct marketing is feasible in urban areas where affluent
consumers reside, but much less so in rural areas. There is no doubt that as
developing countries become more affluent, so opportunities for international direct
marketing firms will materialize.
1.4 Reasons for growth of direct marketing
The reasons for the growth of direct marketing can be classified under four
main factors: changes in technology, changes in the market, changes in
demographics, and changes in the role of direct marketing.
1. Changes in the market:
The decline of mass marketing is often cited as one of the main factors that
makes direct marketing a desirable option for increasing number of firms. A
number of trends, including increased consumer sophistication and individuality
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Direct Marketing in Saudi Arabia
and the rise of single person households have resulted in a market place of
extraordinary diversity and choice. The service position is becoming increasingly
important to firms. According to Fletcher et al (1991), corporate marketing is
moving towards staying close to customers, understanding and meeting their needs
and treating them well after the sale. The key advantages brought by direct
marketing are recognition of an individual's worth as a customer. Because of this,
some sectors such as financial services have been quicker to employ direct
marketing than others, like retailers and product marketers. More sectors are now
becoming service-based. Many of the utilities faced with increasing competition are
now understanding their role in providing service to their customers. Retailers are
also starting to adopt the idea that they are in the business of keeping customers.
Also, competition in many markets has meant that manufacturers must
continually create new products in order to maintain and increase their market
share. However, in this sense the product life of the product will be shorted.
According to Shaw and Stone (1988), this trend supports the view that, in the long
run, the only marketing asset a company own is its brand image in the customers'
minds. Direct marketing is seen as a potential candidate to maintain and build that
image in the long-term.
Moreover, the modern business has witnessed the gradually shift of power
from manufactures to distributors in the 1990s (Gattorna 1985, Garda 1988).
According to McCorkell (1998), the economic power is now very largely in the
hands of service businesses, retailers, and other direct end-user distributors. These
businesses which are most able to capture and utilise customer information will
have the best opportunities to exploit all major attributes of direct marketing.
The increase of products and services types and brands create a marketplace
to such an extent that even superstores can no longer offer a comprehensive range
of what is available in a particular market. Hundreds of niche markets exist, and
that means that matching the needs of these niches requires different channel of
communication and distribution. Mass distribution and advertising is increasingly
becoming more expensive and less effective. Direct marketing is being proved to
be an effective tool to segment and target prospects precisely.
2- Changes in technology
Of the major technological advances in this century, the development in
computer industry is the primary sector that affects businesses and especially direct
marketing. In the UK, there is a computer machine for each 4 persons. Also, the
number of computers in the Gulf countries increases annually. For example, the
number of PC’s in Saudi Arabia increased from 16 PC’s to each 1000 persons in
1990 to 50 PC’s for each 1000 persons in 1998. As table (1-3) shows, compared to
other Arab countries, the number of PC’s in the Gulf countries is far higher.
Rapp (1986), Fletcher (1991), and Evans and Patterson (1995) have noted that
the application of computers to direct marketing has revolutionised the business.
Computer analysis has enabled marketers to identify specific groups of customers
with particular characteristics. Target audiences can be identified by any type of
demographics or socio-economic criterion. Shaw et al (1989) state that database
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Direct Marketing in Saudi Arabia
becomes the focal point of direct marketing operation and is an increasingly
important element of the programmes of general marketers. In addition to
improving targeting and increasing the effectiveness of marketing communication,
a computer database offers direct marketing major competitive opportunities such
as strengthened customer relationships, and the ability to build barriers against new
entrants.
The development of microcomputers has put the use of computers within the
reach of small as well as large companies. Database management systems have
become increasingly flexible, and allow non-programmers to access and
manipulate data. Today, a company can use many ready-made software packages to
perform direct and database marketing functions.
Moreover, the wide acceptance of credit card in a wide variety formats, such
as bank cards (Visa, Mastercard), store cards (PHS, Homebase), travel and leisure
cards (Hotels and diners) has allowed easy purchase without face-to-face contact.
In 1996 the growth of numbers owning credit cards in the Gulf area reached 113%.
In 2001, the number of Visa cards alone reached over 4.5 million, out of this 1.89
million cards were established in Saudi Arabia (Al-Watan 2001).
Beside facilitating purchasing abilities, and checking on consumer credit,
bank cards create a vast information base available to banks, credit cards, and
stores. This makes targeting and segmentation more easy for direct marketers.
Also, there are many areas of technology that affect the growth of direct
marketing. Examples of that printing technology, which increases the print quality,
personalization of mailing, insertions in magazines, and mail packages. All these
techniques contribute to revolutionised direct marketing
3. Changes in demographics and life style:
Vast social and economic changes that have occurred since the middle of
twentieth century have been vital contributors to the evolution of direct marketing.
Large families are becoming a minority group, and the fastest growing segment is
one-person households. Also, the number of working women has continued to
increase. In the UK between 1985 to 1989 the numbers of women at work grew by
13%. Compared to men, women are much likely to work part time. In 1995, 86% of
the people doing the 6.9 million part-time jobs in UK were women. The same trend
is witnessed in the Gulf area. In the UAE, the number of working women increased
by 132% between 1985 and 1990, and in Oman, it reached 76% between 1992 and
1998. The largest rate was witnessed in Qatar, where it reached 190% between
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Direct Marketing in Saudi Arabia
1987 and 1997. (Gulf Statistical Report 2000)
These observations mean that there is less time for traditional shopping.
Trends also indicate an increasing pressure on consumers' time in key segments,
especially women. The time-saving aspect of direct marketing is becoming more
attractive to growing proportions of the UK population. According to Direct
Marketing Association, in 1994, 60% of UK females complain that they never have
enough time to get things done (DMA Census 1995). Men are sharing the same
concern, with the percentage reaching 53% in 1994.
Nowadays, a large portion of the population is home owning. They spend
more time at home and more money in improving this principal. Home
entertainment is available in the home and there is more fear of violence outside the
home. Through TV shopping and interactive systems it is entirely feasible to shop
around, order merchandise, and give instructions for delivery and payment, all from
the comfort of one's living room.
The availability of telephone lines facilitates one-to-one communication
without face to face contact. Ordering by telephone is now more accessible than the
past. According to British Telecom, more than nine out of ten British households
have access to a telephone (BT 1994). In Saudi Arabia and other Gulf countries, the
growth in the number of telephone lines is currently estimated to be between 7% to
10% annually. Also, it is expected to increase dramatically after the privatisation of
the communication services, and joining the WTO. Table (1-3) shows the number
of telephone lines and computers in the Gulf countries by 2000.
TABLE (1-3) NUMBERS OF COMPUTERS AND TELEPHONE LINES FOR 1000 PERSONS IN THE GULF
COUNTRIES
Country
Telephone Lines
Computers
U.A.E
389
106
Bahrain
245
93
Saudi Arabia
143
50
Oman
92
21
Qatar
260
121
Kuwait
236
105
Egypte
60
9
Sirya
95
2
Gulf Marketing Review -Summer 2000
In fact, mail order companies are most likely to rely on orders taken by
telephone operators. 60% of Littlewood’s sales and 80% of those of Freemans are
telephone orders. Nevertheless, Faxes, the Internet (with more than 500 million
subscribers in 2002), On-line and other interactive system are likely to become
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Direct Marketing in Saudi Arabia
favoured means of access the home shopping in the new century.
A toll-free system has aided many companies in their direct marketing efforts.
It enables companies to make good use of limited managerial and financial
resources. In addition, customers are known to prefer centralised approaches
because they save time, and effort, and are cross-effective. In Europe, international
toll-free services have been introduced which allow customers to place no-cost
international calls to manufactures or sales offices from nine continental countries
under the European conference of Postal and Telecommunications Administration.
Moreover, an international toll-free number has other advantages. It is cheaper and
easier to administer than setting up overseas offices. It is also flexible enough to be
used for order processing, customer services, sales support, and account
management. International telephone costs are also likely to fall in the future as
increasing use is being made of satellites and fibre optic technologies. These have
made inter-continental communication costs low enough so that even small
companies with limited communication budgets can afford them. Presently,
airlines, hotels, and financial service companies are the major users of international
toll-free services.
4. Changes in the role of direct marketing:
Database and the success of direct marketing have helped to create a strategic
role of direct marketing and lead to a wide application of the discipline. In the past,
direct marketing was used for short-term tactical objectives. According to Karen
Pearce (Head of direct marketing at Abbey National Building Society) it was
initially used almost as the last resort, and was often considered only after abovethe-line advertising had failed. Besides, the natural inclination towards the tactical
and the technical intensity of direct marketing tends to focus direct marketing
practitioners narrowly on tactics.
However, with the introduction of database techniques, direct marketing
plays a strategic role. According to Kauffman (1992) direct marketing "has the
ability to analyse, profile and provide target markets, and it needs to be the core of
strategic planning from the beginning". Companies have recognised that building
and maintaining customer relationships have significant long-term implications and
therefore affect the strategic planning of the firm (Fletcher 1991).
The successful use of direct marketing as a strategic tool is another major
factor to more growth. First Direct, Direct Line, and Next Direct are all excellent
examples of companies who have invested in direct marketing. They have won
exceptional customer loyalty as well as admiration from the business community.
'As the success of these initiatives is established the "me-too factor" is certain to
drive continuing growth' (The DMA Census 2000). Many direct distribution, direct
communication, and advertising agencies are becoming widely adopted some sort
of direct marketing. This is very clearly seen in financial services after the success
of First Direct, and Direct line. Likewise Heinz's decision to use the direct
marketing route has encouraged other major companies to evaluate the direct
marketing option (The DMA Census 2000).
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1.5 Definition of direct marketing
The definition of direct marketing is a controversial issue. Practitioners and
scholars of direct marketing are still debating what direct marketing is, and what it
should be. One extreme, from a positive perspective, defines direct marketing by
citing all possible techniques and methods that marketers may use as direct
marketing (Murrow and Hyman 1994, Schofield 1995). Some authors, from a
normative perspective define direct marketing, as it should be, claiming that what
exists in practice is far from the ideal discipline (Bauer and Miglautsch 1992, Betts
and Yorke 1994). Schultz (1995, p 5) editor of The Journal of Direct Marketing
states that “I expect it will continue to be an issue of discussion in the years ahead”.
Several definitions are provided for direct marketing but none of them can be
called the standard one. Bauer and Miglautsch (1992) state: “It is probable that no
one definition will perfectly describe the concept of direct marketing, as different
definitions are used for different purposes.”
A major cause of the difficulty in providing a standard definition is that the
concept of direct marketing has changed over time. According to Fletcher (1991),
direct marketing has passed through three phases; the first was the ‘sales-oriented’
phase, where direct marketing was seen as a distribution channel through which
direct mail was used to sell low-priced products. This was followed by the ‘image
building’ phase, where direct marketing was seen as a medium to generate files of
prospects so that one-to-one communication could take place. The third was the
‘integrated phase’, where direct marketing was seen as both a channel of
distribution and a medium for communication, and used for both tactical and
strategic purposes. In this phase, the introduction of database marketing enhances
and ensures a long-term view of customer relationships (Fletcher 1991).
Accordingly, one problem which arises when trying to identify a current definition
of direct marketing is the fact that different marketers and firms will be at different
phases of its development and use.
A currently accepted definition of direct marketing created and then modified
by The Direct Marketing Association (DMA) and published in every issue of
Direct Marketing magazine states that:
Direct marketing is “an interactive system of marketing that uses one or more
advertising media to effect a measurable response and/or transaction at any
location” (DMA Fact Book 1982).
Hodgson (1989) criticised this definition by pointing out that the DMA’s
definition is too broad and ambiguous because “some of the books on direct
marketing have had to devote several pages just to a clarification of its meaning”.
Also, Bauer and Miglautsch (1992) discuss problems with the DMA’s definition.
According to Bauer and Miglautsch (1992) the first problem with the DMA’s
definition is the use of the phrase, “an interactive system of marketing”. Interactive
means to act on one another or to act mutually. All advertising, sales promotions
and personal selling can be viewed as interactive systems. They are all designed to
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interact with the customer. The second problem with the DMA’s definition is
saying “a measurable response and/or transaction”. Most consumers’ reactions to
advertising can be measured either in terms of recognition, recall or in terms of
actual purchase. Hence, this part of the definition does not distinguish direct
marketing from other marketing advertising. “At any location”, the last part of the
definition, means customers do not need to travel to collect the product. Even if we
accept this for the sake of argument (sometimes a customer needs to travel to
collect the product), it does not distinguish direct marketing from direct selling, and
telemarketing. Both can occur at any location and they do not require customers to
travel to collect the product. In addition to these criticisms, DMA’s definition
ignores the importance of customer information. A database at the individual level
is a key success of direct marketing by which direct marketers determine marketing
tactics and strategies.
TABLE (1-4) MASS MARKETING VERSUS DIRECT MARKETING
Mass Marketing
Direct Marketing
Average customer
Individual customer
Customer anonymity
Customer profile
Standard product
Customized market offering
Mass production
Customized production
Mass distribution
Individualized distribution
Mass advertising
Individualized incentives
Mass promotion
Individualized message
One-way message
Two-way message
Economies of scale
Economics of scope
Share of market
Share of customer
All customers
Profitable customers
Customer attraction
Customer retention
Adopted from Don Peppers and Martha Rogers 1993.
Bauer and Miglautsch (1992) present the following definition that
distinguishes direct marketing from direct mail, direct response advertising alone,
direct selling, and telemarketing.
“Direct marketing is a relational marketing process of prospecting, conversion,
and maintenance that involves information feedback and control at the individual
level by using direct response advertising with tracking codes” (Bauer and
Miglautsch, 1992).
Bauer and Miglautsch’s (1992) definition involves four marketing functions.
“Prospecting” means finding new customers to build the files. “Conversion” is to
convert individuals who received direct response advertising to customers.
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“Maintenance”, the third activity in the direct marketing definition, means
maintaining the behavioural pattern of customers. It includes any analysis or
marketing research that helps to enrich the customer file. “Relational marketing”
means focusing on developing and maintaining an ongoing relationship between
marketers and their customers.
Murrow and Hyman (1994) argue that, although Bauer and Miglautsch’s
definition is very useful to practitioners, it is still not a useful definition to
academics. Their judgement is based on the absence of a clearly stated domain for
direct marketing, and neglect of the telephone as one of the dominant direct
marketing tools. Based on Murrow and Hyman’s (1994) criteria, a good definition
should explicitly or implicitly refer to the domain of direct marketing and all the
tools of the discipline. However, mentioning all the tools of direct marketing
implicitly or explicitly is difficult. In this sense, the definition will be an
explanation of what the direct marketing components are, not what direct
marketing is itself. In addition, the tools of direct marketing are not necessarily
limited to what is currently available. Technological development may create some
new media that may be considered as direct marketing tools. TV shop, the Internet,
the On-line shop, Videolog, etc. are some possible tools that may substitute in the
near future for the heavy use of direct mail and telephone.
Another criticism of Bauer and Miglautsch’s definition is presented by
Schofield (1995). He argues that Bauer and Miglautsch’s definition represents the
ideal type of direct marketing rather than its reality. For example, some users of
direct marketing have information feedback and control, as well as a tracking code
method, but they do not handle the function of prospecting, conversion, and
maintenance. They pass these functions to agents or local dealers, yet most direct
marketers still consider these firms as firms engaged in direct marketing (Schofield
1995). Another ideal concept that has been criticised by Schofield (1995), is the
requirement to use tracking codes. According to Schofield (1995), this is an
effective way to use direct marketing, but without tracking codes the firm would
still be using direct marketing.
Generally speaking, Schofield’s main criticism of Bauer and Miglautsch’s
definition is consistent with the desire of the DMA to claim as much as possible of
current marketing activities as direct marketing. However, it may not be a valid
justification to obscure the meaning of the discipline in order to let practitioners
call themselves direct marketers. In fact, other direct marketers argue against
broadening the concept of direct marketing. For example, Rapp (1989, p: 74)
argues that “By claiming to be anything and everything to everybody, direct
marketing is in danger of losing its identity of a discipline worth studying,
practising, and applying in its proper role”. In addition, Betts and Yorke (1994)
cite several misconceptions in the literature concerning direct marketing. It is being
considered only as distribution channel, an advertising medium, sales promotion, or
database marketing. Although direct marketing may be represented in a particular
industry by any of these marketing methods, it is not limited to any one of them. It
is neither medium-specific nor necessarily a distribution channel (Rosenfield
1994). Nash (1989) complains that activities carried out in the name of direct
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marketing, or assumed to be direct marketing, do a great injustice to the essence of
the approach and have caused its severe image problem.
Therefore, despite its weaknesses, Bauer and Miglautsch’s definition seems
more precise and systematic than others. Such a precise definition may help to
reduce the misunderstanding and confusion about direct marketing. It will also
distinguish the discipline from other direct activities such as direct selling, direct
response advertising, or direct mail while recognising that the latter two are
nevertheless part of direct marketing. It is, lastly, the current appropriate definition
that provides a systematic foundation of what constitutes direct marketing.
However, the major criticism of this definition is that it excludes telemarketing as a
direct marketing medium. Telemarketing could fulfil all the functions that are
fulfilled by direct mail. Prospecting, conversion, and maintenance can all be
accomplished by telemarketing. Though telemarketing may be seen as “another
face of direct selling” (Bauer and Miglautsch 1992), it is more likely to be seen as a
direct marketing medium. Customer files could be built, and tracing codes could be
identified by the customer’s telephone itself. In addition, in practice, telemarketing
is used heavily as a main element of direct marketing. According to the DMA
Census in 1995, direct marketing expenditure in 1994 on telemarketing represents
23% of the total direct marketing expenditures on 13 different media (DMA Census
1995).
Summary
This introductory chapter presented a historical background of direct marketing
and its elements, as well as a background of its growth, and trend. The chapter also,
discussed the previous attempts to define direct marketing. It presented the
shortcomings of previous definitions and the missing elements in current
definitions. Secondly, in this chapter, four factors were identified as the major
reasons for growth of direct marketing; Changes in technology, changes in the
market, changes in demographics, and changes in the role of direct marketing. The
next chapter will present the elements of direct marketing and discuss the
differences between direct marketing and some other terms.
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CHAPTER 2
ELEMENTS OF DIRECT MARKETING
2.1 Direct mail
Direct mail is material distributed through the postal service to recipients’
home or business address to promote a product or service. According to the Royal
Mail’s definition, direct mail is “personally addressed advertising in the post” (The
DMA Census 1995). Direct mail can be one of the most effective methods of direct
marketing because of its wide method of delivery range. This element includes
catalogues, cards, letters, brochures, flyers, video and audio tapes and promotional
items sent via mail or other delivery services.
Most direct mail is unsolicited. Organisations compile or buy lists of names
and addresses, and then send out the mailshot. The mailing list used may be cold,
that is, where there has been no previous contact between the organisation and the
addressee, or may reflect various selection criteria based on data held about
previous or existing customers.
Direct mail is widely used in both consumer and organisational markets. The
financial sectors, for example, send out mailshots to encourage people to apply for
credit cards, loans, and insurance quotes. In Saudi Arabia, about 40% of direct mail
is used by financial services to target individuals. Consultants, contractors and
suppliers similarly target organisational buyers and decision makers.
Direct mail is particularly useful for testing, and for building the long-term
relationship with customers as individuals, which marketers are aiming for. With
direct mail, marketers can target with great precision, using the information
available from a database or what is known about the list they have rented, and they
can use personalized printing techniques to add impact.
Direct mail is not a medium with only two dimensions, like the press. Marketers
are not restricted to a limited space or time, as on TV or radio. So, having a careful
eye to the costs of postage, they can tell as complete a story as they wish when
mailing to people, using any kind of illustrative technique or device they like. It is
also very easy to vary direct mail packages for testing purposes, in terms of the
number of pieces enclosed and the messages on those pieces.
Direct mail can be very profitable when approaching relatively small numbers
of people compared with the press, and the big percentages make it an obvious test
medium. Above all, it is the way marketers normally reach their most important
group of people: their own customers.
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2.2 Mail order
Mail order involves the purchase of products featured in advertising or
selected from catalogue. The basis of the mail order is the catalogue. As a major
selling tool, a great deal of thought and effort is required to get it right and tailor it
to target market. The main advantages of mail order to consumer are convenience
and efficiency and, for some, easy credit. This is especially valuable in areas
remote from larger city centres where regular shopping trips are difficult. For the
organisation, by avoiding expensive high street locations and associated display
and personal selling costs, the opportunity is provided for a wider variety of lower
cost offerings. Table (2-1) shows the perceived advantages and disadvantages of
mail order over retailing from the consumer’s perspective.
TABLE (2-1) ADVANTAGES OF MAIL ORDER OVER RETAIL STORES.
Advantages of shops over mail order
Advantages of mail order over shops
Can see/touch goods
Delay payment
Can try on/test goods
Choose at leisure
No delay in acquiring purchases
Choose at convenience
Easy to return goods
Easy to return goods
Easy to compare prices
Save time
Cheaper
No pestering
Shopping is enjoyable
Shopping is not enjoyable
Advice/service available
Home delivery of purchases
Brassington and Pettitt 1997
There are few companies that do not have at least some sort of literature on
themselves. Many companies which offer products as opposed to services, have
catalogues of one kind or another. This applies greatly to the retail industry.
Fashion catalogs are by far the most present in today’s direct marketing industry.
But planning a catalogue of any type that works effectively is a specialized task.
There are many methods by which to distribute a catalogue, the most obvious being
to send it to current clients and have the client database grow simply by word of
mouth and brand recognition. Companies are encouraged to try offering a catalogue
in their regular advertisements. Apart from getting valuable leads, they will also
discover which advertisements work best and in which media.
As to pricing products in the catalogue, in order to retain clients and gain new
ones quickly, the product should be offered for as little as possible, but consistent
with getting a decent quality. This means that companies must be sure they have
enough margin to make a profit on many lines. Unless there is a deliberate policy
of low pricing strictly to get names, they need to make sure they have enough
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margin.
2.3 Direct response advertising
Direct response advertising appears in the standard broadcast and print
media. It differs from normal advertising because it is designed to generate a direct
response, whether an order, an enquiry for further information or a personal visit.
The response mechanism may be a coupon to cut out in a print advertisement, or a
phone number in any type of advertisement. Direct response advertising uses
various media such as newspapers, magazines, television, and radio.
Newspapers and Magazines
Newspapers and
Magazines include all direct response advertising,
advertising inserts and marketplace advertisements in periodical publications. The
best reason for using this element of direct marketing is that often, a sale of the
magazine itself does not have to take place between the potential client and the
company or marketer, because of the wide availability of the medium.
In a doctor’s office waiting room, for example, magazines are readily
available for the reader. Although the readers did not purchase the magazine
themselves, they are still exposed to, and possibly influenced by, the advertising
within the pages. Also, the offering of subscription services is a big draw for longterm advertising capabilities. If a person has faith in the brand (magazine) they
have subscribed to or are reading, it is likely that they will also have better faith in
each of the products, services or brands offered inside. There is also the allure of a
captive audience throughout the term of the subscription.
Magazines keep pulling in responses for months, and even years. Also,
magazines tend to offer a fair range of test facilities.
Television
Television is a very effective element of direct marketing because of its
capability to speak directly into the minds of potential clients. Through television,
customers are dealing with voice and sound, not just pictures and copy. Direct
response television includes all direct response advertising communications
conducted through local, national or cable television channels.
The percentage of direct response television commercials on terrestrial and
satellite programming has increased dramatically in the last five years. Researchers
anticipate that the percentage share of direct response television will reach its high
point at around 50% of all commercials in 2010 (The Future is Direct, 1997). This
will occur as a result of the sheer number of channels available to advertisers and,
more importantly, the specialized nature of the programming which should lead to
smaller but more segmented audiences.
The ideal product for television is one which requires demonstration, visually
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or in sound. Records, books and household gadgets are good candidates for these
media..
In dealing with TV, many people have found that off-peak spots do very well
as compared with the same money invested at peak time. Viewers are more
inclined to respond during the morning, and ads shown between 9.30 am and
midday get twice as many calls as those shown at any other time of the schedule.
People are happy to stop watching a programme and start buying a product at these
hours.
.
Radio
Radio includes all direct response advertising communications conducted
through local or national and international radio channels.
In radio, production costs are exceptionally low. Even the most gullible of
individuals can see that simply sticking someone in front of a microphone and
recording them cannot cost very much money. Moreover, radio offers great
opportunities. It is a medium in which one literally has to create word pictures. It is
much under-utilized in many countries. Much of the information in television
applies to radio, as well.
For example, one cannot (unless one has an audio tape recorder) turn back
and hear the commercial again. This means the commercials need to be repeated a
number of times to get real attention. Typically, a burst of commercials would be
run over a six-week period, then a rest taken for four weeks before trying again.
But, once more, this depends on the marketer’s experience with its product.
2.4 Telemarketing
Telemarketing can be defined as any planned and controlled activity that
creates and exploits a direct relationship between customer and seller, using the
telephone. It includes, but is not limited to, all out-bound direct response
advertising communications conducted over the telephone using conventional
private line or other telecommunication services.
The main benefits of the telephone are as follows:

