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CHAPTER 14
DIRECT MARKETING
Chapter Overview
One of the most rapidly growing areas in marketing is direct marketing . A variety of direct response
media are used to convey the communications message. In this chapter we examine the role of direct
marketing in the promotional mix. We discuss the objectives sought in direct marketing programs (noting
that these may often differ from the communications objectives discussed earlier). We also discuss direct
marketing strategies, direct selling and evaluation of the direct marketing program. We conclude the
direct marketing discussion with a discussion of its advantages and disadvantages. In Chapter 15 we
discuss two additional direct marketing media, the Internet and interactive media. Since both of these
include more than direct response, they warrant an additional chapter.
Learning Objectives
1.
To recognize the purpose of direct marketing as a communications tool.
2.
To appreciate the strategies and tactics involved in direct marketing.
3.
To demonstrate the use of direct-marketing media.
4.
To determine the scope and effectiveness of direct marketing.
Chapter and Lecture Outline
I.
DIRECT MARKETING
A. Defining Direct Marketing—Direct marketing is the total of activities by which the seller, in
effecting the exchange of goods and services with the buyer, directs efforts to a target audience
using one or more media (direct selling, direct mail, telemarketing, direct-action advertising,
catalogue selling, cable TV selling, etc.) for the purpose of soliciting a response by phone, mail or
personal visit from a prospect or customer.
B. The Growth of Direct Marketing—Direct marketing has grown tremendously in the past few
years as a result of a number of contributing factors:
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C.
the use of consumer credit cards
direct-marketing syndicates
the changing structure of our North American society and the market
technological advances
miscellaneous factors.
The Role of Direct Marketing in the IMC Program—Direct marketing activities support and are
supported by other elements of the promotional mix.
1. Combining direct marketing with advertising—Direct marketing is in itself a form of
advertising. Whether through mail, print, or TV, the direct-response offer is an ad. Sometimes
the ad supports the direct selling effort (i.e. Victoria Secret runs image ads to support its store
and catalog sales.)
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2. Combining direct marketing with public relations—Private companies may use telemarketing
activities to solicit funds for charities or cosponsor charities that use these and other direct
response techniques to solicit funds.
3. Combining direct marketing with personal selling—Nonprofit organizations often use
telemarketing to solicit funds.
4. Combining direct marketing with sales promotions—For example, airlines send out mailers
announcing promotional airfares.
II.
DIRECT MARKETING PROGRAM PLAN
To successfully implement direct-marketing programs, a number of decisions need to be made.
These include:
A. Direct-Marketing Objectives—Direct marketers seek a direct response. This response need
not necessarily be a behavioral response, as direct marketing is now used for other purposes:
to build an image, maintain customer satisfaction, and inform and/or educate customers in an
attempt to lead to future actions
B. Developing a Database—One of the most important parts of the direct marketing program is
the development of a database. The database is the foundation from which direct marketing
decisions evolve. Figure 14-3 demonstrates typical database content.
Databases are used to perform the following functions:
 Improving the selection of market segments
 Stimulate repeat purchases
 Cross-sell
C. Direct Marketing Strategies and Media—Direct marketers generally pursue either a (1) onestep approach or a (2) two-step approach in developing media strategies. In the one-step
approach, the medium is used to directly obtain an order (for example, direct response
television ads). In the two-step approach, more than one medium may be used, with the first
effort designed to screen or qualify buyers and the second designed to generate the response.
A number of direct response media are available to the marketer including:
a. Direct mail—Mail order sales in Canada exceeded $16 billion in 2000, and more than
half of this was in the consumer market. Keys to the success of direct mail are the
mailing list and the ability to segment markets.
b. Catalogues—Catalogue sales are expected to grow significantly. Examples of
successful catalogue retailers can be found on page 382.
c. Broadcast media—Two broadcast media are available to direct marketers: TV and
radio. The majority of direct marketing broadcast advertising now occurs on TV
which receives the bulk of our attention in the text
d. Infomercials—The lower cost of commercials on cable and satellite channels has led
advertisers to a new form of advertising. Figure 14-5 shows the results of a study by
Naveen Donthu and David Gilliland profiling infomercial viewers and buyers.
e. TV Advertorials – Some companies use short films to promote the sale of their
products.
