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Advertising Principles
and Practices
Direct-Response
Marketing
Questions We’ll Answer
• How do we define direct marketing and
explain the process?
• How are databases used in direct
marketing?
• Who are the key players in direct
marketing?
• What are some steps in evaluating the
tools and media available to directresponse programs?
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The Gecko Goes Direct
• The GEICO spokes-creature gets
attention and communicates a
marketing-savvy audience.
\ advertising including
• Heavy TV
the cavemen and customer with
celebrity testimonials prove
that direct response sell a
Visit the
Site
to a broad audience.
• Their share of premiums
grew from 4.6–6.25%
from 2001 to 2005.
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What is direct marketing?
• A multichannel system of marketing using various
media to connect sellers and customers who deal
with each other directly rather than using an
intermediary, like a wholesaler or retailer.
• Designed to elicit an immediate response.
• Uses marketing research to develop strategy.
• Builds databases to target customers, prospects.
• Uses a variety of media, including new media.
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Direct Marketing Industry
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Advantages of Direct Marketing
• Can be personalized to be more
persuasive.
• Results are measurable; ROI is
more easily known.
• Relevant customer information
can be collected to produce
more useful databases and
selective reach, reducing waste.
• Convenient to purchase; not
restricted to a location.
• The marketer controls product
until delivery.
• Advertising with direct-mail
components is more effective.
• Flexibility in form and timing.
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Disadvantages of Direct
Marketing
• Consumers are reluctant to
purchase a product they
can’t touch or feel.
• Annoyances associated
with direct marketing
(junk mail, telemarketers).
• Customer privacy, data
sharing, and identity theft
issues.
• Tension between building
long-term brand image and
driving short-term sales.
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Direct Marketing and
Direct-Response Advertising
• Direct marketing includes the whole
marketing process.
• Direct-response advertising is a type of
marketing communication that combines the
characteristics of advertising and sales
promotion—attention-getting visuals,
interesting copy, an offer, and relevant
timing.
– Gives the reader, viewer, or listener a way to
directly respond and contact the advertiser.
– High cost, but well-targeted.
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Steps in the
Direct Marketing Process
1. Setting objectives and making strategic
decisions (research helps advertisers target,
segment, prospect, and set objectives).
2. The communication of an offer (the message) by
the seller through the appropriate medium.
3. Response, or customer ordering.
4. Fulfillment, or filling orders and handling
exchanges and returns.
5. Maintenance of the company’s database and
customer service (relationship building).
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The DirectMarketing
Process
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Objectives/Strategy
• Provide product information
– Provide space for detailed information.
• Create sales
– Order products, visit a dealer, return a response card, visit a Web
site.
• Retain and strengthen customer relationships
– It costs so much to acquire new customers
• Develop leads
– Identify prospects for products (i.e., cars) that people think before
purchasing so follow-up phone calls, sales calls, or other contact
can be made to help influence purchases (lead generation).
• Generate traffic
– Visit a store, attend an event, or otherwise interact with a brand.
• Test offers
– Pricing, packaging,
promotional
offers.
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Hall, © 2009
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Targeting
• Identifies who is to receive the offer.
– Important because the Cost Per Thousand is very high.
• Current customers are the best prospects.
– Order products, visit a dealer, return a response card, visit a
website
• Three criteria (RFM) predict who is most likely to
buy again:
– Recency—they purchased recently
– Frequency—they purchase often
– Monetary—they spend a lot of money
• Profiling
– For acquiring new customers, a targeting strategy is to profile
current customers and look for potential customers with similar
profiles.
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The Offer
• Typically, consists of a product description, terms of
sale, and payment delivery, and warranty
information.
• Communicates benefits and answers “What’s in it
for me?” for the buyer
• Calls on the buyer to take action.
– Offer provides all the information needed including price,
the cost of shipping and handling, optional features, future
obligations, availability of credit, extra incentives, time and
quality limits, and guarantees or warranties
• Supported by a message strategy, a media strategy,
and the database.
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Message and Media Strategy
• Message Development Guidelines
– Longer and must contain more explanation and detail about price,
style, and convenience; because if it doesn’t persuade the receiver
to respond, the message is wasted.
– Copy is written in a personal, one-to-one conversational style.
– Should reflect whether the offer is one-step or a two-step offer.
• One-Step Offer
– Asks for a direct sales response, includes a mechanism.
• Two-Step Offer
– Designed to gather leads, answer consumer questions, set up
appointments, and drive customers to a Web site or retail store.
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The Response/Order
• It must be as easy as possible to respond.