It's almost impossible to ignore; hardly anyone can leave a telephone
unanswered. 

The conversation is two-way; people tell the caller things. 

It gets quick results; within the first 50 calls, an idea can be had of customers’
reactions; scripts can be modified accordingly. 

It's a terrific research medium. 

Although costly, it should get at least 5 times the response of direct mail.
One can use the telephone to check names and addresses and to find out
about peoples' reactions to mailings.
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There are two popular methods of telemarketing: Outbound telemarketing,
where the organisation contacts the potential customer, and Inbound telemarketing,
where the potential customer is encouraged to contact the organisation. As table (22) shows, telemarketing has a clear role at an operational level, not only making
sales, but also improving distribution, customer service, technical support,
information gathering and credit control.
TABLE ( 2-2) APPLICATIONS OF TELEMARKETING
Generate leads
Screen leads before follow-up
Arrange appointments for representatives
Direct sales
Encourage cross/up selling
Dealer support
Account servicing
Market research
Test Marketing
The other two forms that are used as types of telemarketing are Fax mail, and
Voice mail:
Fax mail
Using fax machines enables one party to send a paper-based message to
another party over telephone lines. Today’s computers can also serve as fax
machines. Fax mail has one major advantage over regular mail: the contents can be
sent and received almost instantaneously. Marketers have begun to send fax mail
announcing offers, sales, and events to prospects and customers with fax machines.
Fax numbers of companies and individuals are now available through published
directories. However, some prospects and customers resent receiving unsolicited
fax mail, which clutters their machines and consumes their paper. In developing
countries such as Saudi Arabia, this medium is considered as a major type of
communication, as the telephone is considered a private line and ground
communications are inefficient.
Voice mail
Voice mail is a system for receiving and storing oral message at a telephone
address. Telephone companies sell this service as a substitute for answering
machines. The person with a voice mail account can check messages by dialing
into the voice mail system and punching in a personal code. Some marketers have
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set up programs that will dial a large number of telephone numbers and leave the
selling message in the recipients’ voice mailboxes. This type of telemarketing is
popular in the Western countries such as the United States. However, in many
developing countries the communication systems for running this method are rare.
2.5 Interactive (On line) marketing
Interactive or online marketing is quickly becoming the focus of most modern
direct marketing efforts. This element includes website marketing often with the
assistance of eCommerce transaction capability.
“Sales generated" is used most often to measure interactive media's
effectiveness. The medium which is unquestionably generating the most excitement
today is the Internet. Its use is growing at an accelerating pace.
The benefits of the Internet to the advertiser are not merely that it is
interactive, but that it appeals to three much coveted types of customer: people with
more money than most; people who are likely to have business spending power;
and people who are likely to be younger and more open to new ideas than most.
According to a study conducted by the DMA, the vast majority of DMA
members have websites, and more than half are involved in web marketing:

In the year 2000, nearly all companies (94%) have a website.

Ninety-seven percent of DMA members have a website, compared to 90% in
1999.

In total, six out of ten (59%) have e-mail marketing capability.

Approximately half (51%) conduct e-commerce transactions online.

More than three-quarters (79%) have had a website for two years or more.
Almost half of these companies conduct online transactions, closely
matching last year's results:

A majority reported profitability and there is a significant increase in reported
profits among DMA members:

Nearly 7 out of 10 (69%) companies who conduct electronic transactions
online report that they are making a profit.