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f.
Teleshopping—The major shopping channels in the United States—QVC, and the
Home Shopping Network, —account for over $3.4 billion worth of sales, though
there are indications that this medium may have already reached maturity.
g. Print media—Magazines and newspapers are difficult media to use for direct
marketing because of clutter and the relative expense.
h. Telemarketing— Consumer and business-to-business telemarketing sales exceeded
$16 billion in 2000 of which $7 billion represented dales to consumers.
i. Electronic teleshopping—an on-line shopping and information retrieval service
accessed through personal computers. The Internet, the most popular of these tools, is
discussed in the next chapter.
j. E-Mail Marketing – This is one of the fastest growing forms of direct marketing and
its estimated 2001 growth rate was 24%.
C. Strengths of Direct Marketing
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selective reach
segmentation capabilities
frequency
flexibility
timing
personalization
costs
measures of effectiveness
D. Limitations of Direct Marketing
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image factors
accuracy
content support
Teaching Suggestions
As noted, direct marketing is a rapidly growing field. Students typically think of this area in terms of
direct mail, and sometimes the 800 ads that appear on television. It is a helpful and interesting exercise to
start the class with a discussion as to what direct responses students are familiar with, and to point out the
fact that some very large, reputable firms are engaging in this form of marketing.
It is also useful to spend some time discussing the increased use of databases. Seemingly every
organization either now has, or is in the process of establishing a database from which to market. Students
will probably be able to identify which databases their names might appear on by the fact that the lists are
often sold. It is easy to track who is buying lists from each other, as noted in the text.
Answers to Discussion Questions
1. Identify some of the factors that have contributed to the growth of direct marketing. Do you see these
factors as being as relevant today? Discuss why or why not, and the impact they will have on direct
marketing in the future.
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A number of factors have been shown to have contributed to the growth of direct marketing. These
include:
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Consumer credit cards—the use of consumer credit cards continues to increase, reaching all
time highs. The ease of use of these cards increases the ability to conduct direct marketing
activities. So long as this use remains high, and there are no indications that it will change,
direct marketing will continue to thrive.
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Syndicates—companies that specialize in direct marketing activities also continue to increase,
particularly with the advent of the Internet. As these syndicates become more effective, direct
marketing will reap the rewards.
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The changing structure of North American society and markets—Consumers are more well
off than perhaps any time in history. At the same time, they continue to be “time poor”. The
combination of these factors if very positive for the continued growth of direct marketing.
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Technological advances—the Internet is an excellent example of how technology benefits
direct marketing. Direct marketers are delighted that the Internet has come along, as it
provides a new and very effective medium for direct marketing activities. Interactive TV will
do the same.
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Miscellaneous factors—all of the miscellaneous factors discussed in the chapter continue to
hold true in regard to their impact on direct marketing. No less important is the image of
direct marketing itself. Unfortunately, the industry still has image problems, and the Internet
has contributed to these problems through fraud and deception.
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Overall, the future for direct marketing is positive. All of the factors that have contributed to
its growth this far continue to exist, and many have brightened the prospects for the future.
2. Explain how a consumer goods company might employ database marketing. A business to business
company? A service company?
All industries can make use of database marketing in a variety of ways. Following are a few
examples:
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Consumer goods companies—consider the example of bicycle helmet companies. A helmet is
purchased, and the warranty card is filled out. The information is entered into a database. The
database can then be used to cross sell the customer on additional bike products, offer an
insurance policy in case of helmet failure, and sending a thank you for the purchase. Bike
helmets are replaced, on the average every three years. Around this time, the database
identifies potential new buyers, and direct mail pieces, coupons, reminders, etc. are sent to the
prospective buyers.
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Business to business companies—the possibilities for relationship building are enormous.
Automatic filling and shipping of orders, cross selling and other database tools can be
applied. In addition, announcements of new products, sales and/or promotions can be sent
from the database. In respect to customer service, the information contained in the database
may speed up the entire problem solving process.