– Offer options: online, mail, phone, fax
• Overcome resistance with:
– Toll-free telephone numbers for product support
– Free limited-time trials
– Acceptance of several different credit cards
• Create urgency by offering a gift or limited-timeonly price deal.
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Fulfillment and Customer
Maintenance
• Fulfillment: getting the product ordered to
customers
• Fulfillment includes all back-end functions
related to processing the order:
– Delivering the product
– Receiving payment
– Providing tracking numbers
• Customer maintenance
– Tracking customer transactions and interactions
with a database
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Measurement and Evaluation
• Various offers are evaluated and measured for
effectiveness
– Track printed codes on mail-in responses
– Use different numbers for different TV commercials
• This info is used to identify the best offers and
adjust the campaign accordingly
Principle:
Because direct-marketing messages are constantly
being measured, it is easier to learn what works and
modify succeeding campaigns based on results than
with advertising.
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Using Databases
• Marketers use databases to:
– Keep track of customers
– Identify prospects
– Segment groups into customers and prospects, to send
relevant offers to each group
• E.g., Carnival Cruise Lines segments customers
into new customers, returning passengers, and
frequent cruisers.
– Each group gets a different “Sail and Sign” card, each
with different perks and privileges
• Direct marketers use the same strategy when
sending offers to customers or prospects.
– Better customers get more premium quality pieces than
lower-usage customers who get a more modest piece.
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A Circular Process
• Databases are an important source of information
at the both the beginning of the direct-marketing
process and the end.
– Used to update personal information (e.g.,
addresses, marital status, family status) plus get and
keep info about interactions with the company.
• Primary database objectives:
1.
2.
3.
4.
Record names of customers
Store and measure ad results
Store and measure purchasing performance
Vehicle for continuing direct communication
Principle:
A reliable database of customer and prospect contact
information lies at the heart of effective direct marketing.
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Database Management Process
1. Collection Point
– Completed warranty card, contest entry, trade show card
2. Data Entry
– Entered into computer and merged with other information
3. Data Assessment
– Determine relevant level of detail
4. Data Clustering
– Create clusters of characteristics and behaviors for segmenting
or targeting
5. Data Application
– Apply to marketing strategy or problem (e.g., send coupons)
6. Data Sharing
– Manufacturer shares info with retailers
7. Data Refinement
– Corrections, updates, additions, deletions
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Database Management Process
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Lists
• Customer and prospect information including
addresses, phones, emails.
• Can be purchased or rented from list brokers.
• Lists tied to demographics, psychographics,
geography, hobbies, affiliations, postal routes .
• New lists are crated by merging and purging
• Three types of lists:
– House lists: marketers own customers or members
– Response lists: people who respond to some type of
direct-response offer
– Compiled lists: specific categories such as new
homebuyers, graduating seniors, new mothers
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Data-Driven Communications
• Companies use info from
previous communications
to target, respond to, and
interact with customers.
• Services like Prodigy and
Melissa Data offers online
buying and purchase
reminders that marketers,
can access.
Principle:
Data-driven communication lets the brand speak with a
sense of history of the customer relationship because it
tracks the customer’s interactions with the brand.
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Melissa Data
The Melissa Data Web site
explains the services
offered by this company in
database collection and
management.
Visit the
Site
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Data-Driven Communications
• Date Mining
– Sifting and sorting through company database
information to target customers and maintain a
relationship.
– Information is used for behavior targeting (finding
customers who might be interested in certain offers) and
prospecting (profiling existing customers to find more,
similar, potential customers).
• Privacy Issues
– Cookies (that track online visits) and loyalty cars (like
frequent flyer cards) concern privacy advocates.
– Sometimes info is collected with the subjects permission
and knowledge; sometimes without.
– When does efficiency in targeting become invasion of
privacy?
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Customer Relationship
Management (CRM)
•
•
Identifies and analyzes customer behavior patterns to
maximize the profitability of each relationship.
Sophisticated database technology links transactions
and customer characteristics to help companies:
–
–
–
–
Improve service that are important to most profitable
customers.
Attract new customers with similar characteristics.
Reward the best customers.
Identify and eliminate unprofitable customers.
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Four Key Players in
Direct-Response Marketing
1.
2.
3.
4.
Advertisers
Agencies
Media Companies
Customers
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Key Players: (1) Advertisers
• Companies whose
primary business is
selling products and
services by mail or phone,
or direct response
advertising.
• Retail stores who use
direct marketing as a
supplement to other forms
of marketing.