Sixty-nine percent of DMA members also report a profit (up from 49% in
1999).
According to AMR Research, global business-to-business e-commerce could
be worth a staggering $5.7 trillion by 2004, although e-Marketer, another market
research firm, puts the figure at a more modest $2.8 trillion. But even if the smaller
number proves accurate, that would represent a massive gain from 2000, when it
reached $449 billion in business-to-business e-commerce (Nesson 2001).
In the Middle East, there has been a dramatic increase in the number of
people accessing the internet from home. Nowadays, about 72 percent of users in
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the Arab world now access the net at home. In contrast, 22 percent go online
primarily at work, 4 percent at educational institutions and 2 percent in Internet
cafes. Online consumers in Arab countries have spent over 110 million on ecommerce in 2000. Largely in keeping with global trends, the most popular
products to buy online were software, books, PCs and peripherals, audio CDs and
CD ROM, Gifts, travel and food products.
For 48 percent of cases, the main reason for buying online is the lack of
availability of the products purchased in the consumer’s local market, Ease of
purchase (45%), the convenience of comparing product online (32%), comparing
prices (24%), and finally ease of payment (21%). (Gulf Marketing Review 2000)
In conclusion, the possibilities of interactive marketing offers are remarkable.
The uses and possibilities of the Internet are changing almost daily. With this, as
with any other medium, a sensible degree of skcepticism is not inappropriate. There
is only one sure prediction after all this, and that is, that no matter how much these
new media develop, the old ones will not die away; people will still want to read
through things and look at pictures. These new media will simply represent fresh
and challenging opportunities. Since Internet material is mostly published free,
advertising revenue is crucial.
TABLE (2-3) BENEFITS OF ONLINE MARKETING
Benefits to marketers
Benefits to customers
Quick adjustment to market conditions
Convenience ( 24 hours a day from home)
Lower costs
Provide extensive information
Relationship building
Fewer hassles ( No pressure and
persuasion)
Audience sizing
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2.6 Direct marketing and other terms
Among practitioners and academics there are many who still confuse direct
marketing with other terms. When the marketing term, “direct marketing” comes
up, most people automatically think of the medium of direct mail. Others think of
direct marketing as a method of selling. Still others confuse it with a channel of
distribution, such as mail order. Specifically defining direct marketing is not an
easy task, given all of the media available today. In fact, there are many different
terms that are used to describe different approaches to the business such as
“curriculum marketing”, “dialogue marketing”, “personal marketing”, “relationship
marketing” and “database marketing”. The most common term remains direct
marketing.
In particular, direct mail and mail order are widely used interchangeably with
direct marketing. In fact, direct marketing is neither a medium (like direct mail) nor
a distribution channel (like mail order). Rather, as stated previously, it is a system,
which encompasses both media and channels. In this section, based on Bauer and
Miglautsch’s definition (1992) some terms such as direct channel, direct mail, mail
order, direct response advertising, and direct selling will be defined and
distinguished from direct marketing.
Direct channels
The origin of the confusion between direct marketing and direct channel can
be traced to the earliest definitions, when direct marketing was defined as “A
method of distribution in which the producer dealt directly with the end user
without the intervention of a retail outlet or salesperson” (McCorkell 1982).
Further confusion comes from descriptions provided by practitioners of direct
marketing such as: “Direct marketing is the method of distribution that moves
goods or services directly from seller to buyer...” (Heather 1986). Yet, direct
marketing could be used in handling functions that establish and maintain exchange
relationships between manufacturers and consumers, but it is not just a direct
channel. Direct marketing is more than a method of distribution. As was mentioned
in the last chapter, direct marketing is not always used to consummate transactions.
It can be merely used to collect information about customers, to build a relationship
between customers and the marketers, to find new customers, to convert individuals
to customers, or to increase customer awareness about the product or the service
(McCorkell 1988).
For more clarification, figure 2-1 depicts the three most common direct
channels; direct to customer, having manufacture outlets, or hiring salespeople
(Lilien 1979). Paths 2 and 3 (having manufacture outlets (show room) and hiring
salespeople) are usually direct channels but not direct marketing. Path 1 is a direct
channel but at the same time it could be direct marketing if the manufacturer uses a
subset of direct marketing, for example, direct mail or mail order. However, Path 3,
the manufacturer’s outlets, can be a direct distribution channel for direct marketing
when a customer responds by producing evidence of reacting to a direct response
communication. This tangible evidence usually takes the form of a coupon or
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voucher with the customer’s name and address, which is redeemed at the sales
house. Also, Path 2 (using salespeople) can be direct marketing when a customer
purchases products by placing an order directly with a sales representative or agent.
In this case, the name and address of the customer are captured for a long term
relationship. Accordingly, one can conclude that direct channels and direct
marketing overlap but are not identical. Direct channel is wider than direct
marketing. In other words, direct marketing could be a subset of direct channel but
not vice versa. Every use of direct marketing for distribution is a direct channel, but
not every use of direct channel is direct marketing.
Figure (2-1) The Three Common Direct Channels
Manufactu
re
Path 2
Path 3
Stores
Salespeopl
e
Path 1
Custome
r
Direct mail
Direct mail is a medium involving any kind of information, whether it is
advertising, direct response advertising, or a questionnaire which is mailed to a
target audience (McCorkell 1988, Hinkle and Alexander 1988, May 1988, Bauer
and Miglautsch 1992, Jackson 1992, Young 1993). It includes requested material as
well as unsolicited communications. In fact, when it is used to make a sale on the
basis of the mailing alone, it is correctly termed mail order. When direct mail is
used for any purpose other than to close a sale, it is correctly termed direct-mail
advertising or direct mail promotion (Robert and Berger 1989). Therefore, direct
mail is not a synonym for direct marketing. As Hoke (1989), the publisher of Direct
Marketing magazine, explains, direct marketing is a concept, an umbrella term, and
a subset of marketing, while direct mail is merely a medium.
Mail order
Mail order is basically a channel of distribution (Katzensten and Sachs 1986,
May 1988, Young 1993). It employs several media to carry out its promotion
methods such as direct mail, telephone, and press. However, customer orders
usually come through the mail. Hoke (1986) explains that direct marketing is not a
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Direct Marketing in Saudi Arabia
substitute term for mail order. Mail order is one of four methods of selling. The
other three recognised by the Census Bureau are sales in which the seller goes to
the buyer, those where the buyer goes to seller, and sales through vending
machines. He concludes that direct marketing is used to create sales through any
channel, at any location and it is not a substitute term for mail order (Hoke 1986).
Direct response advertising
Direct response advertising is an advertising technique (Katzensten and Sachs
1986). It is a key characteristic that distinguishes direct marketing from general
marketing and advertising, but is not a synonym for direct marketing. As it has
been defined, direct marketing is more than direct response advertising alone.
Bauer and Miglautsch (1992) assert that direct response advertising is a necessary
but not solely sufficient property of direct marketing. Stone (1984) states that the
characteristics that distinguish direct response advertising from general advertising
are: a definite offer, a response device, and all the information necessary to make a
decision. Thus, direct response advertising is not a synonym for direct marketing.
However, it is an essential medium, which direct marketing uses widely.
Direct selling (personal selling)
Direct selling (personal selling) is defined by the Direct Selling Association
as “a personal contact between a salesperson and a consumer away from a fixed
business location (such as a retail store)” (Petreson and Albaum 1989). It is a
channel of communication where the sale message and response are transmitted on
a person-to-person basis. Major modes of direct selling include one-to-one selling
in a home/workplace, a sales party at a home/workplace or other location (Petreson
and Albaum 1989). Direct firms include such companies as Avon Cosmetics in the
US and Betterware (Housewares) in the UK. In fact, direct selling usually makes no
use of media to bring about a transaction, though it may undoubtedly be enhanced
by various forms of promotion media. If direct selling is personal
promoting/selling, direct marketing is simply impersonal promotion/selling -in the
sense of not being face to face- which seeks to evoke direct action (Katzensten and
Sachs 1986). However, in direct selling, no permanent record is necessarily kept by
the firm about the customer, and as Bauer and Miglautsch (1992) claim, most direct
selling is not “direct” since the firm sells the product to an agent who then contacts
the customer.
For more explanation, figure (2-2) is developed to show the relationships and
overlap between direct channel, direct marketing, direct mail, telemarketing, and
direct selling. The development of this figure is based mainly on Bauer and
Miglautsch’s (1992) definition of direct marketing, which was discussed earlier in
this chapter. It is assumed that elements of direct marketing should be concerned
with building long relationships, tracking, and maintaining the information
feedback about the customers.
Area 1 shows the traditional direct channel where a manufacturer sells its
product through the manufacturer's outlets. Industrial products, especially
expensive equipment such as aircraft, computers, and generators are examples of
products sold directly to the buyers through this channel. For instance, Mitsubishi
30
Direct Marketing in Saudi Arabia
Aircraft International Corporation, a subsidiary of Mitsubishi Heavy Industries
Limited’ sells its Diamond I jets directly to corporate buyers. Area 2 shows where
direct channel uses direct mail to sell or promote a product; however, direct mail
here is not a part of direct marketing. No files are built and a long relationship with
the customer does not exist. An example of this case is a manufacturer which sells
its product through direct mail inserted in a mass media (newspaper, magazine) but
files and long relationships do not exist. Direct mail in this case is commonly used
as a promotion medium or a way to communicate with the prospect. Ford Motor
Company, for example, used to send an invitation including a special offer directly
to customers to visit the local retailer. Such an invitation is not personalised or
based on the customer's record, it is sent arbitrarily to reach as many customers as it
can.
Areas 3, 4, and 5 are where direct marketing overlaps with direct channels.
Area 3 is where direct mail is used as a direct channel as well as a direct marketing
medium. Both the long relationship and records exist. National Westminster Bank
(Nat West), for example, uses direct mail as a subset of direct marketing. A file on
each customer, including personal information and purchase history, is regularly
maintained. The bank start the communication with the prospect by sending an
invitation to subscribe to one of its credit cards. Once the prospect responds, they
start offering him or her several offers including travel packages, and a small
catalogue where from which the customer can buy a product at a special price by
mail based on his accumulated points earned by using one of Nat West’s credit
cards. The point here is, Nat West send these catalogues and other offers based on
segmenting and maintaining customers’ files.
Area 4 is where other aspects of direct marketing other than direct mail or
telemarketing are used as a direct channel, for example, TV shopping or electronic
marketing. Area 5 represents the case where telemarketing is used as a direct
channel as well as a subset of direct marketing. An example of this is Next, one of
the retail chains in the United Kingdom. In 1988 it launched its first Directory and
encouraged customers to use the telephone to place their orders. Telephonists
prepare the customer's file including his or her order and other useful information.
Harrods is another example of using a toll free system to extend its sales
internationally and build a long relationship with overseas customers. It took a full
page in the New York Times to advertise that the offer can be bought through an
international toll free call.
Area 6 represents the case where telemarketing is used as a direct channel but
is not considered as a subset of direct marketing (files, records and relationship do
not exist). Arbitrary calls are made by small firms such as double glazing firms.
Once a customer rejects the offer or the job is completely done, there will be no
more communication.
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Direct Marketing in Saudi Arabia
Figure (2-2) The overlap between direct channel and elements of direct marketing
Direct
mail
2
3
Direct
marketing
1
Direct
Channel
Direct
selling
7
4
5
6
Area 7 shows where direct selling is used as a direct channel. This is a
traditional
Telemarketing
channel where a manufacturer uses salespeople to sell the product on a
one-to-one basis. Avon is a clear example of today’s direct selling. Customers are
reached by the door-to-door approach. Traditionally, this approach is based on a
random door-to-door contact without a pre-arranged appointments most of the time,
there is no record kept of prospects or customers.
Summary
The chapter began by presenting elements of direct marketing. Secondly, in
this chapter marketing and other popular terms were disccused. The discussion of
the definitions of direct marketing, and the differences and similarities between
direct channels, and direct marketing and its subset sheds some light on the nature
of the approach and its potential functions. According to Bauer and Miglautsch’s
(1992) definition, direct marketing is a system that encompasses many processes
including prospecting, converting, and maintaining customer relationships. Within
this definition, direct marketing can constitute various functions and play different
roles in a marketing system. The next chapter will discuss some of the significant
roles of direct marketing, based on which the research framework will be
introduced.
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Direct Marketing in Saudi Arabia
CHAPTER 3
THE ROLE OF DIRECT MARKETING
In the literature, direct marketing has been treated and identified in various
ways. The dominant stream of authors of major marketing textbooks have treated
direct marketing as a communication/promotion tool (Booth 1992, Mercer 1992,
Anderson 1993, Kotler 1998), and as both a marketing channel and a form of
promotion (Katzenstein and Sachs 1986, McCarthy and Perreault 1987, Stanton,
Etzel, and Walker 1991, Evans and Berman 1992). Others have identified it as a
marketing strategy (Rapp 1986), and as a marketing system (Jenkins 1984, Bauer
and Miglautsch’s 1992).
Reasons to use and implement the direct marketing approach differ widely
First, the field where direct marketing is applied is one factor that determines the
role of direct marketing. For example, direct marketing could be used as a sole
distribution channel in financial service firms. However, in retail businesses it may
be best used as a promotional tool. Second, the stage which the organisation
reaches in developing direct marketing affects the understanding of its role and use.
Different marketers and firms will be at different stages in its development and use.
Some are still sales-oriented users. Others reach a development stage where direct
marketing is used as a communication tool that ensures and maintains a long-term
customer relationship.
The third factor is the fact that certain elements of direct marketing are best
used for certain roles. As explained in the previous chapters, direct mail is
commonly used as an advertising or as a promotional tool, while mail order, on the
other hand, is commonly utilised as a distribution channel. Even though they are
different in nature and use, they are both still called direct marketing.
To consolidate these views, an intensive review of the existing literature has
been undertaken, out of which two significant functions are identified as the major
purposes of implementing and using direct marketing from the supply side. These
two functions are: enhancing promotional activities, and supporting distribution
channels. These functions are naturally interrelated and they overlap. It is difficult
to isolate them from each other. However, the purpose of such an artificial
classification is to identify a base to which direct marketing can be related. Since
the research’s concern is the use of direct marketing from the supply side, this
chapter will discuss thoroughly the reasons for using direct marketing, and some of
its roles and functions. It will first discuss how direct marketing is related to
promotion and distribution by reviewing some of the available direct marketing
literature. Secondly, it will discuss how direct marketing is used as a promotional
tool. Next, direct marketing as a distribution channel will be reviewed thoroughly,
as this is going to be the focus of this book.
3.1 The major functions of direct marketing
The major purpose of using direct marketing is to achieve a sustainable
competitive advantage through effective promotion and an efficient way of selling.
However, the literature is characterised by a lack of studies that address this issue,
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Direct Marketing in Saudi Arabia
or determine the reasons for using direct marketing in general or what functions
direct marketing usually accomplish in particular. However, a few studies have
focused on the benefits or reasons for using direct marketing or one of its elements
from the supply side. The following is a brief presentation of the findings of these
studies.
Thwaites and Shron (1994), in a study of the financial services industry, rank
direct marketing’s benefits based on their value to UK financial services
institutions as follows:
1. Cross-selling 44%.
2. Lead generation for sales force 28%.
3. Up-selling current and new products to existing customers 24%.
4. Keeping customers sold on product/service 15%.
5. Selling to new prospects 13%.
6. Generation of retail traffic 8%.
Peltier et al (1994), in a study applied to private hospitals in the United States,
identify the four most important objectives of using direct marketing. According to
Peltier’s (1994) findings, these objectives rank as follows:
1. Increasing hospital awareness 70%
2. Lead generation for current programs/services 64%
3. Promoting special events 63%
4. Image enhancement 57%
Another study that investigates ways of using and understanding the role of
direct marketing is by Betts and Yorke (1994) which tests 14 benefits of using
direct marketing on a sample of 501 practitioners of direct marketing from different
industries in the UK. Betts and Yorke (1994) find that these benefits are ranked as
illustrated in the following table (3-1):
TABLE (3-1) RELATIVE IMPORTANCE OF THE BENEFITS OF DIRECT MARKETING
Rank Benefit of direct marketing
Mean
Std Dev.
1
Targeting precision
1.324
0.566
2
Testing markets
1.547
0.670
3
Testing offer (e.g. price)
1.575
0.712
4
Measurable and accountable
1.617
0.714
5
Provides new distribution channels
1.665
0.727
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Direct Marketing in Saudi Arabia
6
Testing products/services
1.757
0.796
7
Control over timing
1.776
0.796
8
Advertising cost effectiveness
1.790
0.800
9
More effective segmentation
1.820
0.759
10
Testing timing
1.916
0.865
11
Supports distribution channels
1.920
0.733
12
Testing creative
1.961
0.903
13
Testing format
2.079
0.908
14
Competitors are unaware of your
activities
2.919
0.963
Where 1= extremely important and 4 not at all important. Source: Betts and Yorke (1994)
A survey study conducted by Direct Mail Information Service (1994), on 141
companies selected from the top 3000 UK advertisers by advertising spend and
other companies with a turnover between £1 million and £10 million, indicates that
there are seven traditional reasons for using direct mail. These reasons are ranked
differently across different industries. However, as table 3-2 shows, the average
rank of each reason in all industries included in the study appeared as follows:
1. Leads inquiries 84%.
2. Customer loyalty 57%.
3. Improve image 56%.
4. Immediate sales 47%.
5. Brand awareness 46%.
6. Upgrade/Cross sell 33%.
7. List/Database building 27%.
TABLE (3-2) PURPOSES OF DIRECT MAIL
Purposes
All
Fin
Ser
Ret
Press
leis
Non
Bus
Ser
Leads/ Enquiries
84
89
90
82
90
80
85
77
Customer loyalty
57
80
65
56
47
59
57
65
Improve image
56
65
33
76
47
53
51
65
35
Mfg Bus
Gds Ser
Oth
er
Direct Marketing in Saudi Arabia
Immediate sales
47
96
68
100
86
42
51
37
Brand awareness
46
67
33
42
38
45
49
49
Upgrade /cross sell
33
71
33
43
26
30
37
29
List/Database building
27
18
33
63
39
32
33
39
Source: Direct Mail Information Service (1994)
According to these studies, the reasons for using direct marketing are
different across the sectors in which direct marketing is applied. However, there are
some common factors that can be derived from the existing studies. The most
significant reasons are mainly either distribution or promotion purposes. For
example, reasons such as cross-selling, selling to new prospects, and immediate
sales, can be considered as distribution functions. Others, such as increasing
awareness, image enhancement, promoting special events, and lead generation for
sales forces can be considered as promotional functions. In fact, recognising the
role of direct marketing as a form of promotion tool is not a problematic issue. The
dominant theme in the literature identifies direct marketing as a promotion tool
(Booth 1992, Mercer 1992, Anderson 1993, Kotler 1998). However, the use of
direct marketing as a distribution channel is still not widely acknowledged.
Certainly, direct marketing may be seen as a targeted advertising tool, but the
message goes beyond that. In fact, the message performs the entire selling job
without intermediaries. A mail order advertisement, for example, makes the sales
without the benefit of a sales person, a checkout clerk, or even a store. So,
advertising and selling here are effectively bound together into a single function,
which promotes, and completes the transaction as well. In addition, the major
components of direct marketing are direct mail and mail order. Since direct mail by
definition is an advertising medium and mail order is a distribution channel, it is
not surprising to claim that direct marketing involves distribution as well as
promotion functions.
Looking at the practical side, a survey conducted by Mintel Centre (1994)
shows that direct marketing is heavily used by mail order catalogue companies and
financial services firms (table 3-3). Insurance, travel/hotel, bank/girobank, and
Credit Card Companies account for 34% of consumer mail (Mintel Special Report
1994). Mail order catalogue companies are intensive users of direct marketing.
They had a 17% share of the consumer letterbox in 1992 (Mintel Special Report
1994). Charities and book clubs account for 7.8% and 4.4% respectively. All these
sectors primarily use direct marketing as a distribution channel. Therefore, if about
63% of direct marketing users use it successfully for this purpose, it will be
permissible to accept the claim that one of the major uses of direct marketing is as a
distribution channel.
Katzenstein and Sachs (1986) suggest that the maintenance of a database is
another direct marketing function. However, maintaining the database is not a
major function. It is a prerequisite for direct marketing (Bauer and Miglautsch
1992, Murrow and Hyman 1994). Although organisations, whether they are direct
marketing or not, benefit from using databases, there cannot be direct marketing
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Direct Marketing in Saudi Arabia
without a database. It is a necessary means by which direct marketing achieves its
functions effectively and efficiently.
TABLE (3-3) PRINCIPAL USERS OF DIRECT MARKETING
Users
M items
% volume
£m
% value
Mail order
288
17.4
120
17.1
Insurance
168
10.1
70
10.0
Bank/Girobank
151
9.1
60
8.6
Charity
136
8.2
55
7.8
Retailers
128
7.7
55
7.8
Manufacturers
96
5.8
40
5.7
Credit cards companies
88
5.3
35
5.0
Travel/hotels
75
4.5
32
4.6
Book club
73
4.4
31
4.4
Others
455
27.5
202
29.0
Total
1,658
100.0
700
100.0
Source: Mintel Special Report, Direct Marketing 1994.
After identifying the two significant functions of direct marketing, promotion
and distribution, in the next section, the discussion will be extended to present
some examples of using direct marketing as a promotional tool. In addition, a
comparison between some of the major promotional tools and direct marketing will
be conducted to clarify the nature and the distinctive benefits of the approach.
3.2 Direct marketing as a promotional tool
Promotion is defined in the literature as any form of communication used to
inform, persuade, and/or remind people about an organisation’s or individual’s
goods, services, image, ideas, community involvement, or impact on society (Evans
and Berman 1992). Direct marketing is commonly identified in the literature as an
element of the promotion mix (Schoell and Guiltian 1990, Mercer 1992, Kotler et
al 1998). The promotion mix is the firm’s overall and specific communication
programme, including its involvement with advertising, publicity and public
relations, and personal selling and sales promotion. Research has shown several
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Direct Marketing in Saudi Arabia
beneficial impacts of including direct marketing in the promotion campaign. For
example, according to Bird (1986), a comparison between a promotional campaign
including direct mail and one which does not, shows how effective direct marketing
is as a promotional tool. The results are that:
1. Awareness of the mailing was more than 70%, three months after it had
been sent out.
2. Brand performance shifted dramatically: people were 148% more likely to
choose the product in question than similar people who had not been
mailed.
3. Advertising awareness leapt: people who had been mailed were 37% more
aware of the product’s general advertising (Bird 1986).
However, direct marketing has features that distinguish the approach from
other tools of the promotion mix. In fact, direct marketing may be seen in some
situations as an efficient substitute for the promotion mix, which has its own
communication mix.
Following the AIDA model (Attention, Interest, Desire, Action) developed by
Strong (1925), firms use advertising to create awareness and interest, sales
promotion to provide an incentive to buy, and personal selling to close the final
stage. Direct marketing attempts to compress all these elements in one message.
The direct marketing message takes the consumer all the way from awareness
through purchase. It contains techniques to grab attention and encourage readers to
look further. It usually makes a promise to the reader, gives them information, or
poses a question. The goal is to draw the prospect into the message. Once the
message has the prospect’s attention, it talks to him or her in a believable way and
explains the product’s benefits. To take the prospect to the final stage (Action) a
direct marketing message in the form of advertising or brochures is usually
produced to give the prospect precisely the information they need to take the next
step in the buying process. Mechanisms to take the next step such as reply cards,
free-phone, and coupons are always provided to encourage prospects to take
immediate action. This action might include offering a premium, letting consumers
try the product on a limited basis, making an appointment or providing a less
specific motivation to bring prospects to a retail outlet or showroom, or arranging
to have the salesperson visit the prospect’s home or office.
Having said that, perhaps the major drawback to using the AIDA model in
direct marketing is that the prospect may not reach the final stage due to, for
example, time, convenience, or money constraints, although the message seeks to
encourage the prospect to take an action. This may lead to losing its effect on the
prospect’s behaviour. For instance, a software company sends direct mail to a
customer to convince him or her to buy expensive software. The message goes on
to ask the customer to respond and take the action. But, because of the high price of
the product, he or she may have already stopped at the price figure and disregarded
the rest.
However, in some circumstances the response sought is not to generate direct
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Direct Marketing in Saudi Arabia
sales, but rather to generate a dialogue between the marketers and the consumers. It
may be an inquiry for more product details, it could be answers to questions that
highlight how the consumer interpreted the advertising message, it could be