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Service companies—banks are extensive users of database marketing tools. New banking
services designed to specific demographic and/or socioeconomic groups rely on databases to
increase the ability to specifically target these groups with new program offerings, important
changes, news, events, etc.
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3. The catalogue has become an important part of the shopping lives of many consumers. Describe
different groups that you think might find catalogues useful in the consumer market, and explain what
aspects of catalogues would attract them to this medium.
While it is difficult to eliminate any group from consideration as a catalog user, one might use
examples of two extreme types, with everyone in between having their own reasons for use. These
two types include:
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Time starved—catalogues are especially appealing to those short on time. The working wife
and/or husband with a busy social life and or active lifestyle may find catalogues great timesaving devices. Shopping at stores requires time and effort, while catalogues may be perused
at their leisure in the comfort of their home, while relaxing in front of the TV, etc.
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Older or disabled—while the active young person may use catalogues for time-saving
reasons, the elderly or those with difficulties getting around may use them by necessity. Older
persons who do not drive, are afraid to go out or have disabilities which make shopping
difficult may rely on the convenience of catalogues for doing their purchasing.
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Others—those geographically isolated, with limited or no access to certain types of stores
may find catalogues valuable. Students, shopping for lower prices, or for products that are
hard to find, those purchasing the same products repeatedly (including reorders for business
to business marketers), and those who just like to browse to get new ideas for their own
purchases or gifts also find catalogues valuable.
4. One of the disadvantages associated with direct marketing media is the high cost per exposure. Some
marketers feel that this cost is not really as much as a disadvantage as is claimed. Argue for or against
this position.
While the higher cost per exposure is often considered a disadvantage associated with direct
marketing media, in many cases this cost may be warranted. While most other media have lower
costs, their value lies primarily in creating exposure, interest and/or providing information. Direct
marketing media actually seek a response. Thus, the higher cost is warranted if there is a higher, more
direct behavior associated with the communication.
The ability to target market, and eliminate waste coverage is another factor in support of the higher
cost of direct marketing media. When one factors in the minimal waste coverage, the cost per
exposure may be more in line with competitive media.
Finally, the ability to tailor the message may result in a more effective message. If this is true, and it
improves the likelihood of a behavior, again the higher cost is warranted.
5. Why have companies like Volvo, Cadillac, and General Motors increased their use of infomercials? Is
this a wise strategy?
The low cost associated with infomercials have attracted many “mainstream” companies to this
medium. Compared to prime time television rates as well as other media, infomercials are a CPM
bargain.
Another factor is the audience profile of the infomercial watcher. While those who watch “Psychic
Friends” or “Amazing Discoveries” may not be the target audience for these car companies, many
other viewers do fit their target market very well. By reaching these groups in the comfort of their
homes, these companies can provide a lot of information about the products, and stimulate interest as
well.
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For those in a buying mode, or considering the purchase of an auto, the infomercial can provide
valuable information upon which to make a decision. While these persons may not yet be motivated
to go to the auto showroom for information, they may be interested enough to watch the infomercial.
Whether this is a viable strategy on the part of the auto companies remains to be seen. Some
consumers are offended by infomercials, others just don’t like them. Even though the CPM is low, if
many consumers are disinterested in this form of advertising/selling, cost efficiencies are lost. Add to
this the potential negative impact on image, and one has to question this strategy.
6. Give an example of how companies might use direct marketing as part of an IMC program. Provide
examples of both consumer and business markets.
In the consumer market, a number of examples might be cited. Mastercard advertises on television,
offers promotions, and uses a variety of support media. They also utilize an extensive direct mailing
campaign to attract customers.
Business to business marketers use direct marketing by employing database marketing, telemarketing,
and direct mail. They also use direct marketing to support sales efforts, through the determination and
qualification of prospects, screening of customers on potential interest, etc. While products and
services may be promoted through other media, like advertising, public relations, and sales
promotions, direct marketing tools are being used more frequently to support the marketing effort,
reduce costs, and increase the effectiveness of the sales force.
7. Direct marketing has been beset by a number of problems that have tarnished its image. Discuss some
of these and what might be done to improve direct marketing’s image.
Perhaps the major problem associated with direct marketing is its image. Putting aside all of its other
advantages, image problems continue to plague the industry, making it difficult to shed the “junk
mail” role.