• Dell, GEICO
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Key Players: (2) Agencies
• Advertising agencies—
department or separate
direct-response company
owned by the agency
• Direct marketing
agencies—independent,
full-service agencies
specializing in direct
response
• Service firms—printing,
mailing, list brokering,
data management
• Fulfillment houses—
store/ship requested
information/products
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Key Players: (3) Media Companies
• The media that deliver messages by phone,
mail, or the Web
• Used to make an offer with a prospect
– U.S. Postal Service
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Key Players: (4) Customers
• Dislike intrusiveness, but appreciate
convenience
• Types of customers
– Push-button shopper (phone)
– Mouse-clicking shopper (computer)
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Tools of Direct Marketing
1.
2.
3.
4.
Direct Mail
Catalogs
Telemarketing
Direct-Response
Advertising
5. Web-based emarketing
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The Tools of Direct Marketing:
(1) Direct Mail
• A print advertising
message for a product or
service, delivered by mail
• Most popular method
• Variable data use digital
printing to highly
personalize messages
• Uses bulk mail rates
• Response is 2–3%
• Fairly high CPM, but
easy to calculate payout
rate
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Table 15.1
Advantages of Direct Mail
Advantages
Description
Tells a story
The medium offers a variety of formats and provides enough space to tell
a complete sales story.
Engages attention
Because direct mail has little competition when it is received, it can
engage the reader’s attention.
Personalizes message
Because of the use of databases, it is not possible to personalize direct
mail across a number of consumer characteristics, such as name,
product usage, purchase history, and income.
Builds in feedback
Direct mail is particularly conducive to marketing research and can be
modified until the message design matches the needs of the desired
target audience.
Reaches the unreachable
Direct mail allows the marketer to reach audiences who are inaccessible
by other media.
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Table 15.1
Disadvantages of Direct Mail
Advantages
Description
Negative perceptions
The main drawback of using direct mail is the widespread perception that
it is junk mail. According to a Harris-Equifax Consumer Privacy Survey,
about 46 % of the public see direct-mail offers as a nuisance, and 90%
consider them an invasion of privacy.
Cost
Direct mail has a higher cost per thousand than mass media. A great
deal of this high cost is a result of postage. (However, it reaches a more
qualified prospect with less waste.) Another cost factor is the
maintenance of the database.
Mailing list
To deliver an acceptable response rate, the quality of the mailing list is
critical. It must be maintained and updated constantly.
Response rates
Because of the changing nature of mailing lists, as well as the difficulty of
keeping relevant data in the database, the response rate can be a slow
as 2 or 3%. Even with that low response, however, database marketers
can still make money.
Vulnerability
Direct-mail delivery is vulnerable to natural disasters as well as
catastrophes such as the 9/11 terrorist attacks.
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Creating Effective Direct Mail
• Get the attention of the targeted prospect as the
envelope comes from the mailbox.
• Create a need for the product, show what it looks
like, and demonstrate how it is used.
• Answer questions, as a good salesperson does, and
reassure the buyer.
• Provide critical information about product use.
• Inspire confidence, minimize risk, and establish that
the company is reputable.
• Make the sale by explaining how to buy, how to
order, where to call, and how to pay for the
purchase.
• Use an incentive to encourage a fast response.
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Writing Effective Letters
• Attention
– Pictures and benefit-oriented headlines to grab attention or
generate curiosity.
• Personalize
– Use a name or, if not available, a topic (“Dear Cat Lover”).
• Lead in
– A brief yet compelling or surprising statement—“Dear
Friend: I could really kick myself!”
• The Offer
– Make it as early in the letter as possible.
• The Letter
– Use testimonials or other specifics to describe benefits.
• The Closing
– Repeat the offer, add incentives or guarantees, and include
a clear call to action.
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Issue: Trees, Water, and Waste
• Direct mail uses an estimated 100 million
trees and 28 billion gallons of water per year
• Plus disposal and recycling costs; in
Colorado, direct mail accounts for 340
million pounds of trash per year.
• Should direct mail be banned?
• Would this infringe on advertisers’ rights to
commercial free speech?
• What do you do if you’re an environmentally
responsible advertiser?
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The Tools of Direct Marketing:
(2) Catalogs
• A multiple-page direct
mail publication showing
a variety of merchandise
• Increasing in number;
even while marketers are
refining databases, cutting
back on no. of recipients
• Catalogs can drive
e-commerce, Web site
purchases
• Specialty catalogs are
growing in number
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Table 15.2
Advantages and Disadvantages of Catalogs
Advantages
Description
Targeted
Can be directed at specific market segments.