opinions about products or services given in questionnaire, it may be entry into a
sale promotion programme designed to increase awareness of product features and
benefit, or it may even be just to build a customer’s list.
Consequently, if advertising is used to create awareness and interest, sales
promotion to provide an incentive to buy, and personal selling to close the sale,
direct marketing has been used successfully to compress all these elements to lead
to a direct sale, overcoming most of the disadvantages associated with other
promotion tools (Bird 1989, Kotler et al 1994). The following section will highlight
some of these weaknesses associated with some of the major promotional tools
compared to the use of direct marketing . In addition, carrying out these
comparisons may be useful in identifying some of the distinctive features of the
approach, and at the same time acknowledging some of its drawbacks compared to
the other promotional approaches.
In the following section, the comparison between direct marketing and
promotion elements will concentrate on personal selling and advertising versus
direct marketing, because promotion strategy usually relies on either personal
selling or advertising as a lead element in the promotion strategy. Sales promotion
and publicity tend to be employed as a supplement device to improve the
effectiveness of other promotion mix ingredients (Burnett 1984). According to
Dommermuth (1984) they are employed to achieve limited objectives within the
total promotion strategy. Both tend to be useful mainly on a temporary or
intermittent basis whereas advertising and personal selling are relatively continuous
in nature (Burnett 1984, Dommermuth 1984, Dibb et al 1994). Therefore, publicity
and sales promotion by nature are not comparable to direct marketing. Thus, the
discussion will not focus on the comparison between sales promotion and publicity,
versus direct marketing.
Direct marketing versus Advertising
Compared to direct marketing, mass communication through advertising has
several drawbacks. Firstly, if the marketer wants to reach a relatively small target
audience, mass advertising can be very expensive due to the wastage factor. Direct
marketing overcomes these drawbacks. It can isolate those consumers (captured by
name and address) from the mass population who are the prime prospects for future
sales. Having said that, it would be misleading to assume that direct marketing is
cheaper than advertising, because direct marketing may well cost at least the same
as above-the-line advertising. However, if the customer database is segmented
effectively, the communication which results will be targeted at desirable prospects
with less waste.
Secondly, the advertising message is standardised, it is relatively inflexible
and not responsive to consumer questions. This makes it difficult to satisfy the
needs of a diverse audience. By contrast, a direct marketing message enables
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Direct Marketing in Saudi Arabia
marketers to open a dynamic and ongoing two-way communication with a mass
audience. A direct marketing message is a one-on-one dialogue. It consists not of
talking at the customers, but of talking with the customers (Jenkins 1984). Thus, the
needs of a diverse audience could be satisfied if the list was selected and maintained
properly.
Thirdly, mass advertising programmes are used as general messages or imagebuilding advertising. That is, they aim to communicate a message, establish a
product’s position in the marketplace, or make the company name well-known. This
means that, because advertising is impersonal, feedback is more difficult to obtain
and is usually not immediately available. For some firms, especially small to
medium sized businesses spending large amounts of money and not getting
immediate returns, this can hurt their budget considerably. However, with the use of
direct marketing techniques, advertising or communication programmes are
approached quite differently.
Although direct marketing programmes are similar to general communication
in having a variety of marketing objectives, including building image,
communicating a message, and so on, their main objective is to generate interactive
and direct responses from every marketing communication (Jenkins 1984). Direct
marketing intends to generate inquiries that can be counted and measured, and then
to convert the maximum number of inquiries to sales. Unlike advertising, direct
marketing usually requests immediate action. In a marketing sense, organisations
transmit advertising messages that ask customers to respond by feeding back their
understanding of the message or by accepting the offer. Correspondingly, a survey
conducted by Direct Mail Information Service (1994) indicates that lead generation
is named by over eight out of ten (84%) of all businesses in UK to be the first
reason for using direct mail, and 56% of them seek immediate results in the form of
direct sales.
Fourthly, a direct marketing message has an advantage over advertising
because it is flexible and informative (Gosden 1987). For example, there are very
few restrictions on direct mail. It can be flexible in the size, or shape of the package,
the colour, or the amount of content. Compared to advertising, it is not, for instance,
restricted by the page size of a magazine, or the time allowed for television
advertising. Marketers can include samples, three-dimensional models, or anything
that is appropriate to the message. Direct marketing messages can “tell the complete
story”. Some products and services, especially new ones for example, require an
explanation of their features and benefits. In retail stores there is no space to tell a
long story because the demand for shelf attention is completely exploited. However,
with direct marketing, marketers have the choice to extend the messages to
whatever they think suitable, without facing interference from competitors (Gosden
1987). However, it may turn out in some cases to be a drawback if that extension
goes beyond the interest of the prospect, which may lead to the entire message
being ignored.
TABLE (3-4) KEY DIFFERENCES BETWEEN DIRECT MARKETING AND ADVERTISING
Advertising
Direct Marketing
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Direct Marketing in Saudi Arabia
Mass communication
Targeted communication
Standard message
Customized message
Restricted message
Flexible message
Talking at the customer
Talking with the customer
Impersonal message
Personal message
Difficult to obtain feedback
Immediate feedback
Another advantage of the direct marketing message is that it does not require
fixed copy dates, so marketers can time their message to go out exactly when they
want it to (Davies 1992). However, the time marketers want the message to be
delivered does not necessary comply with the time the customer wants to receive it.
For example, a financial service company may send a targeted message to a client
offering him or her a special mortgage package for a limited period. However, the
client may not be interested or not able at this time to even think about buying a
house. This message, even though it may look very professional, may lose its
effectiveness, since it did not reach the customer at the appropriate time.
Direct marketing versus Personal selling
Personal selling is the oldest communication approach used to promote
products and services. The major difference between personal selling and direct
marketing is the face-to-face meeting. While personal selling requires an actual
personal contact between customers and salesperson, direct marketing could do the
whole process without the physical meeting. For a customer who feels under
pressure from some aggressive salespeople, direct marketing provides a self-service
format and enough time to evaluate the offer. In addition, while personal selling
typically comes in the last stage in the consumer’s decision process, taking place
after an information search and exposure to advertising, direct marketing
encompasses all these stages, including advertising to build awareness and convince
the customer, as well as the necessary mechanisms to finalise the deal.
TABLE (3-5) KEY DIFFERENCES BETWEEN DIRECT MARKETING AND PERSONAL SELLING
Personal selling
Direct Marketing
Requires physical meeting
No need for physical meeting
Serve the customer
Provide self-service format
Limited time
Enough time
Comes in the last stage of the decision
process
Encompasses all the decision process
Expensive per contact
Less expensive
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Direct Marketing in Saudi Arabia
Direct marketing versus Sales promotion
Sales promotion and direct marketing have much in common. The two
approaches have different objectives from traditional advertising. They are both
action-oriented, and seek an immediate sales or immediate response. Both use direct
mail extensively and creatively. They also share the awareness that targeting is
increasingly important (Bowman 1987). However, the key difference between sales
promotion and direct marketing is that the latter does not use the retailer as a link
between the consumer and the marketers. Direct marketing is a direct contact with
customers. All means of purchase are provided to close the sale at any place.
Customers do not need to contact or visit the retailer to benefit from the promotion.
Another key difference is the fact that direct marketing is a more targeted and
personal offer, while sales promotion is not. Consequently, while direct marketing
may maintain customers’ relationships and enhance loyalty, sales promotion on the
other hand usually does not. In fact, some studies in the literature indicate that the
continuous use of sales promotion may harm loyalty (Strang 1985, Hahn 1995).
Customers used to receiving a discount coupon, may become price loyal, rather
than brand loyal. As a result, any time the firm stops couponing, its sales may drop
dramatically (Rosenfield 1988).
In addition, when mass couponing is, for example, distributed to everyone,
only a small amount (usually only about 4%) are redeemed, producing few
incremental sales or new customers (Rosenfield 1988). However, direct marketing
is more targeted and less wasteful. An example of how direct marketing sales
promotion works, is Rothmans King size cigarettes’ in-pack promotion. In 1986,
Rothmans sent a free package to each customer in the UK who collected 10
packages. After 18 months, 750,000 names and addresses were added into the
company database. In addition, they invited Rothmans King size smokers, through
the “member-get-member” promotion, to send their name plus the names and
address of their partners on the draw ticket. Through this approach, they obtained
the names and addresses of 250,000 smokers of competitors’ brands. After a while,
by sending incentives, about 90% of them were persuaded to change their brand to
Rothmans King Size (Higgs 1986).
TABLE (3-6) KEY DIFFERENCES BETWEEN DIRECT MARKETING AND SALES PROMOTION
Sales promotion
Direct marketing
Impersonal
Personal
Standard
Targeted
Used for short-term strategy
Used for long-term relationships
Need link through retailer
Direct link with customer
Seek immediate response
Seek immediate response and sale
Too much waste
Less Waste
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Direct Marketing in Saudi Arabia
3.3 Direct marketing as a distribution channel
Direct marketing is well recognised in the literature as a promotional tool.
Research on issues related to the promotional dimension of the approach is
widespread. On the other hand, the distribution dimension of direct marketing
receives less attention in the literature. However, the use of direct marketing as a
distribution channel may play a strategic role in the firm’s long-term planning.
Roberts and Berger (1989) argue that direct marketing offers potential in many
potential competitive areas, such as changing the basis of competition,
strengthening customer relationships, overcoming distribution problems, building
barriers against new entrants, and generating new products. This section will
discuss the use of direct marketing as a distribution channel, and will show some
illustrations of practical use of the approach as a direct channel of distribution.
First of all, a marketing channel (distribution channel) is defined in the
literature as “A set of institutions which perform all of the activities utilised to move
a product and its title from production to consumption” (Bucklin 1966, Schell and
Guiltinan 1990, Stanton et al 1991, Stern and El-Ansary 1992). Based on this
definition, manufacturers who choose direct channels will perform major functions
(flows) to move the product and its title to consumers. These flows include
physical possession, ownership, communication, negotiations, financing, risk
taking, ordering, payment, and market information. Direct marketing is able to
perform and facilitate the handling of some of these functions more effectively and
efficiently. Direct marketing, particularly mail order and direct mail, can be used to
perform the title flow where the title is transferred from the seller to the buyer.
They can also be used to perform communication (information flow), payment
flow, and promotion flow. Through direct marketing, manufacturers could share the
information mutually and directly with the consumer. Payment is commonly
handled by direct mail and most kinds of sales promotion (coupon, free gift,
invitation etc.) could be sent by mail directly to the customer.
In addition, Katzenstein and Sachs (1986) argue that direct marketing is a
hybrid of both intermediate and facilitating distribution functions. The principal
functions of marketing channels can be classified as intermediaries and facilitating
agencies (Rosenbloom 1987). The first involves the entire range of commercial
transactions, such as selling, risk taking, and arranging payment. The second,
which includes advertising, transportation, and warehousing, does not directly
involve transactions between buyers and sellers. Facilitating agencies (facilitating
intermediaries) are essentially suppliers of services rather than dealers of goods.
They are not actively involved in purchase or sales activities. Therefore, they are
not formally members of marketing channels
Direct marketing, from one perspective, is a facilitating intermediary. It is not
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Direct Marketing in Saudi Arabia
assigned transactional responsibilities. It simply renders a service to the selling
organisation, such as altering consumers’ perceptions, images, and attitudes, and
drawing customers to the store where sales are completed. From author perspective,
direct marketing performs sales activities including selling product, negotiation,
and transferring titles. It can thus be viewed as part of the marketing channel that
plays the role of facilitating as well as intermediating distribution functions.
Direct marketing as a method of selling and a channel of distribution can be
used in two ways; as a supplementary distribution channel, and as a sole
distribution channel. The patterns of buying behaviour plus the marketing
consideration of persuasion, accessibility of customer, and time and place of
purchase all suggest that direct marketing can supplement, and not duplicate,
existing channels. Normally, a market is divided into segments. Each segment has
its own motives, attitudes, needs, and preferences. For example, in the technical
book market, it is not economically feasible for book stores to be conveniently
located in isolated plant locations or suburban industrial parks, where technically
oriented buyers are ready to buy. As for libraries, it is doubtful that enough
potential buyers have access to suitably stocked public libraries. Therefore, a
segment of a potential market is lost.
Probably, the starting point in considering direct marketing as a profitable
supplementary distribution channel occurred during the 1950s, when Columbia
Records challenged traditional marketers. It launched the first major record club,
thus bypassing the conventional channels of selling and distribution and expanded
the market through direct marketing. The results showed that the sales of records in
the late 1960s increased by 227% and direct marketing accounted for 25% of the
total sales. In fact, the conclusion was that opening a new channel of sales through
direct marketing, which at first bypassed traditional methods had, the overall effect
of dramatically increasing total industry sales. Since then, many retailers have
found a substantial opportunity by supplementing their conventional retail store
operation with direct marketing. Basically, their objective is to reach segments that
are widely scattered or not adequately or profitably served by conventional retail
outlets.
Furthermore, a study conducted by Temple, Barker & Sloan Inc. (TBS) in
1987 (an independent general management consulting organisation in the US)
based on interviews with 100 banks, 130 life and property/casualty insurance, and
30 mutual fund complexes indicated that direct marketing can be used as both a
sole distribution channel and as a supplementary distribution channel. Virtually all
the banks TBS surveyed and slightly over two-thirds of the insurance companies
used some form of direct marketing, and 90% of the banks surveyed planned to
expand direct marketing. Among insurance firms, slightly more than half of those
already using direct marketing planed to expand their direct marketing activities
(Maher 1987). The TBS study highlights three primary motives for the use of direct
marketing; 1) reducing distribution cost, 2) developing flexible distribution
vehicles and 3) improving customer relations and perceived quality.
Regarding the reduction of distribution cost, the TBS study indicated that the
cost of in-person sales and service has become so high that financial services found
44
Direct Marketing in Saudi Arabia
it increasingly difficult to recoup distribution expenses from products sold to
individuals, and sometimes to corporations. It noted that in many cases, the full
cost and return on investment per new sale implied that firms should stop selling.
Hence, it concluded that by replacing or supplementing an existing distribution
system, direct marketing could significantly lower distribution costs (Maher 1987).
A successful example is Dell Computer company, which adopted direct marketing
to cut out intermediaries. The company’s direct contact with commercial accounts
lets Dell fine-tune interactions and customise product offerings to the exact
requirements of each buyer. Therefore, this approach has generated cost advantage
and achieved an efficient operation model that increased Dell’s sales to the $2
billion level in just a few years (Wiersma 1993).
With respect to flexibility, TBS study indicated that direct marketing is highly
flexible because it has none of the geographic, sociodemographic, and
product/service limitations that constrain traditional distribution systems. It thus
facilitates cross-selling new products to existing customers, reaching new
customers, and providing sales support functions. According to Gordon (1994)
cross-selling and up-selling programmes can increase sales revenues by as much as
10 percent. Potential candidates to benefit from using direct marketing to cross-sell
products, are utilities and financial services companies. In financial services for
example, a current account holder can be targeted for a pension policy, credit card,
life insurance, or saving plan. Learning from the transaction occurs for example
when customers respond and marketers look at the “key” code number on the form.
Through that number, the company can identify customers and track the promotion
they are responding to. Knowing the customers’ preferences allows recognition of
opportunities to cross-sell the appropriate products and services.
The TBS study indicated that direct marketing has been used successfully as a
single distribution channel with many financial products and services. Examples
are cross-selling motor insurance or credit cards to an account holder. However,
according to the TBS study, direct marketing is best suited for simple products with
few features and obvious benefits, and for low-load products that cannot justify in
person sales. Other complicated or high value products such as mortgage or big
investments seem to require personal contact.
Financial services, insurance, and travel companies, are the major users of
direct marketing as sole distribution channels for some of their services. For
example, Direct Line insurance, a subsidiary of the Royal Bank of Scotland,
markets its product (motor insurance) direct to the customers by cutting out
intermediaries. This strategy allows the bank to avoid paying brokers’
commissions, to be able to offer the public more personal services, a faster
response, and a lower price. In 1985, this new strategy was considered as a ‘new
way of marketing motor insurance, which put the company, in the lead position in
the UK’s motor insurance market (Fletcher et al 1991). With a view to using
similar strategy in retailing, Great Universal Stores, the biggest UK mail order
company, divested itself of most of its non-mail order retailing interests to
concentrate on its mail order business during the 1980s (Key Note Report 1990). In
1994 1,658 million items were sent out in the UK, out of which 17.1% were sent by
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Direct Marketing in Saudi Arabia
mail order companies (Mintel Special Report 1994).
The role of direct marketing within the distribution system varies as the level
of channels varies. Initially, direct marketing can be employed at any level of any
channel. It can be used throughout the channel or else between any of the channel
levels. However, it is being utilised to facilitate the process in some distribution
levels and to intermediate the distribution functions in others. Figure 3-1 illustrates
the four most common alternative distribution channels available to producers of
consumer products for reaching their consumers as illustrated in major marketing
textbooks (Lamb 1992, Stanton et al 1991, Stern and El-Ansary 1992, Dibb et al
1994, Kotler et al 1998).
Firstly, producer-consumer is the shortest channel. This channel often
involves mail order, door-to-door distribution, or direct salespeople. Examples of
organisations using this form of distribution channel include Avon and BetterWare,
and magazines such as Readers Digest. In addition, service organisations
commonly use such short channels, examples of which are utilities, insurance
companies, building societies, and banks. For industrial products, Producer-user is
the most widely used channel, especially if there are large costly installations and
complex selling. Though the use of direct marketing as a distribution channel is
limited in this channel, it is usually used as a facilitating intermediary. Enhancing
image, leading enquiries, and maintaining the relationship are the role most likely
to be assigned to direct marketing in this channel.
Secondly, Producers-Retailer-Consumer is where direct marketing is often
used for both consumer and industrial products. Although most direct marketing
elements are used in this channel, mail order by catalogue is the primary form.
Many retailers of clothing, computers, auto dealers, construction supplies, building
materials, and houseware employ mail order in this channel. Companies such as
Great Universal Stores, Freeman’s, MacWherhouse, and Empire depend on mail
order as the dominant channel.
Thirdly, Producer-Wholesaler-Retailer-Consumer is the traditional
distribution channel. Usually, producers of mass consumer goods and small
retailers find this channel an economically feasible choice (Stanton et al 1991).
Direct marketing is unlikely to be used as a distribution channel however, it could
be used as a promotion tool between any levels of this channel.
Fourth, Producer-Agent-Wholesaler-Retailer-Consumer is distinguished by
using an agent or a broker trying to distribute through small retailers or when the
producer is otherwise unable economically to justify a sales force, or lacks the
expertise to distribute their products (Baier 1984). Agents and brokers are different
types of channel however, in general, they do not take title to products and
typically perform fewer services for their principals and their customers. In such
instances, direct marketing techniques can substitute for an agent or a broker in a
specific industry. Direct marketing offers the chance to build and maintain direct
relationships with retailers or customers. It may also participate in prices and terms
of sales, and like some agents, it will carry promotion activities to enhance image,
lead inquiries, and affect the customers’ attitudes. Consequently, the importance of
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Direct Marketing in Saudi Arabia
agent intermediaries and brokers has been declining for many years. They are
replaced by merchant wholesalers or direct marketing (Stanton et al 1991).
Figure (3-1) The four common distribution channels
Producer
Agent
Wholesaler
Retailer
Wholesaler
Retailer
Retailer
Consumer
In conclusion, direct marketing, whether it is direct mail, telemarketing, or mail
order, has a distribution dimension. It could perform some of the significant
distribution functions (flows). It is a combination of both intermediary and
facilitating agent. Although direct marketing may be used in all levels of
distribution channels, the particular context influences its role and functions. In the
previous discussion, market and product-related variables appeared to be among
the determinants of a role for direct marketing. Direct marketing was used
commonly as a sole distribution channel in services, while it was being used as
only a facilitating agent in industrial markets. In addition, direct marketing was
used as a sole distribution channel with standard and simple financial products,
while it was used as a supportive channel for complex and high valued products. In
all cases, the distribution dimension of direct marketing is recognised as a major
function of using the approach.
3.4 Drawbacks of Direct Marketing
Even though direct marketing has several advantages over sales promotion,
general advertising, and personal selling, it has been criticised on a number of
issues. Among the factors emphasised in the literature as critical problems that have
an impact on the utilisation and growth of direct marketing are poor image,
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Direct Marketing in Saudi Arabia
perceived risk problem, and privacy issues. The image problem is probably the
most critical and global challenge facing direct marketers. There is a widespread
view that direct mail means “junk mail” and from some customers’ perspective,
direct marketing is often looked upon as intrusive, wasteful and sometimes
unethical. According to Betts and Yorke (1994), about 68.3% of users of direct
marketing regarded the public image of direct marketing as “poor”.
Petsky (1994) reported that in 1993 there were about 70 billion pieces of
unsolicited direct mail delivered to mailboxes in the US. This amounts to nearly
400 pieces per year for every US adult, while some executives reporting receiving
up to 60 pieces of unsolicited mail a day. In the United Kingdom, consumers
receive an average of 306.8 pieces of mail per year, and business managers receive
an average of 14 items per week (Statistical Fact Book 2000, The Letterbox Factfile
2000). Out of this large amount of mail, about 35% is perceived as irritating junk
mail. This obvious waste has drawn the attention of numerous consumers and
environmental groups. Although users of direct marketing are trying to improve
their operational strategies to reduce waste and improve their environmental image,
at the end of the day, it is the volume of mail that ends up in bins that drives more
demand for restrictive regulation.
In fact, one of the major causes of the image problem of direct marketing is
poor targeting. Although targeting precision is perceived as one of the most
important advantages of direct marketing over other approaches such as advertising
and sales promotion, it has led to its image problem. In Betts and Yorke’s (1994)
study, poor targeting was ranked as the first factor causing image problems.
The perceived risk problem is another issue which concerns users of direct
marketing. It is one of the major reasons that deter people from using direct
marketing (Spence et al 1970, Akaah et al 1995). The uncertainty generated by an
inability to examine the product and interact with the seller may be the reason why
many customers avoid buying by mail. Spence et al (1970) asked a sample of 300
customers to rate the amount of risk they felt in buying 20 different products in two
situations; through mail order or in a retail store. They found that the perceived risk
of buying through mail order was much higher than buying through a store. Similar
studies assert the same result that the risk of buying from a direct marketing
company is viewed as being greater than that of buying from a retail store (Peterson
et al 1989, Settle et al 1994, and Akaah et al 1995). This problem makes the vast
majority of direct marketers offer money-back guarantees if the buyer finds the
products unsatisfactory. However, this still may not alleviate perceived risk
completely. Settel et al (1994) found that money-back guarantees may lessen the
financial risk but other forms of risk may still exist. Physical, performance, social
and psychological risk may make customers somewhat fearful of making a bad
decision regarding direct marketing shopping media. That might not cost them
money, but it could cost them time, effort, delay, or bad feelings about themselves
(Settel et al., 1994)
Another drawback of direct marketing is the invasion of people’s privacy. It
is one of the issues that are considered a priority among direct marketers’ concerns
about the future. A clear example of the invasion of privacy is the transfer of
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Direct Marketing in Saudi Arabia
customers’ information without the subjects’ knowledge or permission. It is
particularly serious when the information being transferred concerns health, wealth,