These problems stem from all direct media. In direct mail, one’s mailbox is full of unwanted catalogs,
ads and solicitations. Telemarketers continue to aggressively pursue new business. Infomercials ,
despite their advances in sophistication, are still offering “psychics”, “amazing discoveries” and other
offerings that many perceive as being questionable if not deceptive. The Internet contains
pornography and the potential for fraud. While the vast majority of direct marketers are not guilty of
such actions, it is the few that reflect negatively on the image of the many. Each news story of fraud
and/or deceit associated with direct marketing hurts the overall image.
Direct marketers could establish guidelines for appropriate actions, and could work closely with
academia and industry as well as the government to help eliminate many of the problems.
As more and more large companies become involved, the costs of infomercials will be beyond the
reach of many , this, too will help. But like any other medium, there will always be those that will
attempt to make money in a less than honest fashion. They will never be eliminated, they can only be
reduced in numbers
8. How might business-to-business marketers use telemarketing effectively?
Given the high (and rising) costs of personal sales calls, more and more business-to-business
marketers are turning to telemarketing to keep costs down. In many industries the cost of a
telemarketing call is less than $50, while the personal sales call is over $300.00.
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Telemarketing can be used at all phases of the selling process. First for developing and qualifying
leads, the phone is far less expensive than personal visits. In addition, a personal visit may not be
necessary or even possible. The phone can also be effective in providing information at a reasonable
cost. Between personal phone calls and fax machines, it is possible to provide most if not all of the
information required.
While telemarketing may be less likely to close the sale in business-to-business markets, it again can
be used to confirm orders, follow-up, and even take reorders at a fraction of the cost of a personal
visit.
Finally, telemarketing can also be used to insure customer satisfaction. Follow-up phone calls, and
surveys conducted by phone are very valuable tools in relationship building, and maintaining
customer satisfaction.
Additional Discussion Questions (not in text)
9. Describe what is meant by a database. What functions do databases perform?
A database is a listing of customers and potential customers. These lists may be organized on a variety
of factors, including demographics, geographics, and even psychographics.
The database has become a powerful marketing tool. Marketers use databases to:
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Improve segmentation strategies—lists can demonstrate past purchasers, potential purchasers, and
(as noted above) be segmented on a variety of criteria.
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Stimulate repeat purchases—many companies arrange databases in a way that allows them to
contact customers when a service is due. For example, car dealers letting customers know when
their service is due; carpet cleaners notifying customers that it has been a year since their last
cleaning etc.
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Cross-selling—once a customer is included in the database as a result of a purchase, the
opportunity exists for cross-selling. For example, camera companies may sell film or developing
to recent camera purchasers; tape and disc companies can cross-sell videotapes, etc.
The opportunities for using databases seems endless. A good discussion can ensue on this topic.
10. Discuss the evolution of Infomercials. How are today’s Infomercials different from those of 10 years
ago?
Infomercials continue to gain in popularity. Major corporations like GM, Volvo and many computer
companies have now found this to be an effective means of communication, and—as noted in the
text—a vast majority of television stations report having aired the 30 minute commercials.
The infomercial has had an interesting evolutionary process. Originally the domain of smaller direct
response companies, the infomercial was a thinly veiled 30 minute advertisement. Amazing
Discoveries—a program that appeared as a representation of new inventions—and diet programs in
which doctors hyped specific brands that were supposedly more effective in weight loss were the rule.
These programs were very inexpensive to produce, and media time was bought at a very low rate. For
all intents and purposes, the infomercial was nothing more than an advertisement deceptively
presented as a television program.
Because of their high level of success, infomercials attracted the eye of major corporations. The result
was less deception, more information content and more legitimacy. At the same time, these
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infomercials were much more sophisticated, with production costs soaring. Media time also increased
along with the increase in demand.
As discussed in the text, the original form of infomercials still are the most popular—i.e., psychic
friends networks, amazing products, etc. However, there will continue to be an increase of major
companies’ ads—due in large part to a potential crackdown for deception by the FTC.
11. Discuss some of the reasons why direct marketing has been receiving more and more attention from
marketers.
