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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? Prentice Hall, © 2009 15-2 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. Prentice Hall, © 2009 15-3 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. Prentice Hall, © 2009 15-4 Direct Marketing Industry Prentice Hall, © 2009 15-5 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. Prentice Hall, © 2009 15-6 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. Prentice Hall, © 2009 15-7 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. Prentice Hall, © 2009 15-8 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). Prentice Hall, © 2009 15-9 The DirectMarketing Process Prentice Hall, © 2009 15-10 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. Prentice Hall, © 2009 15-11 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. Prentice Hall, © 2009 15-12 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. Prentice Hall, © 2009 15-13 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. Prentice Hall, © 2009 15-14 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. Prentice Hall, © 2009 15-15 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 Prentice Hall, © 2009 15-16 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. Prentice Hall, © 2009 15-17 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. Prentice Hall, © 2009 15-18 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. Prentice Hall, © 2009 15-19 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 Prentice Hall, © 2009 15-20 Database Management Process Prentice Hall, © 2009 15-21 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 Prentice Hall, © 2009 15-22 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. Prentice Hall, © 2009 15-23 Melissa Data The Melissa Data Web site explains the services offered by this company in database collection and management. Visit the Site Prentice Hall, © 2009 15-24 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? Prentice Hall, © 2009 15-25 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. Prentice Hall, © 2009 15-26 Four Key Players in Direct-Response Marketing 1. 2. 3. 4. Advertisers Agencies Media Companies Customers Prentice Hall, © 2009 15-27 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 Prentice Hall, © 2009 15-28 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 Prentice Hall, © 2009 15-29 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 Prentice Hall, © 2009 15-30 Key Players: (4) Customers • Dislike intrusiveness, but appreciate convenience • Types of customers – Push-button shopper (phone) – Mouse-clicking shopper (computer) Prentice Hall, © 2009 15-31 Tools of Direct Marketing 1. 2. 3. 4. Direct Mail Catalogs Telemarketing Direct-Response Advertising 5. Web-based emarketing Prentice Hall, © 2009 15-32 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 Prentice Hall, © 2009 15-33 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. Prentice Hall, © 2009 15-34 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. Prentice Hall, © 2009 15-35 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. Prentice Hall, © 2009 15-36 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. Prentice Hall, © 2009 15-37 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? Prentice Hall, © 2009 15-38 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 Prentice Hall, © 2009 15-39 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. Prentice Hall, © 2009 15-40 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 Prentice Hall, © 2009 15-41 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. Prentice Hall, © 2009 15-42 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.” Prentice Hall, © 2009 15-43 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 Prentice Hall, © 2009 15-44 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. Prentice Hall, © 2009 15-45 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. Prentice Hall, © 2009 15-46 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. Prentice Hall, © 2009 15-48 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? Prentice Hall, © 2009 15-49 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? Prentice Hall, © 2009 15-50 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? Prentice Hall, © 2009 15-51 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. Prentice Hall, © 2009 15-52 All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the United States of America. Copyright © 2009 Pearson Education, Inc. Publishing as Prentice Hall Prentice Hall, © 2009 15-53