Engages attention
Employs high-quality design and photography (see Alsto’s cover).
Complete information
Extensive product information and comparisons are provided.
Convenience
Offer a variety of purchase options.
Disadvantages
Description
Negative perceptions
Catalogs are viewed as junk mail by many recipients.
Costs
The cost per thousand of catalogs is higher than mass media.
Response rate
The response is relatively low at 3 to 4%.
Mailing list
Databases must be constantly maintained.
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The Tools of Direct Marketing:
(3) Telemarketing
• Almost as persuasive as
personal sales, but a lot less
expensive.
• Inbound vs. outbound.
• Message must be simple,
compelling, and short.
• Issues include intrusion,
privacy, and fraud.
– Predictive dialing can call even
unlisted numbers
– Fraudulent behavior has
tarnished telemarketing’s image
– Do Not Call registry, “Privacy
Manager,” and Caller ID
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The Tools of Direct Marketing:
(4) Direct-Response Advertising
• Print Media
– Ads in newspapers and
magazines feature a coupon,
order form, address, toll-free
number; ask for response.
• Broadcast Media
– Radio provides targeted
audiences, especially mobile
audiences.
– Cable is targeted to particular
interests.
– TV uses infomercials and
direct-response ads.
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The Tools of Direct Marketing:
(5) Internet
• Combines strengths of direct
mail and telemarketing.
• Moves marketers closer to
one-to-one marketing.
• Combines database
information and email
technology for highly
personalized, low-cost
messages to mass audience.
• Spam is an issue.
• Permission marketing gives
recipients the choice to “opt
in” or “opt out.”
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Eddie Bauer
• The Eddie Bauer Web site lets site visitors “try
on” clothes in a virtual dressing room” and also
sends email messages offering special prices
based on customers’ past purchases.
Visit the
Site
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Integrated Direct Marketing:
•
•
•
•
A systematic way to get close to your best
current and potential customers.
Seeks to achieve precise, synchronized use
of the right media, at the right time, with a
measurable return on dollars spent.
Direct mail with a reply card and an 800
number, followed by a phone call.
Lifetime Customer Value (LCV) is an
estimate of how much a purchase volume a
customer or target market will generate over
a length of time.
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Global Considerations
•
•
•
•
•
The use of databases, credit cards, toll-free
numbers and the Internet are driving direct
marketing growth in Far Eastern and European
countries.
Direct marketing is especially important in
countries where advertising is tightly regulated.
Government postal regulations also limit the use
of direct mail.
Regulations, standards, and cultural meanings
vary greatly from country to country.
Creative messages, visuals, and words often
don’t easily translate across cultures.
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Discussion Questions
Discussion Question 1
• Most people hate telemarketing. Say you
work for the local campus environmental
organization.
• How could you conduct a campus and
community telemarketing effort that would
not generate resistance?
• Apply your ideas to developing a
telemarketing program to promote campus
fund-raising for a good cause, such as a
campus Habitat for Humanity project?
• Your primary targets are students, faculty, and
staff.
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Discussion Question 2
• Kali Johnson, a recent college graduate, is
interviewing with a large garden product
firm that relies on television for its directresponse advertising.
• “Your portfolio looks very good. I’m sure
you can write,” the interviewer says, “but let
me ask you what is it about our copy that
makes it more important than copy written
for Ford, Pepsi, or Pampers?”
• What can she say that will help convince the
interviewer she understands the special
demands of direct-response writing?
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Discussion Question 3
• One of the smaller, privately owned
bookstores on campus is considering a
direct-response service to cut down on
its severe in-store traffic problems at
the beginning of each semester.
• What ideas do you have for setting up
some type of direct-response program
to take the pressure off store traffic?
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Discussion Question 4
• The success of infomercials helps
validate direct marketing as a revenue
generator.
• What characteristics of a product must
you consider when determining
whether to use an infomercial?
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Discussion Question 5
• Three-minute debate: How does the recent fervor
surrounding personal privacy affect direct marketing—
specifically, telemarketing and email advertising?
• You are designing a direct-mail campaign for a local
business that employs telemarketing and email
advertising, but your client is reluctant because of
privacy concerns.
• In class, organize into small teams with pairs of teams
either arguing the direct marketing position or the
privacy position. Set up a series of three-minute debates
with each team having that time to argue its position.
Every team of debaters has to present new points not
covered in the previous teams’ presentations until there
are no arguments left to present. Then, the class votes as
a group on the winning point of view.
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Copyright © 2009 Pearson Education, Inc.
Publishing as Prentice Hall
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