There are many marketers who believe that direct marketing is the wave of the future. New courses,
new journals, and new books in direct marketing have appeared in recent years, most of which extol
its virtues. Many firms, both large and small, have recently shifted advertising and promotional
efforts into this domain. Reasons for the rising success of direct marketing can be attributed to a
number of factors:
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The changing marketing environment. The increased use of credit cards, lack of time, and acceptance
of mail-order products by consumers have all increased the effectiveness of the direct marketing
medium.
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Cost efficiencies. The continued high cost of mass media, and the lack of availability of time and
space in some of these media have forced advertisers to consider alternative ways of advertising.
Likewise, the increasing costs of personal selling directly favour the use of telemarketing and direct
mail.
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Target marketing. As marketers more narrowly define their markets, direct marketing media offer a
more effective way of reaching them through the reduction of waste circulation.
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Database technologies. More effective database marketing techniques also promote more specific
targeting. Companies are now able to know more and more about their customers (and potential
customers) by building more effective databases. As noted, Kimberly Clark can literally track babies
through childhood, changing the products advertised and the appeals as the child gets older.
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Advances in technology. Direct marketing no longer means just catalogs and direct mail. Videotext
systems, home shopping channels and other innovations have allowed for more successful direct
marketing efforts. Even the advent of cable television has aided the direct marketer, who now has a
more specific target audience at which to target direct marketing efforts. Advances in technology have
also increased the value of the databases, as names can be added and purged, and information can be
updated much more quickly.
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Effectiveness measures. Perhaps the greatest value of direct marketing is the ability to measure the
effectiveness of the program. As noted in the text, direct marketers have very sophisticated measures
of effectiveness which can tell them almost immediately how their programs are working.
There is little doubt that direct marketing is achieving rapid acceptance. At the same time, many
marketers are still bothered by the image of the industry. While companies such as Porsche and
American Express benefit the industry through direct marketing participation, negative stereotypes of
“rip-off” artists still persist. Every time such a rip-off occurs, the industry takes a step backward.
12. How is the effectiveness of a direct marketing program measured?
Direct marketing provides one of those rare instances where we can measure the impact of advertising
on sales. By definition, direct response asks for an immediate behavioural action. Effectiveness is
measured by sales, or as one expert put it “if you continue to see the ad on TV then it works”. More
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specifically, the effectiveness is measured using a formula called cost per order (CPO), in which the
advertiser calculates the cost per ad (production and medial costs), the return sought and a break even.
As long as the ad continues to generate profit, it continues to run.
13. Discuss some of the factors that have contributed to the growth of direct marketing. Explain why.
Pages 374-375 discuss the factors that have contributed to the growth of direct marketing. These
include:
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The use of consumer credit cards. Purchasing through credit cards has made it much easier for
consumers to buy through direct marketing channels.
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Direct marketing syndicates. As more and more companies get into the direct marketing industry
growth is enhanced.
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Changing North American structure. As North Americans become more and more “money rich
and time poor”, direct marketing offers a solution—saving them time and allowing them to shop
whenever they want.
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Technological advances. Technological advances offer direct marketers additional opportunities
to appeal to different target groups.
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Miscellaneous factors. Media fragmentation, more targeted communications, and changes in
promotional strategy can all be cited as reasons for direct marketing growth.
14. What are some of the problems associated with direct marketing?
Perhaps the biggest problem the direct marketing industry faces is that of image. As noted, while
many reputable companies have adopted this marketing method, many others are not as reputable.
Deceptive advertising and fraud are much more common than the industry would like. The net result
is that every time a consumer hears of a fraudulent case, it reinforces a negative stereotype that may
already exist.
Other problems are also common. For example, a direct mail program is dependent almost entirely on
the list. Outdated or incorrect lists will result in unsuccessful efforts.
Saturation may also occur. While estimates of direct mail readership are currently attractive, as the
amount of mail continues to increase, the clutter problem inherent in other media may also occur
here.
Postal rate increases may also create problems for direct mailers. As rates continue to increase, the
effects are directly felt (no pun intended!) on the marketer, who must either absorb or pass on these
costs to the consumer.