or other intensely private matters. In addition, sending too much mail to customers
who are not interested, or telephone calls that come at dinnertime, represent other
examples of invasion of privacy. Petsky (1994) complains that with the
development of new technology that enhances the use of databases, everyone’s
private life will become an open secret as marketers want to know every detail
about customers before investing in them. Hume (1991) reports that a survey
conducted among individual customers found that 78 percent of the respondents
described themselves as “very concerned” or “somewhat concerned” about what
marketers know about them. Similarly, Nowak and Phelps (1992) found that 83%
of a sample of adult consumers indicated concern about threats to personal privacy.
Therefore, Petsky (1994) concludes that direct marketers need to overcome these
perceptions by developing and implementing positive public relations efforts and
self-regulation to protect people’s privacy if they want to continue prospering.
Summary
This chapter explained in detail the relationships between direct marketing
and its elements, and other marketing approaches such as advertising, sales
promotion, and personal selling. In this chapter, the role and reasons for using
direct marketing were identified by reviewing the existing research in the literature.
In addition, promotion and distribution functions of the approach were identified
and practical examples of using the approach to achieve these functions were
outlined. The chapter concluded by explaining that although direct marketing has
been used commonly as a promotional tool, its distribution functions are a valuable
feature that have been utilised in many situations.
Also, this chapter focused on the practical use of direct marketing as a
distribution channel. It explained that direct marketing could be used as a sole or as
a supportive distribution channel. The nature of its role was influenced by many
surrounding factors. Direct marketing has been used as a sole distribution channel,
and in some situations to cross-sell products. In other situations, it has been used to
facilitate the distribution channel or to be only a promotional tool.
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Direct Marketing in Saudi Arabia
CHAPTER 4
SAUDI MARKET
The Saudi Arabian market is considered one of the most important markets in
the Middle East. It has often been described as a market that offers many profitable
marketing opportunities to local and international firms. There are four significant
factors that are considered responsible for this appeal:
1. Its high purchasing power, due to the fact that Saudi Arabia owns a quarter
of the world’s oil reserves.
2. Its massive consumer demand, coming from a sizeable and fast-growing
population.
3. The heavy reliance of its economy on imported products
4. Its status as a pilgrimage site for all Muslims (Lenidou 1991, Middle East
Executive reports 1995).
As a result, since the early 1970s, an enormous number of local firms have
been established and an increasing number of international companies have moved
to exploit these opportunities. However, the Saudi economy has undergone a
number of difficulties, one of which is the events of the Gulf war (1991) which cost
about $60 billion. The instability of the oil price is another factor that influenced
the economy, especially in the early 1990s, during which the oil price witnessed a
huge reduction. Such difficulties have led to an economic crisis and the
government has consequently cut its spending (Rossides 1994). Construction
contracts and expenditure continue to decline, and imports from international
suppliers have dropped dramatically. As a result, after the “boom years” of the late
70s and 80s, the Saudi market has taken the shape of a normal market.
Consequently, market conditions have been transformed from what was recently
considered a pure seller’s market, into what is increasingly a buyer’s market (AlSaihati and Krishnamoorthy 1996, Leonidou 1995). The following discussion will
present a brief picture of the Saudi market, and more specifically, the Saudi
economy, population, income and culture, as these variables are considered the
major factors impacting the determination of marketing strategy and all aspects of
the marketing mix for companies operating in this market.
4.1 Saudi economy
Over recent years, the Kingdom of Saudi Arabia has emerged as a major
power in the Middle East and as a country with rising prominence in world affairs.
It has the world’s largest oil reserves, a large increasingly diversified economy, a
modern physical infrastructure, and a stable government. All these aspects are
reflected in the economic development of the Kingdom.
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Direct Marketing in Saudi Arabia
Saudi Arabia is forecast to average an annual growth rate of 3.7% during the
2001 to 2005 period, with most of this growth generated in the private sector. This
is in line with the goals of the new five-year development plan to 2005 which
forecasts an average annual growth rate for the private sector of 5.0%. It also
implies a gradual retrenchment in public sector activities, with the contribution of
the Kingdom’s non-oil sectors to GDP rising to 71.6% by the end of 2005, from
48.4% in 1999 (Azzam 2001).
The new five-year development plan to 2005 also sets ambitious targets for
higher growth and faster job creation. Measures to liberalise the economy are
expected to attract higher investment, but the Kingdom will remain heavily
dependent on oil revenues. The target for average growth in GDP is 3.2% more
than double the average for real GDP growth in the 1990s. The private sector is to
grow by 5.0% a year and non-oil GDP will expand by 4.0%. The non-oil sector
contribution to GDP will also rise to 7.16% in 2005 from 68.4% in 1999 with an
overall aim of reducing the budget deficit to zero in 2005.
The five-year plan also envisages a sharp rise in private sector investment,
which is expected to reach SR478.5 billion over the next five years and account for
71.2% of total investment during the period. To help boost the private sector and
reduce the role of the state, several reforms have been put into place, including the
new Foreign Investment Law adopted in 2000.
Overall, the target looks ambitious, but attainable. Job creation will be a
particular challenge, as the plan envisages the employment of 817,000 more
Saudis, for which sustainable GDP growth of about 5.0% a year would be
necessary for the non-oil private sector to absorb these new job market entrants.
The growth postulated for Kingdom’s private sector in the coming few years will
get a boost from the belief that the government will maintain the ambitious reform
programme which has recently been introduced, specifically with the aim of
stimulating private sector activities and attracting foreign investments.
A new investment law that promises higher capital flows and stronger
economic growth has been put in place. It addresses important aspects of the
investment code which had previously acted as impediments to foreign investments
in the Kingdom, including taxation, the sponsorship system, equal treatment
between local and foreign investors and foreign ownership of real estate. Other
structural reforms include opening up the stockmarket to foreign investors through
funds managed by Saudi banks, restructuring of the power and electricity sectors
and inviting foreign companies to invest in the gas sector. In addition, a single
agency, the General Investment Authority, will have the full responsibility to
oversee investment projects in an effort to accelerate the process. The Kingdom is
also now open to foreign tourism and is well positioned to join the WTO by the
year 2002. (Azzam 2001)
TABLE (4-1) HIGHLIGHTS OF SAUDI ARABIA’S SEVENTH FIVE-YEAR PLAN 2000- 2005
* Average annual GDP growth of 3.2%.
* Employment of 817,7000 Saudi, 466,600 through Saudisation, 328,700 new
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job creation.
* Budget and current account deficits to end by 2005.
* Opening 29 hospitals, starting construction of 70 more.
* Construction of 1,111 primary schools, 819 intermediate school, 905 high
schools, and opening of 10 new technical colleges.
* Completion of three new desalination plants and beginning construction of 12
more.
4.2 Population and culture
The most recent population census in the country was conducted in 1992 by
the Ministry of Finance and National Economy, represented by the Saudi Central
Department of Statistics. The census revealed that the overall population of Saudi
Arabia is 16,929,294; of these 12,304,835 were Saudis, and 4,624,459 were nonSaudis living in the Kingdom. According to the 1992 population census, the total
population of the kingdom was estimated about 21.4 million in 1999, of which 15.7
million are Saudis and about 5.7 million non-Saudis. Estimates also indicate that
the total Saudi population will increase from 15.7 million in 1999 to about 29.7
million in 2020, or by 89.2 percent. Furthermore, the average annual growth of
Saudi population of working age will remain high, ranging between 3.5 percent and
4.1 percent during the period 2020 ( Seventh Development Plan 2000- 2005).
Estimating the total area of Saudi Arabia at about 2,240,000 kilometres, the
average population density is approximately seven persons per square kilometres.
Such an average is misleading, however, because more than 60% percent of Saudi
Arabia’s total population is concentrated in the Kingdom’s sixteen major cities. As
a result of geographic and climatic conditions, population is concentrated in three
centres: the west coast along the Red Sea, the east coast along the Arabian Gulf,
and the Riyadh area in the centre of the country. The population contains two major
groups; Saudi nationals and non-Saudis. Saudi nationals comprise approximately
two-thirds of the resident population. The other one third, non-Saudis, is made up
of about 60% Arab, 35% Asian, and 5% European, American and Japanese people.
The population of Riyadh exceeds 4 million, representing about 17.5% of the
country’s total population. It is considered one of the fastest growing cities in the
world. According to Arriyadh Development Authority, the population is growing at
an annual rate of 8.1 percent. The city grew from around 30,000 in the early thirties
to 300,000 in the 1986 and then by tenfold to the present day (Arriyadh
Development Authority 1999). A high population growth rate means that Saudi
Arabia has a very youthful demographic profile, with around 50% of the population
less than 15 years of age, and more citizens will be entering the labour force in the
1990’s.
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Direct Marketing in Saudi Arabia
TABLE (4-2) SAUDI POPULATION AND MANPOWER (THOUSAND)
Year
Saudi population
Saudi labor force
Non-Saudi labor force
1999
15658.4
3172.9
4003.4
2004
1852.3
3990.2
3514.7
2020
29717.0
8263.0
2483.0
Seventh Development Plan (2000- 2005)
Similar to the main characteristics of the whole population in Saudi Arabia,
the Riyadh population is quite young. The median age is 20 years. This means
about 50% of the population is under age 20, while only 3% are over 60. Riyadh
population is expected to continue to grow by about 200,000 persons each year,
doubling in about 10 years. The population is projected to be about 6 million in
2006. This high growth, and youthful profile, means there is a growing need for
more health care, education, water supply, power generation, and housing. For
marketers, this creates major opportunities as the consumer market is continually
growing at a pace which is much faster than in many other parts of the world
(Arriyadh Development Authority 1999).
TABLE 4-3 RIYADH POPULATION
Year
Population
Average change (%)
1986
1,389,500
-
1995
3,004,600
8.6
2004
5,525,000
6.8
2006
5,982,000
8.2
Arriyadh Development Authority 1999
One of the important factors that needs to be considered before implementing
any marketing strategy is culture. The Saudi culture is very different from that of
the West. Islam is the only belief and religious identity that dominates the lives and
actions of the behaviour of the government, business, and the people. Islamic law
dictates the values of in relation to almost everything from personal behaviour to
international and external relations. Moreover, because of the strong adherence a
Muslim should have towards God’s orders and the way of Prophet Mohammed, it
is very hard to change his values unless he is not practising Islam. Hence, Saudis
are very sensitive about their religion, and can be easily offended by behaviour,
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Direct Marketing in Saudi Arabia
text, or pictures which may be considered acceptable in the Western world. A
recent interesting example of the sensitivity of Saudis, is given by the promotion
campaign of a major sports wear company called Nike. In 1997, Nike designed a
new logo on its new sport shoes, which looks exactly like the word Allah, the
Arabic name for God. Unfortunately, the choice of this logo spoiled the entire
campaign and jeopardised the existence of the brand in the entire country, as for the
Saudis as well as all Muslims in general, positioning the name of God on shoes is
considered a grave degradation.
Family loyalty and solidarity are extremely strong. The Saudi social life
centres around the family (Culpan 1985). The family is well-established to
influence the relationship and the behaviour of its members, not only, sons and
daughters but extended to relatives, and those who are associated with and work for
them. Family power in Saudi Arabia can be compared with the power of the large
corporation in the West. The father and elders are the dominating force in every
decision concerning relationships, travelling, selling, and buying, marriage and
working. Some families, for example, will not allow their offspring to work in a job
unless that job is appropriate to the tradition and status of the family.
Arabic is the official language in Saudi Arabia. All official documents are
published initially in Arabic. However, since many government officials and
decision-makers have been partly educated in the West, English is a common
language in the Saudi Arabia and viewed as a common currency of the commercial
community. Nevertheless, Saudis are very proud of their language because of its
religious status as the language of the holy book (Quran), and they prefer dealing in
Arabic to any other language, even if they are bilingual (Elbashier and Nicholls
1982).
4.3 Income
The per capita income in Saudi Arabia has fallen in recent years as population
has overtaken real output growth. With a population in 2000 of more than 20
million, per capita income stood at approximately $7,603. In 1997, it rose to SR
58,000. However, the average yearly wage and salary earnings of individuals living
in Saudi is approximately SR 60,000 and, the average total income for a household
is about SR 180,000, while the estimated average annual total expenditure per
house is approximately SR 126,000.
Saudis and non-Saudis exhibit differences in spending patterns, as non-Saudis
are less inclined to buy goods which are not easily transportable. In general, food
and beverages constitute the highest expenditure category, almost a third of all
household expenditures. As can be seen in figure 4-2, housing, transportation and
clothing are the next most significant categories of expenditures: 29, 13 and 10
percent respectively. In general, the cost of living in Saudi Arabia is considered
inexpensive compared to Europe. Education from pre-school up to higher education
is free, and all kinds of health services are provided free of charge. Housing is
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Direct Marketing in Saudi Arabia
relatively inexpensive and every Saudi citizen is entitled to be granted a piece of
land and an interest- free loan of around SR 300,000 to cover his or her house
construction costs. Basic local products such as fresh food, meat, and clothes are
also relatively inexpensive. The cost of flour and bread is subsidised, and wellknown American, Japanese and European brands of consumer durables are in many
cases less expensive than elsewhere because there is no tax on these items.
Figure 4.2 Distribution of the expenditures per household
Education
1%
Recreation
5%
Other
10%
Food & Related
32%
Transportation
13%
Clothing & Acc.
10%
Housing
29%
Source: (Arriyadh Development Authority 1996, 1999)
The average household in Saudi Arabia has 6.2 members, and almost twothirds of households have five or more members. The average number of children
born to Saudi women is almost five. Research from Syra House Research indicates
that, for nationals, the wife makes 28% of household shopping decisions
independently from the husband, with joint decisions in 38% of cases. The husband
makes 26% of shopping decisions independently (Arriyadh Development Authority
1999).
The Saudi consumer has become sophisticated in taste and style because of
the variety of goods and services in the market. Consumers increasingly seek value
for money, want better quality, product assortment, reasonable prices, support
services and more information. Before purchasing, Saudis exhibit a unique buying
behaviour; they seek information, examine products, check for the product’s
country of origin, look for expiry dates, and then bargain extensively with sellers to
obtain the best possible price (Culpan 1985).
4.4 Marketing mix
The environmental forces discussed above have an enormous influence on the
shape of the marketing mechanism and strategy in the country. The interaction
between the market system and the environmental condition of Saudi Arabia
underlies the shape of the product, price, distribution, and promotion strategies. The
55
Direct Marketing in Saudi Arabia
following section will present a brief discussion of some of the general
characteristics of marketing mix in Saudi Arabia, emphasising distribution related
issues as they are the main concern of this book.
Product policy
The presence of locally produced consumer goods in Saudi Arabia is relatively
minimal. Most of the products on the market are dominated by brands imported from
various countries around the world. The variety of products in the Saudi market is
remarkable. Clearly, all the appropriate conditions for sale of consumer products are
present. However, products must be adapted to the cultural requirements. For example,
any product having traces of alcohol or pork is forbidden to be sold in the Kingdom.
Women’s fashion catalogues containing women’s fashion should only contain clothes
with long sleeves and floor-length hemlines. Moreover, the local regulations require it
the use of Arabic labelling on all packaging.
As mentioned above, consumers in Saudi Arabia have become more costconscious, and are looking for quality and durability. It is clearly obvious that the days
are gone when suppliers could sell any product without caring about quality. Quality
products, guarantees, and warranties have become essential variables in the Saudi
market. In addition, a strong after-sales service through workshops and service
stations is becoming vital (Leonidou 1991, Tuncalp 1990). Packaging also needs to be
adapted to suit the Saudi marketing environment. Due to the high temperature,
packaging should protect the product and ensure that it will reach the customer in firstclass condition.
Two examples of export success that considered the Saudi culture were
undertaken by two British companies. First, a manufacturer in York sold prayer rugs
during the pilgrimage season, and second, a British brewery was the first to offer a
non-alcoholic beer. On the other hand, one of the major reasons preventing British
cars from competing with Japanese and American cars is failure to adopt a marketing
mix corresponding to the Saudi market. British cars lack proper air conditioning that
can cope with the hot weather in Saudi Arabia. In addition, overheating engines is an
image that is associated with British cars. Consequently, the market share of British
cars tends to be very small in the Saudi market (Tuncalp 1988).
Brand name is also a major determinant for the success of a product in the Saudi
market (Leonidou 1995). People in Saudi Arabia have a great loyalty to well-tested
brands rather than new ones. They buy the same brand for generations and never think
of changing them, even if the market offers better brands (Salama 1983). An example
of that is “Shumagh”, the red and white checkered head covering worn by Saudi
males. While this particular clothing item is imported from several countries, the style
imported from England is considered to be the most fashionable and prestigious by
Saudi males, despite its very high price (Yavas and Tuncalp 1984). The experience of
the Saudi market customer with imported products is commonly illustrated in the
statement, “Go to Germany for your car, to France for clothes, to England for textiles,
and to Italy for furniture”.
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Direct Marketing in Saudi Arabia
Pricing issues
In general, the Saudi government imposes no price control on most goods
imported into or produced in the country. Most retailers, since they are concerned with
short-term considerations, seek to obtain the maximum profit possible from their sales
and do not investigate such marketing strategies as reducing prices to increase sales
volume. Discount structure and terms of sales are often neglected. Some Saudi firms,
in fact, do not distinguish between cash and credit sales in their pricing strategy, since
the charging of interest is contrary to the tenets of Islam.
Saudi pricing strategies are different from the Western style of fixed prices.
Haggling over price is a basic feature of the Saudi market. The traditional bargaining
process is still the dominant means by which commodities are exchanged in the Saudi
market. The initial price set by the merchant is usually higher than he/she believes the
buyer will pay, and the client offers less than he/she expects the seller to accept. After
much give and take, an agreement is reached as each moves closer to the final price,
which falls somewhere between the seller’s first price and the buyer’s original offer.
However, purchasing through direct marketing, or from modern retail outlets is very
impersonal, thus restricting shoppers’ ability to apply their bargaining skills (Abu
Naba’a 1984).
Saudi customers are now considered price conscious. They are very concerned
with obtaining value for money (Leonidou, 1995). In addition, because of the cost of
the product, the country of its origin also has a great influence on Saudi consumers.
For example, Far Eastern goods from countries such as Taiwan, Thailand, and Korea
sell well in Saudi Arabia because of their very low prices compared to Western
products. Also, because the market has become very sensitive to price, consumers
favour locally produced goods because the government has given financial support or
subsidised most Saudi-manufactured products. An example of this is cooking oil,
locally produced and called Afia, which took the position of market leader from
Mazola because of its lower price.
Channel Structure
Distribution is perhaps the most critical element of the marketing mix to gaining
a competitive advantage in the Saudi market. This is probably because of the valuable
contacts, experiences, specialisation and services that channel intermediaries can offer
in making products valuable to end-users (Leonidou 1995). The growth in the private
sector has been especially noticeable in wholesaling and retailing businesses. Statistics
show that in 1995 the number of wholesale and retail institutions were more than five
times as large as that of manufacturing institutions. Over 50% of businesses in Saudi
Arabia are wholesaling or retail establishments.
The methods of distribution used by various firms for reaching Saudi customers
differ from one company to another, and no set pattern has emerged. A study by
Leonidou (1995) reveals that some manufacturers used no market intermediaries at all,
57
Direct Marketing in Saudi Arabia
whereas others depended on retail merchants for the distribution of their products and
did not use any wholesalers. Other firms employed a combination of their own shops,
wholesalers, retailers, and other channels of distribution to reach their customers,
while other manufacturers organise selling agencies in addition to having their own
shops and utilising other channels of distribution. Similarly, service and trade sectors
are using such a multiple distribution system.
The distribution structure in Saudi Arabia, as is the case in most countries,
consists of all the traditional channels including manufacturers, distributors/agent,
wholesalers, and retailers. However, intermediaries in Saudi Arabia do not specialise
in one aspect of channel functions. They typically undertake a mix of wholesaling,
retailing, and dealers’ functions. In addition, the extent of market coverage by even the
largest marketing intermediaries is usually limited. In Saudi Arabia, all forms of entry
mode apart from wholly owned subsidiaries are permitted. Agents have to be locals,
and in any joint venture the minimum Saudi participation allowed is 51%.
Import agents represent a large quantity of the Kingdom’s marketing institutions.
The growth of this type of channel can be attributed to two factors: first, the
dependence of the Kingdom on imports, and second, the free-market policy adopted
by the Saudi government. Import houses usually represent the foreign manufacture
throughout the entire Kingdom. They import on their own account and have
considerable authority to determine prices and establish their own channels of
distribution and branch stores (Abu Naba’a 1984). Agents usually handle goods on an
exclusive basis and carry several product lines at the same time, ranging from
foodstuffs to electrical appliances and automobiles.
The manufacturing sector is still under development. Local manufacturers are
very few considering the size and the population of the country. More than threequarters of consumer goods sold in the Kingdom are supplied by foreign producers
(Leonidou 1995). Despite the production of chemicals, and petrochemicals, production
of customer goods is limited to basic products such as soft drinks, dairy foods,
building materials, and carpets. However, the government pays particular attention to
the industrialisation of the country. In the Fifth Development Plan’s period (19901995), for example, 477 new factories were established, representing a total
investment of SR 13 billion, and Saudi Industrial Development Fund provided
interest- free loans amounting SR 8.5 billion for industrial projects (The Sixth
Development Plan 1995-2000).
Moreover, the fifth plan period (1990-1995) witnessed some administrative
development, that reflects the government emphasis on industrialisation such as the
creation of the Export Department, the investment development unit at the Ministry of
Industry and Electricity, and support to local factories in the form of 30% reduction in
the price of liquefied gas from the lowest world price. At the same time, the Saudi
market is positively responding to the government’s financial efforts to promote local
products. In 1995, a survey by Syra House Research found that 75% of Saudi
households expressed a preference for Saudi products.
Through the sixth development plan, the government has used a wide range of
financial and regulatory measures to encourage the private sector to engage in joint
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Direct Marketing in Saudi Arabia
ventures with foreign firms and to invest in new capacities using the least available
capital-intensive technology. As a result, the number of factories in the Kingdom
increased to 3,123 with total investments of SR 230 billion in 1999. (Seventh
Development Plan 2000 – 2004)
Wholesalers are considered to be the backbone of the distribution system in
Saudi Arabia, especially with regard to fast-moving consumer goods. This is probably
because of two reasons: the existence of numerous small retail stores demanding
limited quantities of a wide assortment of goods, and the country’s huge territorial size
(Leonidou, 1995). The majority of wholesalers in the Kingdom do retailing at the
same time, since wholesaling and retailing as separate institutions and functions are
not yet clearly defined. Large Saudi firms usually combine the functions of
wholesalers, distributors, retailers, and others such as manufacturing, construction, and
shopping. In fact, most wholesaling agencies are dominated and owned by a few
families in the country such as Alrajhi, Shurbatly, Riza, Jameel, AlJaffali, and
Bugshan.
Most retail shops in Saudi Arabia are characterised by small size, low turnover,
and unattractive stores. Modern supermarkets and department stores are now
appearing in all major cities of the Kingdom. In recent years, the number of small
shops and self-service retail outlets increased dramatically. According to the last
census undertaken in Saudi Arabia in 1992 compared to 1989, there was substantial
overall growth in the number of small shops retail outlets (45%). The most dramatic
growth (161%) was in the number of self-service retail outlets (Rossides 1994).
FIGURE 4-3 MIDDLE EAST SHOPPING CENTER (1980 – 2005)
Gulf Marketing Review, March 2001.
Advertising and promotional activities
Advertising is an important factor in the attempt to reach Saudi customers.
Reaching the new Saudi consumer who is growing up with television will of course
mean using sophisticated rather than traditional methods. Word of mouth advertising
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Direct Marketing in Saudi Arabia
is very effective in Saudi Arabia, since this form of communication is the most useful
reference for good products and services. Most people buy things because they have
become generally recognised as the best products in town. People communicate well
and advise each other on either good or bad news so that their friend may benefit or be
protected from favorable or unfavorable product features. The range of media
available in Saudi Arabia is similar to that in the West. Essentially, this range consists
of;

Printed media (newspapers and magazines) both in Arabic and English.

Electronic media, including television, radio, and satellite channels.

Direct marketing

The outdoor media and exhibitions
The most developed media in Saudi Arabia are print media, which are
estimated to account for about 70 to 74 percent of advertising expenditures in the
Kingdom. A large number of periodicals is available in Saudi Arabia reaching
about 72 newspapers and magazines. About 14 of these are published daily, 8 are
issued weekly, and among the remaining 57 periodicals, 49 are commercial
magazines (Tuncalp, 1994 b). However, newspapers and magazines are greatly
constrained by their limited circulation, distribution problems, and the expensive
nature of their advertising space.
The audio-visual media are used with some limitations, because of the
constraints brought on by the cultural climate in the country, and governmental
regulations. Advertising is not allowed on radio, and recently the government
banned the use of videos for advertising (Tuncalp 1994 a). Hence, television is
considered the only audio-visual medium in Saudi Arabia. Having said that, Radio
and Satellite channels from neighbouring countries that are received in Saudi
Arabia are usually used as practical, inexpensive alternative advertising media.
Direct marketing, in general, is in the infancy stage of its development. Until
2002 there were fewer than 10 agencies in the whole country classified as direct
mail services agencies. Mail order and catalogue businesses are also scarce. Most
of the existing mail order companies are branches or agencies of major
international companies such as Freemans, Quella, Mothercare, Next, and Great
Universal. Banks and financial services are the primary users of direct mail.
According to the chief executive of the post office in Saudi Arabia, banks account
for more than 40% of the total business-to-business direct mail. The remaining
users are companies involved in retailing, health services, hotels, and travel
services.
Out-door media are very common advertising methods used by marketers in
Saudi Arabia to communicate directly with customers. It has been found in a
previous survey that Saudi Arabia, with its near perfect climate, open visibility, and
dense automobile and pedestrian traffic, is an ideal place for the use of outdoor
media. Expenditure on out-door media comes significantly after the level of
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Direct Marketing in Saudi Arabia
expenditure on print media and audio-visual media. It is estimated to account for
about 4 to 10 percent of advertising expenditure in the Kingdom (Tuncalp 1994 a).
TABLE 4-4 MARKET ADVERTISING EXPENDITURE ($ MILLIONS) 2001
Rank
Counties
Millions
1
Pan Arab
722
2
Egypt
425
3
Saudi Arabia
387
4
Lebanon
250
5
UAE
232
6
Kuwait
207
7
Bahrain
57
8
Jordan
53
9
Qatar
39
10
Oman
33
Gulf Marketing Review
2001
Physical distribution
Physical distribution is an essential supporting element for the development
of an effective marketing system because it represents a large portion of total
marketing costs. The main sectors that shape the physical distribution system in
Saudi Arabia are logistical arrangement, transportation, telecommunication
services, and postal services.
The logistical arrangement in Saudi Arabia can be described as quite efficient
overall (Leonidou 1995). Ordering processes for fast-moving consumer goods, for
example, are usually filled within a couple of days from the time they are placed.
Almost all major warehouse establishments have large private warehouse in all
major cities, equipped with a special air-conditioning system to protect
merchandise from the extreme heat and dusty atmosphere.
The transportation system in Saudi Arabia has improved considerably over
the past decade. During the sixth Plan, the Kingdom’s main road network expanded
to reached about 45,400 km of paved road by the end of 1999. In the context of
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Direct Marketing in Saudi Arabia
improving efficiency and maintaining roads, the ordinary and preventive
maintenance tasks carried out by the Ministry of Communication covered about
37,000 km of paved road and bridges. There are eight main ports, which have large
storage facilities and modern handling equipment. In addition, the country has an
extensive and efficient road system, which has developed in the recent decades.
The majority of goods imported into the Kingdom come through the two main ports
in Jeddah and Dammam, while the distribution system inside the country is mainly
dominated by trucks. The railroad system comprises only a very small portion of
the Kingdom’s total transportation structure. The only railroad currently operated in
Saudi Arabia is a line connecting Dammam and Riyadh. Its importance is declining
because of its lack of profitability and because of the current improvement in the
road system. However, long-term major plans are under consideration to improve it
(Seventh Development Plan 2000-2004).
Telecommunication services in Saudi Arabia are growing gradually to satisfy
the increasing demand for existing and new services. In recent years, commercial
establishments and the producing and financial sectors have come to rely more and
more on telecommunications for collection, storage, processing and distribution of
information in their efforts to raise productivity, to control costs, to manage
decentralised units, to reach customers, and to promote new products. During the
Fifth Plan period (1990-1995) the number of working telephone lines rose to about
1.53 million, an increase of about 372,000 lines, or almost 32 percent and by the
end of the Sixth Plan (1995-2000) the number of telephone lines reached 3,63
million. Also, the number of subscribers to the mobile system reached about
735,000 in 1999. However, the available lines to individuals and commercial
establishments at the time being are unable to meet the increasing demand on this
service. In addition, demand has grown for the application of new
telecommunications technologies, such as an integrated services digital network
(ISDN), digital mobile communications, videoconference and electronic mail, and
the Internet (The Sixth Development Plan 1995-2000). Thus, modernisation and
expansion will be essential if these services are to fulfil their potential contribution
to economic and social development in the Kingdom.
Postal Services have a similar need for expansion and modernisation. The
postal system in the country is insufficient and has not matched the growing
development in other sectors in the country. Until 1997, the postal services
coverage did not exceed 50% of the total number of cities and villages in the
country. According to the Post Office’s Sixth Plan (1995-2000) there is a big gap
between the supply and demand on the postal services. Since 1985, no post office
has been established. The ratio of the number of post offices compared to the
population in Saudi Arabia is far behind the world average. As table 4-5 shows, in
Saudi Arabia one post office serves more than 12,688 people on average, while the
minimum average that must be observed for any country in order to be a member of
the World Post Office Union is 6000 people per office. Each office covers an area
of 1333 kilometres square (km2) compared to 10 (km2) in the UK and 222 (km2) in
the US. The number of collection boxes in the street is only 2400 to serve the
whole country, representing 0.14 collection boxes for every 1000 residents.
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Direct Marketing in Saudi Arabia
The Post Office claims that the main cause of these problems is the lack of
financial resources allocated to this sector. More than 1000 planned projects to
expand and modernise the service have been planned, but none of them were
supported by the government budget. As a result, the percentage of the use of the
national mail dropped from 38.3% by the end of 1990 to 34.6% by the end of 1994
(The Post Office’s Sixth Plan 1995-2000).
TABLE (4-5) COMPARISON BETWEEN THE POST OFFICE SERVICE IN SAUDI ARABIA AND VARIOUS
COUNTRIES
Number of people served
by one post office
Area covered per Km2 by
one post office
United Kingdom
2247
10
France
2879
30
United States
4746
222
Japan
4974
18
Saudi Arabia
12688
1333
Pakistan
7645
102
Thailand
39139
420
Tunisia
12497
469
Country
Source: The Post Office’s Sixth Plan (1995-2000)
The government has now recognised the need for additional post offices and
mail collection points, along with advances in mechanisation and expansion of
surface and mobile mail transport routes. However, this recognition does not seem
to be reflected in any of the priority projects in the current development plan. The
Post Office, with limited financial resources, is trying to improve the service. In the
Sixth Plan (1995-2000) two urgent objectives were suggested to improve the postal
services: first, reducing the time for mail processing, and second, increasing the
postal coverage. The improvement may take a long time and if it does not become
one of the government concerns, it will not only affect the development of this
service but will also have a negative impact on the country’s economy and
development.
Summary
This chapter has presented a brief background about Saudi Arabia. In three
main sections, an overview of the country’s economy, market, and marketing mix
were presented. The Saudi market witnessed a short boom period where the market
was considered a pure sellers’ market. However, the Gulf War (1991) had a
profound impact on Saudi Arabia’s political climate as well as its economic and
market structures. As a result, the market took the shape of a normal market and
what was called the seller’s market was no longer the case.
Also, this chapter discussed the general characteristics of the marketing mix,
with an emphasis on issues related to marketing channels. Channel structure in
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Direct Marketing in Saudi Arabia
Saudi Arabia consists of the traditional marketing channel including
manufacturing, distributors, wholesalers, and retailers. Wholesalers and retailers
have grown very fast representing over half of the businesses in the Kingdom,
while the other channels are still in their infancy. Physical distribution in the
country is satisfactory, however, the telecommunication infrastructure and mail
system are still in their early stage of development. The use of direct marketing,
therefore, is adversely influenced and this appears to be less common marketing
approach in the Kingdom. There are few direct mail agencies in the kingdom, and
businesses are still not paying particular attention to the integration of direct
marketing into the marketing communication system.
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Direct Marketing in Saudi Arabia
CHAPTER 5
THE STATUS OF DIRECT MARKETING IN SAUDI ARABIA
The field investigation of the status of direct marketing in Saudi Arabia is
based on two sources, a survey questionnaire that will be discussed in the next
section, and a set of in-depth interviews. The initial field research consisted of 13
semi-structured interviews with firms in the city of Riyadh, Saudi Arabia, and two
executives representing the Research Centre at the Chamber of Commerce in
Riyadh, and the headquarters of the Post Mail Office in Saudi Arabia. The details
and results of the interviews will be discussed first, followed by the cross sectional
survey.
5.1 The field interviews
The interviews were conducted with marketing mangers and general managers in
industrial, consumer, and service industries. Interviewed managers had different
levels of qualification. Some had a Ph.D. in an area related to their businesses and
others had only a high school diploma. Most of the interviewees had some training
abroad related to their business, and had to some degree been exposed to direct
marketing.
The method used to select the sample for interviews was very similar to the
snowballing method by which interviewees obtained through personal contact were
asked to suggest other possible subjects. Interviewed managers recommended and
helped in arranging interviews with other managers (McDaniel and Gate 1995). All
the interviews were conducted in February-March 1996. The interviewed firms
included both large and small organisations, ranging in size from 12 employees to
several hundreds. Some of the interviews lasted about two hours and some lasted
less than 50 minutes. On average, the interviews lasted about an hour and were
characterised by open questions about issues in marketing activities in general, and
the use of direct marketing in particular. At the beginning of each interview, the
interviewee was given an introduction to the research subjects and concerns. After
that, the interviewee was given the chance to lead the discussion. However,
questions to elicit examples, illustrations, and other insights were frequently used to
keep the discussions in the area of the research interest.
The interviews were documented by taking notes. Afterwards, they were
rewritten to highlight related data and clear up unnecessary information. Since the
research’s concern is to investigate the influence of product, market, and
organisation factors, the analysis focuses mostly on responses linked to these
issues. The analysis used was similar to that suggested by Easterby-Smith et al
(1995) in which the collected variables could be classified under a few common
factors. Consequently, three factors were set by the researcher, under which the
various variables were catalogued. Observations, notes, and comments were
classified under product-related factors, market-related factors and organisationrelated factors. In the following section, a brief background about each firm
interviewed will be presented. Next, observations and findings from the interviews
will be discussed.
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Direct Marketing in Saudi Arabia
Firms’ background
The interviews were conducted with different industries including general
contracting, industrial products, financial services, retailing, industrial and
consumer services (computer services, car rental), publishing, and advertising
agency (table 5-1). Although the interviewees were represented a wide range of
sectors, some sectors are not included, such as food, transportation, and health
sectors.
TABLE (5-1) INTERVIEWED FIRMS
Firm
Industry
Market served
Distribution
method
QA
Mail order
Consumers
Direct marketing
AM
Computer Services
Businesses/
Public sectors
Salespeople
OS
Publishing
Consumers
Salespeople &
Direct marketing
RA
Financial Services
Consumers /
Businesses
Branches
SU
Industrial supplier
Businesses
Salespeople
AS
Information
Services
Consumers /
Businesses
Salespeople &
Direct marketing
RK
General contracting
Consumers /
Businesses /
Public sectors
Salespeople
CN
Advertising
Agency
Retailers/Busine
sses
Salespeople
IGH
Industrial products
Industrial
workshops/
Furniture houses
Show room
MJ
Direct mail agency
Businesses
Direct marketing
SK
Computer Retailing
Consumers /
Businesses
Outlet shop
SH
Car Rental –
Service
Consumers /
Businesses
Outlet shop
BB
Financial Services
Consumers /
Businesses
Branches & Direct
marketing
Observations and discussions
The firms interviewed adopted different methods of distribution. Some had
66
Direct Marketing in Saudi Arabia
direct channels, some had indirect channels, and others had hybrid channels of
direct and indirect. Table 5-1 presents a summary of the types of distribution
channels selected by interviewed firms.
In this section the discussion will focus on factors, views, and observations
related to the choice of distribution channels. However, since the interviews were
based on semi-structured questions, various issues related to marketing activities
were discussed. Hence, for analysing findings and observations in a systematic and
focused way that is consistent with the previous construction in chapters three and
four, the discussion is classified under three main factors;
1. Product-related factors.
2. Market-related factors.
3. Organisation-related factors.
First of all, it has been recognised that the marketing channel selection decision
may be better understood if it is divided into two stages. In the first stage, the
manager must choose whether to rely on independent intermediaries (indirect
channel), to use some form of direct distribution, or to use a mixture of the two. In
the second stage, the manager should choose which type of direct channel suits the
firm’s marketing mix. These stages are naturally interrelated and overlapping. It is
sometimes difficult to isolate them from each other. However, there are two
significant benefits that can be gained from such an artificial classification. Firstly,
distinguishing between these stages will help in determining the forces affecting
each stage. Factors that determine the choice between direct or indirect sales force
may be different from those affecting the choice among types of direct channels
(direct marketing, salespeople, and show rooms). Secondly, dividing the process
into two stages assists practitioners as well as academics in distinguishing between
direct marketing and direct channel. Whilst the concern of stage one is the choice
between direct channel, indirect channel, or a hybrid choice of both, the concern of
stage two is the choice between the three common direct channels identified in the
literature; direct marketing, salespeople, outlet shops (show rooms), or an
integrated mode of some or all of them (Lilien 1979, Stanton et al 1991, Schoell
and Guiltian 1990, Evans and Berman 1992).
In fact, these two stages are not necessarily in sequential order. In some
situations, stage two proceeds stage one and in other situations the reverse is true.
For example, while most of the interviewed firms indicated that they started with
the second stage (i.e. what type of direct channel fits their marketing mix) OS’s
manager indicated that they started with the first stage (i.e. deciding whether to use
independent intermediaries or their own sales forces). In addition, this artificial
classification assumes that distribution channels are still not set, and the choosing
starts from scratch. This may not be the case for established firms where channels
of distribution have been already developed. However, for the purpose of analysis
it may be helpful to consider the process from the beginning.
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Direct Marketing in Saudi Arabia
Accordingly, in the following sections observations and views related to the
choice of direct channel (stage one) will be discussed first. Then, observations and
views about factors related to the selection among the different types of direct
channel (stage two) will follow.
1. Product-related factors:
The characteristics of the product influence the whole marketing strategy
(Corey et al, 1989). Industrial products and services typically require a
different marketing strategy than consumer products and services. The
interviews showed that five firms among those who rely exclusively on direct
channels have common product features. RK, AM, IGH, CN, and SU all had
customised, complex, and high unit value products/services. For example,
AM depended exclusively on its own team of sales representatives to market
its highly customised products/services. Computer programmes were built and
developed to fit the client’s specific requirements. Accordingly, the manager
of AM stated that several face to face meetings are required to finalise the
deal in terms of requirements and specifications. Also, the marketing manager
of IGH stated that “face to face contact is necessary to sell our products”.
Similarly, RK, and CN indicated that the usual way of marketing their service
was by salespeople who visited the clients at their sites. CN’s marketing
manager explained that on average each project went through four essential
stages. The first stage was to contact the customers to provide an offer and
quotation. This was followed by a meeting to discuss the layout and first draft.
The third stage includes arranging an on site meeting for actual field
measurements and specifications and the fourth stage was delivering and
installing the advertising sign. All these four stages require personal meetings
with the client.
However, the manager of IGH raised a significant point when he explained
that direct marketing is sometimes used to set orders for complex products. He
stated “..offers, orders, and payments are all exchanged by mail or fax with no
face to face contact with long-term customers”. In addition, AS claimed that
they used direct marketing to market complex and high unit value CD-ROM
Databases. The marketing manager of AS stated that “Most of our targeted
customers who receive our catalogue are professionals, laboratories, and
information centres”. This appears to imply that the complexity of the product
is a relative term. A complex product to one customer may not be complex to
another. For example, the CD-ROM database system is a complex product to
farmers but to librarians it may be considered simple. In addition, because of
the frequency of purchase, clients who ordered regularly from IGH became
familiar with the specification and the complexity of products to the degree
that made them no longer complex and complicated. So, the need for face to
face contacts for complex and customised products/services may be decreased
by customer familiarity with the product, and the reduction of the possible
risk.
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Direct Marketing in Saudi Arabia
Another commonly-observed feature that the five firms shared was the type of
asset specificity. Salespeople in all these firms had human assets
(skills/experience). They had expert knowledge about the products/services
they provide. This human asset was gained from skills, specialised training,
and experience with the company (Anderson and Weitz 1986, Heide and John
1988). For example, the salespeople of AM were knowledgeable about system
integration, programming and specific technicalities. RK’s sales manager was
an engineer who had 13 years’ experience with the company and its clients.
Also, salespeople in these five firms had strengthened their human assets by
contacting and hence building strong relationships with the client during and
after providing the service (Anderson and Weitz 1986). CN’s marketing
manager stated that “..on average four face to face meetings are required to
finish a job”. RK’s manager described his close relationship with his clients
by saying “I know what design suits my client before he asks”.
Salespeople in these five firms had different levels of specificity. Some firms
had high levels of human-specific assets and others had low levels. Skills and
experience are considered highly-specific assets only if they are
untransferable, or cannot be used out of the original context (Anderson and
Weitz 1986). For example, CN salespeople have special knowledge; however,
CN policy eliminates the power of these assets by following two strategies,
firstly, it converts salespeople’s specific assets to become the firm’s specific
assets and secondly, it recruits salespeople. As indicated by CN’s manager,
turnover of salespeople was relatively high. Most of the salespeople are
recruited every two years. The moving of salespeople between firms was
common, suggesting that that knowledge was transferable and replaceable.
Opportunistic behaviour that might be caused by human-specific assets was a
controversial issue in these firms. Some firms, such as SU, although having
salespeople with highly human-specific assets, did not observe any kind of
opportunistic behaviour among their own salespeople. SU stated that “they are
co-operative and always compete among themselves to achieve the highest
sales”. He added “Incentives made them loyal to the company to the extent
that they feel they owe gratitude toward the company”. In contrast, AM’s
marketing managers complained about opportunistic behaviour that he noticed
from his salespeople. According to him “they could serve the clients without
telling us.. it happened before”.
Consequently, firms who recognised that human-specific assets may lead to
opportunistic behaviour, tried to introduce different approaches to eliminate
the effect of this problem. Some introduced incentive plans to reduce
opportunistic behaviour and increase loyalty, while others increased control
over salespeople. One of the interviewed firms adopted a distinctive approach.
To reduce the potential opportunistic behaviour, CN followed a certain
procedure to convert salesperson’s specific assets to become company specific
assets. Company-specific assets include the knowledge required to perform
the activity, the knowledge of how the firm operates (its people, methods, and
procedures) and its unique language and terms (Anderson and Weitz 1986).
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Direct Marketing in Saudi Arabia
These assets are not transferable, even if the salespeople themselves may
transfer to another firm. CN limited the job of salespeople to doing one part of
the deal with the client, including contacting potential customers, offering,
delivering, and arranging the payment. Other technical operations such as
designing, and producing draft and final layouts were assigned to other staff.
Final negotiation, setting terms and conditions and signing the contract was
assigned to the sales manager. All these three people were in contact with the
clients until the final job was accomplished. Moreover, it was necessary to
receive after-sale services by contacting the sales manager. Therefore, a
successful task requires well co-ordinated teamwork among those three
persons, the assets (knowledge, skills, and experience) are shared, and
potential opportunistic behaviour is reduced.
Direct marketing as a distribution channel was not the preferred choice in
three firms (RK, IGH, AM). They indicated that the major reason was the
nature of the product. They asserted that direct channels are preferable for
complex and customised products but direct marketing is not. The interviews
revealed that customised and complex products such as customised glass,
construction design, or customised computer programmes required direct
selling but not direct marketing. Two managers indicated clearly that they had
no plan to introduce direct marketing in the future because it did not fit their
products. AM’s manager indicated three reasons; firstly, marketing the