Similar problems are also faced by other direct marketing media users. The lack of air time, the lack
of consumer acceptance, and credibility problems are common throughout the broadcast industry as
well.
18. Why do you think home shopping channels have been so successful? What is the profile of the home
shopping channel user.
Home shopping—at first thought we picture the stay-at-home TV addict with little or nothing better
to do than watch a home shopping channel. In reality this may not be true at all. The profile of the
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home shopping channel viewer—while watching TV slightly more—is very similar to purchasers of
products through the store.
Home shopping has increased for the same reasons that direct response purchases have increased in
general. The biggest reason is that people don’t have time to shop. Another reason is that to many
people shopping has become a hassle. Fight traffic, look for a place to park, fight the crowds—it just
a lot easier to sit in your living room and buy. finally, the offerings on home shopping have increased
and improved. Celebrities sell everything from clothing to perfumes—some exclusively through
home shopping channels. Turn on the TV, pick up the phone, have the packaged delivered—its simple
in an increasingly complicated world.
19. How might business-to-business marketers employ direct marketing.
The use of direct marketing in the business-to-business sector is on the increase. A variety of media
are used, for a variety of purposes.
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Telemarketing—perhaps the most rapid growth has come in this area. Because of the low cost of a
telemarketing call versus a personal sales call, organizations have begun to more heavily rely on the
phone for sales calls, order taking, screening, etc.
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Direct Mail—for target marketing purposes, direct mail has shown its worth. this medium can
specifically target certain segments cost effectively, and can be used to generate leads as well as sales.
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Videotapes—many companies now employ video tapes to provide product demonstrations.
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Interactive—business-to-business companies have discovered the Internet as well as other interactive
media. Advertising therein and providing product information, inquiry numbers, etc. are on the
increase.
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800, 900 numbers—almost every ad now carries an 800 or 900 number to provide convenience to the
potential customer.
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Catalogues—of course, business advertisers provide catalogues for everything from supplies to heavy
equipment.
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Infomercials—there has been an increased use of infomercials by business-to-business organizations
in which products and/or services are promoted.
Instructors Note: It would be useful to ask students to provide more examples based on their own
experiences.
20. Discuss the advantages and disadvantages of infomercials.
In 1992 infomercials became an “in” thing. As noted in the text, products companies, service
organizations and even presidential candidates employed this advertising form.
The value of infomercials is that they can convey a great deal of information about the
product/service being offered. A half-hour of time allows for a great deal of information
communication.
Infomercials can also be targeted well. For example, an infomercial on dieting will attract those
interested in losing weight, and who thus may be more likely to purchase the products.
Because some people do not realize that infomercials are actually commercials, they place more
credence in the claims being made. As a result, they may be more likely to purchase the products and
services.
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It is this last point that also creates a problem. Because advertisers are making the infomercials appear
like actual TV shows, many feel that they are deceiving the public. A movement is underway to
provide strong disclaimers informing the public that they are, in fact, ads.
Image problems may also exist with infomercials. Many consumers—knowing the programs are
actually ads—feel negatively about the companies advertising through this method.
21. What is the difference between the one-step and two-step approaches used in direct marketing?
In the one-step approach, the medium is used to directly obtain the order. For example,
advertisements on television for products such as the pan-flute, or the Nordic Walker, or other
products in which viewers are asked to call immediately to an 800 or 900 number are employing this
technique.
The two-step approach may employ more than one medium and may not ask directly for the order.
For example, television ads informing viewers to watch for their Readers Digest sweepstakes entry,
or which tell consumers to call in now to receive a free demonstration of the Britannica Encyclopedia
are using this approach. Direct mail may often be used to generate leads, telemarketing may follow to
screen them, and then personal salespeople will call on customers. This would also be an example of
the two-step approach.
IMC Exercise
Catalogues have become an important direct marketing tool, and many catalog companies have opened
retail stores. Have students provide examples of these occurrences, bring in example catalogues, and
explain why this is occurring.
IMC Project
Explain whether the product could be marketed through direct response media. If not explain why not. If
so, include in the plan the direct media to be used, the cost, budget allocation for their inclusion should be
provided.
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