product requires several visits to convince the client of the products’/services’
benefits, secondly the clients were thought to be resistant to mail
communication, and thirdly, one salesperson can do all the necessary
communications because the number of clients is small. Having said that,
these firms occasionally use direct marketing for improving the firm’s image,
and enhancing customer relationships. AM and RK reported sending
greetings cards to their customers on the main Saudi holidays.
In contrast, direct marketing was given a considerable role in three
interviewed firms. AS, BB, and OS relied on direct marketing as an effective
distribution channel. AS allocated a large amount of the marketing budget to
direct marketing activities. Thousands of catalogues were sent by mail to the
targeted customers and extensive follow up telephone calls were made. BB
was also aware of the significance of direct marketing. Direct mail and
telebanking were heavily used by BB. Similarly, OS used direct marketing
considerably. According to OS’s manager around 70% of the subscriptions
were received by mail.
Perhaps one obvious common attribute among these three firms is that they
use direct marketing with relatively standard products and services. Examples
of such products include clothes, small appliances, house wares, magazines,
and credit cards. OS for example, used direct marketing to distribute and
promote its magazine. Similarly AS used direct marketing to sell their
standard database systems, and QA to market women’s fashions and
accessories. However, some interviewees who recognised the potential
opportunity of employing direct marketing to market their standard products,
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Direct Marketing in Saudi Arabia
failed to generalise the approach. BB for example, successfully employed
direct marketing to cross-sell Visa and Master Card to its customers. The
direct mail campaign achieved over a 30% response rate from carefully
selected customers. In contrast, the same bank when it conducted a direct mail
campaign to cross-sell selected clothes to men, women, and children (standard
products) achieved only a less than 1% response rate. Unfortunately, the
consequence was the cancelling of the approach, with no deep investigation of
the causes of failure. The BB marketing manager mentioned only one reason.
He claimed that the customers’ negative perception of purchasing clothes
through direct mail was the principle reason for the failure. Other potential
reasons such as segmentation, targeting, pricing, and the fact that customers
may not be comfortable with buying clothes from a bank were not given
significant consideration.
2. Market-related factors
Existing research suggests that the type of market, (i.e. whether it is service or
product) requires a different marketing strategy. Service firms in general
prefer shorter channels of distribution than do product firms (Stanton et al
1991). Similarly, industrial businesses usually rely on short channels, while
consumer businesses depend on long ones. In this regard, the interviews
showed a primary indication of a view that is consistent with the view
suggested in the literature. Service firms (RA, BB, SH, and CN) all used
direct channels of distribution. In addition, industrial firms such as IGH, AM
and SU relied on direct distribution channels as well. In general, all the
interviewed firms relied mainly on their own direct sales force. Some even
had a hybrid choice of direct and indirect channels, they relied more on the
direct channels. For example, OS’s sales return through distributors did not
exceed more than 25% compared to about 75% through direct
communications. Similarly, SK used retailers only for limited types of
products. The SK marketing manager added “..we are a retailer Why should
we give our business to other retailers?”.
Broadly speaking, compared to product-related factors, there were few
observations about the effect of market-related factors on using direct channel
in general and direct marketing in particular. Generally, types of direct
channels were different among these firms. AM, RK, AS, and CN used
salespeople as a major marketing approach. RK, AM, and AS served
relatively small number of customers. RK signed only three to four contracts
yearly, and both AS and AM had fewer than 30 customers. AM’s marketing
manager stated “in one day I can contact all our clients”. Correspondingly,
one manager suggested that if the market is local with a relatively small
number of potential customers, direct selling may be more feasible. However,
the feasibility of the approach involves an evaluation of economic, product,
and customer’s variables. RK’s manager, for example, stated that the
economic factor, though significant, is not the driving force for choosing the
approach. He referred to customers’ preferences as an important force that
affects the use of a particular type of channel “our customers need to be
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Direct Marketing in Saudi Arabia
treated personally”. He added, “calls, visits, and invitations to social activities
are essential”. CN’s customers were relatively dispersed across the country,
however, it relied on salespeople because the nature of the products required
it.
SU added another dimension by referring to the competition as a factor
influencing marketing channel strategy. SU said “all our competitors use
salespeople heavily, it is odd not to do the same... If we rely for example on
direct marketing while our competitors are depending on salespeople, we will
lose our clients”. On the other hand, firms that faced low competition in the
market showed less interest in implementing new marketing approaches or
increasing the marketing budget. Four out of eleven managers, who indicated
that they did not face high competition in the market, were not planning to
consider other marketing approaches to reach new customers. The manager of
IGH explained that “since customers are searching for us we don’t need to
search for them”. He added, “The demand now is over our capacity”.
Regarding the use of direct marketing, the interviews showed that services
firms seemed to be benefiting from direct marketing. BB, OS, AS and CN all
mentioned a successful use of the approach, while the product’s marketers
have to face some difficulties to utilise direct marketing. For instance, besides
the BB example mentioned above, AM -an authorised dealer for Dell which
accounts for a 15% share of the computer market in Saudi Arabia, has failed
in using direct marketing. According to the marketing manger, not a single
purchase was made as a result of the direct marketing campaign. The
marketing manager explains that though Dell is the leading user of direct
marketing in the computer industry in the United States, it does not succeed in
the Saudi market. He claimed that customers in Saudi Arabia do not
appreciate buying computers through the mail.
Three out of the thirteen interviewees considered direct marketing in the early
stage of launching their businesses, though the result was not encouraging. OS
used direct marketing in 1993 to introduce the first issue of its magazine. The
direct marketing campaign was a free issue sent along with an application for
subscription to a selected list. OS’s manager commented on that campaign by
saying, “It wasn’t too bad”. AS started with the catalogue businesses and then
the business expanded to include other information services, system
configuration, and programming. In addition, IGH, when they established
their business, sent hundreds of pamphlets and brochures through faxes to all
related businesses that may acquire their products and services. A common
factor among them was that they were either new businesses or they were
providing new products. In all cases, uncertainty was involved. As George and
Weitz (1988) stated, market uncertainty can exist with respect to many
marketing activities, such as sales targets and promotion activities to support
the introduction of new products. These firms tried to use direct marketing to
reduce such uncertainties. For example, one manager commented that “A
direct marketing campaign, if it does not generate sales, will increase
awareness”. In addition, IGH manager said, “We wanted to create initial
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Direct Marketing in Saudi Arabia
demand and to know who our customers are”.
The functions and roles of direct marketing appeared to be different in the
interviewed firms. QA is using direct marketing as the main distribution
channel, while OS, AS, and BB use it to supplement their existent channels.
BB’s sales manager states that “a large amount of the credit cards’ sales were
generated from direct mail”. Others such as IGH, CN and SU were generally
using the approach for promotional purposes such as enhancing customers’
relationships, increasing awareness, and improving the firm’s image. CN and
SU, for example, mentioned sending thousands of greeting letters every year
to prospects as one significant benefit of using the approach. Another
example, also mentioned by the same companies, is to send brochures and
pamphlets about the established and new products and services. Two of the
firms using direct marketing are specialised companies that target special
market segments. AS provide very specific products that are targeted to
professionals, libraries, and information centres, and SU serves few large
industrial companies. In addition, BB uses direct marketing to reach selective
market segments. According to BB, Visa and MasterCard with no annual fee
were offered to mature clients whose account exceeded £10,000. This may
indicate that targeting the right segment precisely seems to be a common role
that is given to direct marketing in the interviewed firms.
Interestingly, the interviews showed an extreme use of personal selling. Most
of the firms interviewed, whether they dealt with businesses or final
customers, used personal selling as the main channel of contact. For example,
OS magazine depended heavily on personal contact to persuade the prospects
to subscribe to the magazine. Almost 75% of the customers were subscribers
whom they had contacted personally. Several managers indicated that
customers prefer a direct channel to ensure product quality and to reduce risk
but they do not trust direct marketing. With an expensive product, where
prospects were being asked to send an amount of money to someone they had
never met, words and pictures could not possibly be sufficient to convince
respondents that they ought to take the chance. The marketing manager of
AM indicated that unlike the United States, customers in Saudi Arabia
consider the computer as very new technology. Most of them are first time
buyers or sometimes first time users. In this case, physical inspection and
some user instructions are extremely necessary. In addition, firms using direct
marketing did not offer an unconditional guarantee. For example, BB’s direct
mail, though it has selective and high quality products, is highly priced with
no guarantee.
3. Organisation-related factors
The attitudes of management have a clear impact on which marketing
activities will be embraced. Managers who lacked knowledge of the benefits
of direct marketing, or did not believe in such an approach, were not
interested in direct marketing. They preferred to stick with traditional ways
such as personal selling. For example, the manager of RK who had 13 years
experience in personal selling saw nothing better than this approach.
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Direct Marketing in Saudi Arabia
SH, BB, and RA used their own branches as direct channels. SH and RA
stuck with this conventional channel, although their competitors were using
other approaches such as direct mail, telemarketing, and personal selling. SH
and RA seemed unaware of the benefits of using direct marketing. SH for
example, had access to hundreds of names and addresses. Each day, about 250
customers give their names, addresses, and telephone numbers when they sign
rental contracts. This potential opportunity of using the customers’
information is utilised by many car rental firms around the world. For
example, car rental firms in Western countries offer various packages and
promotions through the mail to their targeted customers, and some offer a
membership card to build long-term relationships with customers and gaining
their loyalty. SH’s manager stated “Most of the buyers are regular
customers”. However, unfortunately, SH did not know precisely who they
were.
Perhaps the management themselves was one factor contributing to this
problem. The top management in neither firm was willing to try different
marketing approaches. Although RA’s and SH’s top management was aware
of competitor’s approaches, they were not willing to implement any changes.
An interesting example which illustrates the management resistance to change
was the RA’s manager saying, “We couldn’t even change the noisy air
conditioning in the top management meeting room until the boss left for a
vacation”. He commented “They fear taking risk”
As table 5-1 shows, among the interviewed firms, eight of them were
exclusively using their own sales force (i.e direct channel). When they were
asked to explain why they chose to use their own sales force instead of using
independent sales representatives, most of the respondents’ justifications
focused on organisation-related factors. Specifically, they highlighted issues
related to desire to control, conflict of objectives, and difficulties of assessing
performance. Most of the respondents indicated that control is the prime
reason for not considering the independent option. The best explanation that
reflects most of the managers’ opinions was expressed by the manager of
CN: “Since they are not my employees I have no authority over them to make
them change their marketing techniques”.
The marketing manager of AM referred to a conflict of objectives as another
factor which may result from employing independent salespeople. He stated
that “sometimes we accept small projects that have a very small margin
merely in order to cover the production and operation costs”. According to
him, such small projects were usually not desirable to independent salespeople
who sought sufficient commission to compensate their efforts. Salespeoples’
first aim is securing their interest. If the return of a project does not satisfy
them regardless of the represented firm’s objectives, they will not be
encouraged to accept the job.
Finally, the interviews showed that the postal system in Saudi Arabia had a
clear impact. According to some of the interviewees, the postal system is an
obstacle to using direct marketing. There is no mail delivered to home
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Direct Marketing in Saudi Arabia
addresses. Customers must have a post office box to guarantee receiving mail.
Sometimes over twenty people share one mailing box and loss and delay are
very common. According to the manager of AlOsrah, the magazine sometimes
takes ten days to be delivered to a local customer. Moreover, in 1996, the post
charges increased by 50% “an amount that is unjustifiable relative to the
service they provide” OS manager said.
However, the new chief executive of the Post Office who was appointed in
1996, explained that the increase in the postal charge was to reach break-even
as the previous charge did not cover the cost of operations. The new
manager’s plan was to improve the service and change the image of postal
mail. In the same year, the post office introduced several training programmes
for employees, and created two new departments; one to deal with customers’
information, and the other to serve special clients such as banks and insurance
companies. Other development projects were also planned but their
implementation depends on the availability of government financial support.
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5.2 Descriptive analysis
A cross-sectional sample of businesses in Riyadh, Saudi Arabia was the
subject of the study. The population for the study was selected randomly from
Kompass Directory and determined to be the main industries in the private sector.
These main industries are trade, manufacturing, construction, and services.
However, the population of the study is limited to Riyadh, because this city is
believed to adequately represent Saudi Arabia. Riyadh is considered as a centre for
different industries such as production, services, manufacturing and other
professional industries, and this cross-sectional focus will give the research a broad
scope in terms of examining many firms in different industries.
A total of 650 questionnaires were sent to cross-sectional businesses in
Riyadh, Saudi Arabia. After employing several methods in order to obtain an
adequate response rate, 226 questionnaires were returned. Of the 226 responses, 9
questionnaires were unusable. Among these excluded questionnaires, five were
missing key information, three were returned empty and one was unreadable due to
a fax transmission error. Thus, the number of usable returned questionnaires were
217, which represents a response rate of 33%. Among the 217, only 153
respondents reported that they were using or had used direct marketing and
therefore were appropriate to the purpose of this study. The remaining 64 cases
were excluded from this study.
In general, the collected sample appears to be well dispersed among different
industries, types of ownership, age and size of firms. This diversity of the sample
will enhance the ability to generalise the findings of this research. However, the
sample also has some limitations. Some sectors, such as the construction sector, as
well as sizes, such as small firms, are not represented in the study sample compared
to their position in the population. This is probably due to the notion that the
construction sector and small firms are very light users of marketing in general and
direct marketing in particular. In fact, this finding is not odd. It is the case with
many questionnaire-based studies that those who did respond are most likely be
more committed to the subject (Isaac and Michael 1979).
Several questions were asked in order to identify key characteristics of the
participating firms. Table 5-2 shows the main business activities of participating
firms. Production and manufacturing firms were found to be the largest group of
participants (22.9%), followed by trading and retailing sectors (18%). In terms of
the distribution of the participant firms according to their ownership type, almost
half of the sample (44.4%) classified their firms as one-owner establishments. In
addition, the raw data shows that the largest group (47.9%) are firms with fewer
than 50 employees, followed by (32.7%) firms which have between 51 and 250
employees. Assuming that number of employees is a measurement of the firm size,
table 5-2 indicates that about half of the sample (47.9%) are small firms. This
generally reflects the characteristics of firms in Saudi Arabia. According to the
Ministry of Planning over 90% of establishments in Saudi Arabia are small
businesses (The Sixth Development Plan, 1995-2000). Considering that the vast
majority are small establishments involved in basic shops such as small retailing
shops and simple services such as auto services, and gasoline stations, and
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Direct Marketing in Saudi Arabia
therefore, most of them do not have a marketing department, an underrepresentation of these businesses is to be expected. Another characteristic of the
participant firms appears from the crosstabulation table between number of
employees and age of firms. The analysis shows that most firms that have fewer
than 250 employees are less than 13 years old. This result is consistent with the
general characteristics of firms in Saudi Arabia. According to the Ministry of
Planning, most of the small firms were established after 1986 (The Sixth
Development Plan, 1995-2000).
TABLE (5-2) FIRMS’ MAIN CHARACTERISTICS
Characteristics
Main Activity
Production/manufacturing
Trading / Retailing
Construction
Travel services and hotels
Commercial services
Transportation and communication
Publishing
Financial services
Other services
Other
Total
Type of firm
One-owner establishment
Joint stock company
Limited liability company
Partnership
Other
Total
Number of employees
Less than 50 employees
Between 51 and 250 employees
Between 251 and 500 employees
Between 501 and 1000 employees
Over 1000 employees
Missing values
Total
Frequency
%
35
28
10
11
20
4
9
16
14
6
153
22.9
18.3
6.5
7.2
13.1
2.6
5.9
10.5
9.2
3.9
100
69
20
50
12
3
153
44.4
13.1
32.7
7.8
2.0
100
66
54
19
4
10
1
153
47.9
32.7
11.1
3.2
4.6
.5
100
In order to identify the potential relationships between the extent of using
direct marketing and some general features of the participating companies,
frequency analysis, cross-tabulation tables, and ANOVA tests were run where
appropriate. The results of the frequency analysis indicated that the probability
distribution of the extent of using direct marketing (on a 1 to 5 scale) tended to take
the shape of a normal curve. The mean was 3.0 and, the standard deviation was 1.5,
with a very slight skew to the right (-.083). This finding indicated that the majority
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Direct Marketing in Saudi Arabia
of participating firms are generally average users of direct marketing. The
frequency analysis result also revealed that direct marketing is still a new
marketing strategy in Saudi Arabia. About 78% of the respondents have been using
direct marketing for fewer than 10 years, and the mean does not exceed 5.5 years.
Only a very few respondents claimed to have been using direct marketing for more
than 20 years. With respect to the relative cost of direct marketing, compared to
other distribution channels, the survey reported that direct marketing had the
highest cost advantage. The mean was found to be 3.37, followed by using
representatives 3.07, and using sales people, 3.03. This result indicates that the
majority of the respondents think that direct marketing is less expensive than other
types of distribution. It is a supportive result to the argument that direct marketing
is less costly than many other distribution channels (Katzenstein and Sach 1986,
Maher 1987).
The different types of businesses showed some variations in utilising direct
marketing. The services sector was found to be the heaviest user of direct
marketing in Saudi Arabia. Multiple comparisons between the four major sectors in
the study using one-way ANOVA reported that services are using direct marketing
more heavily than other sectors, and the differences in the means were significant
compared to trading/retailing and manufacturing. This result is logical and
consistent with findings from studies conducted in Western countries (Mintel
Special Report 1994, Direct mail information services 2000, DMA Report 2000).
Services are found to be the heaviest users of direct marketing because they are
selling an intangible product that usually requires short channels.
5.3 Elements of direct marketing in Saudi Arabia
The main elements of direct marketing that are commonly used are direct
mail, catalogue, telephone, facsimile, television, and the Internet. The facsimile
was found to be the most important element of direct marketing. Over 70% of
direct marketing users believed that the facsimile is either an “important” or “very
important” type of direct marketing used to market their products. As table 5-3
shows the mean (4.05) was the highest among elements of direct marketing. The
telephone appeared to be the second most important element (mean 3.94), followed
by direct mail (3.49), the catalogue (3.18), and the least important being the
Internet (1.27). This result reveals that, unlike the situation in the Western market,
direct mail is not the dominant element of direct marketing in Saudi Arabia. One
potential reason for this result is the management’s mistrust of the mail system. As
indicated in the previous section, marketers are still not satisfied with the service,
and therefore, hesitate to rely on such an approach.
TABLE (5-3) ELEMENTS OF DIRECT MARKETING
Variables
Minimum
Maximum
Mean
Std. Deviation
Direct mail
1.00
5.00
3.49
1.5003
Catalogue
1.00
5.00
3.18
1.6028
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Direct Marketing in Saudi Arabia
Telephone
1.00
5.00
3.94
1.1818
Fax
1.00
5.00
4.05
1.2029
TV
1.00
5.00
2.01
1.4505
Internet
1.00
5.00
1.27
1.0344
Where 1= Not important at all and 5= Very important.
With respect to the structure of the participating firm, which includes one
owner establishments, stock companies, limited liability companies, and
partnership, the analysis revealed that the use of direct marketing among most of
these types of structure was approximately average. However, partnership
companies reported a heavy reliance on direct marketing. Half of the partnership
companies indicated that direct marketing is an “important” channel to market their
products/services, and the other half said it is even “very important”. However, the
main purposes of using direct marketing among this type of structure were found to
be for enhancing customer relationships and increasing brand awareness. This is
probably because the partnership structure is more risky than other types of
ownership structure.
TABLE (5-4) CORRELATIONS BETWEEN WORK EXPERIENCE AND DIRECT MARKETING
Variables
Direct
marketing
Experience in
direct marketing
Personal selling
Direct marketing
Experience in
direct marketing
.515**
Personal selling
.231**
.584**
Store salesman
-.143*
.049
.135*
** Correlation is significant at the 0.01 level (2-tailed).
* Correlation is significant at the 0.05 level (2-tailed).
In the search for more possible relationships among some of the firms’
characteristics and the extent of their use of direct marketing, the correlation matrix
presented in table (5-4) was used. First, direct marketing’s association with the
work experience in all types of direct channel was found significant. In other
words, the extent of using direct marketing correlated positively with the
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Direct Marketing in Saudi Arabia
experience of direct marketing and personal selling; however, it correlated
negatively with the experience of salespeople in a store. A potential reason for this
negative correlation is that salespeople in a store are less concerned with direct
marketing, because customers usually travel to them, while the primary job of a
sales person is to search for customers, which requires using a different approach to
reaching them.
TABLE (5-5) CORRELATION MATRIX: ELEMENTS OF DIRECT MARKETING AND INDIRECT CHANNELS
Variables
Direct
Direct
marketing mail
Catalo
Phone
Fax
TV
Wholes
Retailers
Distribut
Dealers
Direct marketing
Direct mail
.612**
Catalogue
.561**
.610**
Telephone
.694**
.750**
.633**
Fax
.629**
.729**
.623**
.923**
TV
.462**
.449**
.633**
.518**
.493**
Wholesaler
-.127
-.185**
.044
-.216**
-.223**
.045
Retailers
-.273
-.309**
-.074
-.366**
-.383**
-.026
.633**
Distributor
-.362**
-.421**
-.178**
-.399**
-.390**
-.077
.474**
.557**
Dealer
.099
-.003
.062
.034
-.005
.116
.202**
.216**
.397**
Representative
.221**
.302**
.156*
.311**
.272**
.132
-.032
.002
-.042
.201**
** Correlation is significant at the 0.01 level (2-tailed).
* Correlation is significant at the .05 level (2-tailed).
Table (5-5) shows the correlation between the use of indirect methods of
distribution and the use of direct marketing and its elements. The correlation matrix
in table (5-5) shows that most of the indirect channel methods exhibited a very
weak positive or negative correlation with direct marketing and its elements. More
specifically, the extent of using wholesalers, retailers, distributors, and agents was
found to be generally negatively associated with the use of direct marketing. These
results are logical and support the proposed argument in chapter two that direct
marketing is commonly used as a substitute distribution channel. The results are
also consistent with the possibility that many users of indirect channels use direct
marketing only as a promotional tool.
The exception among these indirect channels was the “independent
representatives” which correlated positively and significantly with direct marketing
and all its elements. A possible reason for this result is the notion that independent
representatives are distinct from other types of indirect channels. Firstly,
representatives are usually used for marketing those products or services which
require high customisation, have high unit value, or which are targeted to specific
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Direct Marketing in Saudi Arabia
segments of the market. With such products, close contact and a strong relationship
are essential. In fact, this reasoning is supported by the very high correlation found
between independent representatives and these three variables. The second possible
explanation of the positive correlation between direct marketing and independent
representatives is that representatives usually work on a commission basis which,
in turn, justifies using cost effective approaches such as direct mail, telephone,
facsimile, and catalogue in order to reduce costs and end up with a satisfactory
profit margin.
Direct marketing and its elements were also found to be correlated differently
with different types of customers. Table (5-6) shows the correlation between the
use of direct marketing and its elements and the extent to which respondents were
targeting particular customer groups. As can be seen in table 8.11 direct marketing
and its elements exhibited different correlations with individuals, industrial and
manufacturing firms, commercial (trade/service) companies, and government
institutions. Interestingly, direct marketing and its elements were found to correlate
negatively and significantly with firms targeting individual customers. More
specifically, the result revealed that the higher the percentage of individual
customers the lower the extent of using direct marketing or its elements. In
contrast, there were positive correlations with the use of direct marketing for firms
targeting industrial and manufacturing firms, government institutions, and
commercial (trade/service) companies. More precisely, the correlation matrix
showed that firms targeting industrial manufacturing firms correlated with
approximately all direct marketing elements. The extent of using the facsimile
exhibited the highest significant correlation with firms targeting commercial
(retailing/service) companies, and finally, the catalogue appeared to be the most
popular approach used by those firms who target government institutions.
These results, in general, imply that direct marketing in Saudi Arabia is used
for business-to-business marketing more than marketing to consumers. A potential
reason for utilising direct marketing for business-to-business marketing rather than
to individuals is that businesses are much more accessible and easier to contact than
individuals. Businesses have reliable and reachable mail addresses, telephone and
facsimile numbers, while, as mentioned before, residential home addresses in Saudi
Arabia are not reliable. In addition business-to-business marketing generally has a
cost advantage over consumers’ direct marketing, in terms of constructing the
mailing list, the response rate, and paying off the mailing costs (Bly 1993). This
result may also lead one to believe that direct marketing in Saudi Arabia is still in
its infancy. Business to business is traced in the history of direct marketing to be a
starting point for implementing the approach (Ross 1992).
TABLE (5-6) ELEMENTS OF DIRECT MARKETING AND TYPE OF CUSTOMERS (CORRELATION MATRIX)
Variables
Direct
Direct
marketing mail
Catalog
Phone
Fax
Direct
marketing
Direct mail
.612**
Catalogue
.561**
.610**
81
TV
Individ
Industr.
Company
Direct Marketing in Saudi Arabia
Telephone
.694**
.750**
.633**
Fax
.629**
.729**
.623**
.923**
TV
.462**
.449**
.633**
.518**
.493**
Individual
-.197**
-.267**
-.287**
-.270**
-.355**
-.139*
Industrial
.210**
.215**
.267**
.212**
.238**
.191**
-.525**
Company
.038
.188**
.096
.153*
.245**
.044
-.773
.040
Government
.151*
.053
.208**
.140*
.153*
.001
-.429**
.068
.025
** Correlation is significant at the 0.01 level (2-tailed).
* Correlation is significant at the .05 level (2-tailed).
5.4 Purposes, benefits, and barriers of direct marketing in Saudi Arabia
This section discusses various issues regarding the use of direct marketing in
Saudi Arabia. It highlights some issues among the users of direct marketing
concerning its role, the way businesses understand and utilise the approach, and the
manager’s perspectives on the main obstacles inhibiting its use. These issues are
reflected in the respondents’ answers to three sections in the questionnaire
classified under purposes, benefits, and barriers to using direct marketing and
which will be discussed respectively.
In the first section, users of direct marketing were asked to determine the
relative importance of ten purposes for using direct marketing. These ten purposes
were looked at from a functional point of view. Each represented a function and a
role that direct marketing may be given. As table (5-7) shows, although direct
marketing was found to be used for many purposes, the communication and
promotion role appeared to be the most significant reason for using direct
marketing in Saudi Arabia. Table (5-7) shows that enhancing customer
relationships, increasing brand awareness, and improving the firm’s image were the
most significant purposes. The means for these three purposes were 4.14, 4.05, and
3.83 respectively. Purposes that can be classified as distribution functions appeared
less important. The most significant distribution function was found to be
generating sales (3.77), followed by cross-selling the product (3.49), and then
making immediate sales (3.24). Using direct marketing to test the product and the
market place was found to be one of the least popular purposes of using the
approach. The means were 2.75 for testing the market, and 2.84 for testing the
product. Generally, the results report more similarities than differences to the
findings of Peltire (1994), and Direct Mail Information Services (1994), which
were previously discussed in chapter two. These studies indicated that promotional
and communicational purposes appeared to be the main role given to direct
marketing.
TABLE (5-7) PURPOSES OF USING DIRECT MARKETING
Variables
Minimum
Maximum
82
Mean
Std.
Direct Marketing in Saudi Arabia
Deviation
Make immediate sales
1.00
5.00
3.2403
1.5679
Generate sales leads
1.00
5.00
3.7727
1.0511
Cross-sell
1.00
5.00
3.4870
1.2485
Enhance customer relationship
1.00
5.00
4.1364
.9151
Increase brand awareness
1.00
5.00
4.0455
1.0055
Improve the firm’s image
1.00
5.00
3.8312
1.1592
Build customers’ list
1.00
5.00
3.0260
1.4414
Test the market
1.00
5.00
2.7468
1.2964
Test the product
1.00
5.00
2.8442
1.3241
Overcome distribution
problems
1.00
5.00
2.6623
1.4381
Where 1= Never use it for this purpose, and 5= Always use it for this purpose
Another nine factors were introduced in the questionnaire to investigate the
incentives and benefits of using direct marketing. Looking at the mean shown in
table (5-8), the most important factor influencing the firm’s decision to use direct
marketing was found to be gaining a sustainable competitive advantage. The mean
was 4.07 and about 83% of the respondents reported that this factor “somewhat
influential” and a “very strong influence” in the firm’s decision to use direct
marketing. This may reflect management’s awareness of the intensity of
competition in the Saudi market. As mentioned in chapter four, the Saudi market is
becoming a buyer’s market as demonstrated by the intense competition, and the
emergence of more demanding consumers. Consumers have become more costconscious, and are looking for quality and durability (Leonidou, 1995). Therefore,
management are more keen to adopt different approaches to increase their share in
the market.
TABLE (5-8) INCENTIVES AND BENEFITS OF DIRECT MARKETING
Variables
Minimum
Maximum
Mean
Std. Deviation
Cost effectiveness in
distribution
1.00
5.00
2.6753
1.3030
Competitive advantage
1.00
5.00
4.0714
1.0609
Control over marketing
activities
1.00
5.00
3.5260
1.1838
Supporting distribution
channels
1.00
5.00
3.8377
1.0994
Avoid conflict with
distributors
1.00
5.00
2.3117
1.3745
Targeting customers
1.00
5.00
3.8312
1.2409
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Direct Marketing in Saudi Arabia
more precisely
Measurable feedback
1.00
5.00
3.2532
1.4487
New channel
1.00
5.00
3.4870
1.2485
Where 1= No influence on the firm’s decision to use DM, and 5= Very strong influence.
Targeting customers precisely and supporting existing distribution channels
were found to be the next most influential factor. Not surprisingly, one of the most
significant benefits of using direct marketing is its ability to target customers
precisely (Nash 2000, Gosden 1987). Also, this finding is similar to the findings of
Betts and Yorke (1994) which assert that targeting precision is the most important
benefit of direct marketing. Supporting existing distribution channels also appeared
to be significant. The mean was 3.84 and about 72% of the respondents reported
that this factor was “somewhat influential” and “very strongly influential”
regarding the firm’s decision to use direct marketing. This may indicate that the
role of direct marketing as a supplementary distribution channel is also recognised
by the Saudi marketers, however, because of the surrounding barriers in the market,
which will be discussed in the following section, it is not utilised efficiently.
The last section of the questionnaire concerned barriers to the use of direct
marketing. Respondents were asked to evaluate (on a 1-5 scale) the impact of nine
factors that were identified to be potential barriers facing users of direct marketing.
Looking at the means shown in table (5-9), an insufficient post mail service, and
lack of an accurate mailing list of customers were found to be the most influential
obstacles facing the direct marketers in Saudi Arabia. The means were 3.40 and
3.39 respectively, and about 63% of the respondents reported that an inadequate
post mail service is a barrier that either has “somewhat” or a “very strong”
influence on the firm’s decision concerning the use of direct marketing. This was
clearly reflected in the interviews presented in chapter five. Interviewees
complained that mail services were still not sufficient. Loss of mail, and too slow
delivery were still the image of the mail system in Saudi Arabia. Lack of an
accurate mailing list was found to be the second most important barrier.
Predictably, producing an accurate mailing list in an environment where most of
the houses have no numbers, small streets have no names, and mail services do not
provide home delivery, is anticipated to be very difficult. Nevertheless, customers’
unfamiliarity with direct marketing and the negative attitude toward the approach
were also believed to have a strong influence. Table (5-9) shows that the means
were 3.38 and 3.22 respectively. Other barriers such as government restrictions and
lack of financial resources were not found to be very significant.
TABLE (5-9) BARRIERS OF DIRECT MARKETING
84
Direct Marketing in Saudi Arabia
Variables
Minimum
Maximum
Mean
Std. Deviation
Post mail service
1.00
5.00
3.3913
1.4194
Customers’ negative
attitude
1.00
5.00
3.2236
1.2746
Lack of accurate mailing
list
1.00
5.00
3.4099
1.3298
Legal and environment
restrictions
1.00
5.00
2.3230
1.2679
Payment and collection
problems
1.00
5.00
2.6894
1.4926
Inadequate transport
infrastructure
1.00
5.00
2.3975
1.3977
Lack of allocated
financial resources
1.00
5.00
2.2174
1.3995
Lack of management
interest
1.00
5.00
2.3354
1.4228
Customer unfamiliarity
with the approach
1.00
5.00
3.3789
1.2547
Where 1= No influence on the firm’s decision to use DM, and 5= Very strong influence.
Summary
The final results of the empirical work imply that direct marketing in Saudi
Arabia is still in its early stages of development. The use of the approach to target
individual customers is still at a minimal level. Most businesses in Saudi Arabia
utilise direct marketing for business-to-business contacts. Unlike the situation in
Western countries, direct mail is still not the dominant element of direct marketing,
the most important elements in Saudi Arabia being the facsimile and telephone. An
obvious reason for this result is the inadequate mail system in the country. Apart
from problems with the mail system, the purposes, incentives, and barriers
appeared to be similar to those found in studies conducted in the Western
environment.
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Direct Marketing in Saudi Arabia
5.5 Implications and Recommendations
The results of this research indicate that there are several potential
opportunities for businesses in Saudi Arabia to embrace direct marketing. Firstly,
the decline of mass marketing is often cited as one of the main factors that makes
direct marketing a desirable option for an increasing number of firms. A number of
trends in the Saudi market, including increases in consumer sophistication and
individuality and the high growth of population that is associated with the rise of
small families and households, have resulted in a market place of extraordinary
diversity and choice that is unlikely to be satisfied by traditional mass marketing
approaches.
In addition, the vast social and economic changes that have occurred since the
last decades make direct marketing a desirable potential option for several
businesses. Despite the fact that the Saudi population growth rate is considered to
be one of the highest in the world, the number of working women has continued to
increase. Between 1990 and 2000, the numbers of women at work grew by more
than 50%. Trends also indicate that the number of small families is growing and
becoming the fastest growing segment. These observations mean that there are
more potential customers who have less time for traditional shopping.
Secondly, at present a large portion of the Saudi population is home owning.
Saudis spend more time at home and more money on improving their principle
asset. Most of the entertainments are available in the home and because of the
country’s harsh climate most Saudis like gatherings and at-home parties for
relatives and friends (Salama 1983). Through catalogues, TV, and interactive
systems such as the Internet are entirely feasible for shopping from the comfort of
the customer’s home. Moreover, the wide acceptance of credit cards in the Saudi
market will allow easy purchase without face-to-face contact. According to recent
statistics, the number of credit card holders was estimated to be over 4 million in
the Gulf countries (Saudi Arabia, United Arab Emirates, Kuwait, Qatar, Oman, and
Bahrain). The growth rate from 1997 to the year 2000 was about 200% (Al-Watan,
2001). Besides facilitating purchasing abilities, and checking on consumer’s credit,
the use of credit cards will create a vast information database for banks, credit
cards, and stores. This in turn makes segmentation strategy more effective, and
targeting procedures more accurate for direct marketers.
Thirdly, service positioning is becoming increasingly important to firms.
According to Fletcher et al (1991), corporate marketing is moving towards staying
close to customers, understanding and meeting their needs and treating them well
after the sale. Many sectors in Saudi Arabia are now trying to become servicebased and understand the benefit of being customer-oriented. Hence, some sectors
such as financial services in Saudi Arabia have been found to be the quickest and
the most committed to employing direct marketing, more so than retailers and
manufacturers. All the financial services organisations participating in this study
were found to employ direct marketing. It seems that these firms are well aware of
the benefits of using direct marketing.
Retailers, on the other hand, are still not utilising the approach fully. They
86
Direct Marketing in Saudi Arabia
were found to be the lightest users of direct marketing. This may create the need to
emphasise the fact that direct marketing “does not have to hurt retail sales. It can
actually enhance it” (Nash 1994). Retailers in Saudi Arabia need to look at direct
marketing as an effective supportive tool to marketing functions. Direct marketing
will allow retailers to offer a high degree of convenience to customers. It was found
in a number of studies in the literature that the number one reason cited for
choosing direct marketing compared to other types of shopping was convenience
(Berkowitz, Walton, and Walker 1979, McDonald 1993, Direct Mail Information
Service 2000, Settle et al. 1994,). Insufficient time usually prompts customers to
delay making a purchase, and the ability to order by phone or mail at any time, and
easily make returns appeals to many of them. Direct mail brochures or catalogues
usually provide more decision-making help than most store clerks. In a country
where the head of the family dominates most of the decisions, catalogue and direct
mail brochures will allow customers to consult and seek recommendations easily
prior to the purchase, and allow more privacy.
The claim that retailers fear channel conflict as a result of applying direct
marketing was in practice proved not to be true in most cases (Stone 1979). In fact,
direct marketing as a supplementary channel was found in many cases to be a
supportive approach that leads to further selling in the stores (Marchetti 1993).
Retailers, through catalogues, can offer a much wider line of merchandise than
most retail outlets can handle. The increase of product and services types and
brands creates a marketplace to such an extent that even superstores can no longer
offer a comprehensive range in a particular market. Also, the bulk items, the special
interest items, the specific use items, and the items that need explaining or
demonstrating can be presented more successfully through direct marketing.
Last and not least, direct marketing especially for small retailers or firms in
general has cost advantages. It requires less investment in plants, buildings,
machinery, and the amount of inventory needed to meet consumer demand would
be significantly lowered as a result of the decline in the number of the outlets. A
successful practical example is AS who wished to gain distribution for tens of
database systems through hundreds of libraries, information centres, colleges, and
public institutions. Its problem was that it only had a sales force of four. To find a
method of promotion and distribution it relied on direct marketing, using targeted
direct mail followed by the telephone. The result was that majority of prospects
were interested; almost half asked for salesperson’s visit, and all the salespeople
had to do was to sign people up. The firm, after less than three years claimed to
account for 85% of the market in Saudi Arabia.
Moreover, the findings of this research indicate that poor mail services and
lack of accurate mailing lists seem to be the serious obstacles facing direct
marketers in Saudi Arabia. The government should pay more attention to
improving the mail system as most homes in the country have no addresses, homes
in most cities are not numbered, and small streets in almost all cities except Riyadh
have no names. Furthermore, Mailboxes are difficult to obtain and there is a long
waiting list for those who are willing to pay, but they cannot find one. It is believed
that at least two projects are necessary in the near future to support the
87
Direct Marketing in Saudi Arabia
development of direct marketing in the Kingdom. The first is to publish a directory
to cover all P.O. Box holders in the country and demonstrating different
classifications such as whether the holder is an individual or a business, and
including other basic information such as telephone number, area, and city. Direct
marketers today, have no access to individual mailbox addresses. Mailboxes for
businesses can be found in business directories such as Kompass, and the Chamber
of Commerce directories, but individuals’ mailing lists are not published.
Secondly, there is an urgent need for increasing the number of boxes
available to residents. This is necessary to allow more use of the direct marketing
and enhance the targeting process. Because of the limited number of the mailboxes,
some firms are questioning the effectiveness of direct marketing. In many cases,
more than ten people share the same mailbox, which makes the identification of
customer characteristics and one-on-one communication quite difficult. Therefore,
if for any reason such suggestions are not of interest to the decision-makers, the
private sector should be given the opportunity to invest in such projects.
Meanwhile, the private sector should take the initiative to develop its own
projects and ideas to improve the mailing system and search for an appropriate way
to reach Saudi customers. Some very good examples are Pizza Hut and DHL
Worldwide Express. They numbered all homes and streets in three major cities,
Riyadh, Jeddah, and Dammam and created their own mailing list and addresses.
Such companies are now providing delivery to the home address and trying to
invest their valuable mailing lists.
Another updated and relatively reliable mailing list is owned by financial
services, since most of the banks contact their clients through the mail. Banks’
mailing lists are mainly built upon P.O boxes and include valuable demographics
details such as age, income, and occupation. If such databases become available to
direct marketers, it will be an excellent support to the growth of direct marketing,
especially direct marketing to individuals. Another way to build up a mailing list is
to collect the information from primary sources. A database can be built from order
transaction records, application forms, warranty cards, questionnaires and surveys,
coupons, customer service reports, or requests for information and brochures.
Establishing mailboxes for residents is another business opportunity for the private
sector. Collaborations with the Post office, private companies may be able to
establish mailbox services that can cover the whole country and allow thousands of
eager people to obtain mailboxes.
Direct marketing is most likely to enable firms’ strategies of market niching.
Firms adopting segmentation strategy or serving specific niches in the market are
more likely to utilise direct marketing. However, firms in Saudi Arabia have to be
conscious of the drawbacks of poor targeting. Though targeting is a distinguishing
feature of direct marketing, in practice marketers still suffer from not being precise
enough to hit the targeted customers. Schnorbus (1987) indicates that about 35% of
direct mail letters go straight into the bin, and Akkah et al’s (1995) study indicates
that one of the first causes of customers’ negative attitude toward direct marketing
is the poor targeting. Since direct marketing is still in its early stages in Saudi
Arabia, firms with careful building of mailing lists and precise targeting of
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Direct Marketing in Saudi Arabia
segments could overcome the “Junk mail” label from which direct marketers in the
Western countries are still suffering from (Storholm and Friedman 1989, Jenkinson
1993).
Summary
The final results imply that direct marketing in Saudi Arabia is still in its
early stage of development. Use of the approach to target individual customers is
still at a minimal level. Most businesses in Saudi Arabia utilise direct marketing for
business-to-business contacts. Unlike the situation in the Western countries, direct
mail is still not the dominant element of direct marketing, the most important
elements in Saudi Arabia being the facsimile and telephone. An obvious reason for
this result is the ineffective and insufficient mail system in the country. Despite
issues related to the mail system, purposes, incentives, and barriers of direct
marketing appeared to be similar to those found in studies conducted in the
Western environment.
Final words
This study is the first of direct marketing in Saudi Arabia. As such it has
looked at issues very broadly. However, it has led to a series of managerial
recommendations for using direct marketing in Saudi Arabia, and set out research
directions in further improvements for the future research. It is believed to
represent at least a small step forward in a largely unexplored area, direct
marketing in the Arab World. It is hoped that this book increases the attention of
both academician and practitioners to this area, and provides a clear map to chart
future inquiry.
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Direct Marketing in Saudi Arabia
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