Chapter 16
Direct-Response Marketing
CHAPTER CONTENT
CHAPTER KEY POINTS
1. How does the direct-response marketing process work and who are the key players?
2. What are the primary tools and media available to direct-response programs?
3. How are databases used in direct marketing?
4. What are the trends and challenges facing direct-response marketing?
CHAPTER OVERVIEW
Marketers use direct marketing in every consumer and business-to-business category. In
this chapter we’ll discuss the practice and process of direct-response marketing
communication (DBC), the key players, the tools and media of direct response, and the
principles of integrating direct marketing into the total brand communication effort.
CHAPTER OUTLINE
WHAT IS DIRECT-RESPONSE MARKETING COMMUNICATION?
As the Internet and mobile communication devices have become more pervasive and
sophisticated, marketers are shifting bigger portions of their marcom budgets into
direct-response brand communication (DBC). Because this type of messaging is
specifically designed to motivate an immediate response, it is sometimes also called
direct-response marketing.
Because DBC is designed to generate immediate responses, this means it is also easy
to tell quickly if the messages are meeting their objectives. Unlike mass media
advertising and public relations, the effects of DBC are more immediate and more
measurable.
The Direct Marketing Association is the professional association for this category of
marketing communication. Direct-response marketing is defined as a multichannel
system of marketing that uses a variety of media to connect sellers and customers
who deal with each other directly rather than through an intermediary, such as a
wholesaler or retailer.
As noted in Figure 16.1, direct marketing includes a strong focus on market research
to guide strategy and database development to better target customers and prospects
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and invite them to interact with a company. Using an interactive communication
model, the contact is designed to elicit an immediate response.
The most important function of direct response marketing is that it opens up the door
for interactivity. Interactivity, or two-way communication, is the heart of DBC since it
drives the ability to create engaging, relationship-building contacts. If marketing is a
conversation with consumers about a brand, then one of the most intimate marcom
tools in the toolkit is DBC.
Some marketers see direct response as more limiting than brand or image advertising
because it does not reach as many people or, if it does, the traditional cost of reaching
each individual is higher per impression. Proponents justify the higher costs by
noting that the objective is action rather than recall or attitude change. Action is the
most desired and also the hardest impact to achieve. Today, the higher cost argument
is weak, since the Internet and mobile media eliminate the cost of message delivery.
Principle: Direct marketing may have higher costs per impression than mass media,
but it is less expensive in the long run because its messages are tightly targeted to
reaching prime prospects.
Who Are the Key Players?
The four main players in direct-response marketing communication are: (1) marketers
who use direct response to sell products or services; (2) agencies that specialize in
direct-response communication; (3) phone, mail, or Internet media that deliver messages;
and (4) consumers who are the recipients of the information and sometimes the initiators
of the contact.
Marketers
Traditionally, the types of companies that have made the greatest use of direct
marketing have been book and record clubs, publishers, insurance companies,
sellers of collectibles, gardening firms, and e-marketers.
Direct marketing can contribute to the brand impression. If the contact is
irritating, the message may be negative. But if the messages are well crafted and
targeted to appropriate audiences, they may be appreciated, particularly if the
recipient has opted in and is willing to be contacted.
Research findings indicate that the appearance of a direct-response message –
the character and personality communicated by the graphics – can enhance or
destroy not only the brand image, but also the credibility of the product
information.
Agencies and Media Companies
The four types of firms in direct-response advertising are:
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Advertising Agencies:Most major agencies whose main business is mass media
advertising either have a department that specializes in direct response or own a
separate direct-response company.
Direct-Marketing Agencies: Independent direct-marketing agencies specialize in
creating the DBC messages, arrange for their delivery to a target audience, and
evaluate the results.
Service Firms: Service firms specialize in supplying printing, mailing, list
brokering, and data management.
Fulfillment Houses: This business is responsible for making sure consumers
receive whatever they request in a timely manner, be it a catalog, additional
information, or the product itself.
Customers and Prospects
Although people might dislike the intrusiveness of direct-response advertising,
many appreciate the convenience. It is a method of purchasing goods in a society
that is finding itself with more disposable income but with less time to spend it.
Although there is some risk in ordering a product you cannot see, touch, feel, or
try out, more and more consumers are confident and willing to take a chance
buying online.
What Is Included in the DBC Process?
As outlined in Figure 16.2, there are five basic steps in direct response marketing:
(1) the establishment of objectives and strategic decisions, (2) the communication
of an offer by the seller through the appropriate medium, (3) response, or
customer orders, (4) fulfillment, or filling orders and handling exchanges and
returns, and (5) relationship building through maintenance of the company’s
database and customer service.
Objectives and Strategies
DBC planning begins by delineating the specific objectives. Direct marketing can
be used to: (1) provide in-depth product information, (2) drive traffic to a store or
website, (3) develop leads for follow-up sales contacts or other direct-response
efforts ( lead generation, also called prospecting), (4) drive a response, (5) retain
or strengthen customer relationships, and (6) test offers to predict their
effectiveness.
The most typical DBC objective is to create sales or some other action by
convincing customers to order products, make payments, or take some other
action. Conversion rates are the percentage of contacts who actually take action,
and this is the most important metric used in evaluating DBC programs.
Relationship building is also important since, in most cases, profit comes from
subsequent sales.
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Principle: Relationship building is critical because direct marketers seldom
make a profit on the first sale to a new customer. Profit comes from subsequent
sales.
Nonprofits are also big users of direct-response marketing practices, using them to
generate donations, memberships, and volunteers. An example is UNICEF,
whose goal was to save child soldiers fighting in a war they did not understand
and give them an opportunity to rejoin society.
Direct marketers make these basic objectives more specific by spelling out such
factors as timing, amount of increase, and the acquisition of information about
consumers’ specific behavior.
Targeting
One of the most important decisions made in direct marketing is selecting those
who are to receive the offer. For those DBC messages conveyed via catalog,
phone calls, and mail, the CPM is high. Therefore, if the DBC effort is to have a
positive return on investment (ROI), it is critical that the target prospects have a
higher-than-average interest in the brand offer.
The best customer prospects of direct marketers are current customers. Current
customers have already been sold on the brand, so it is much easier to motivate
them to buy again.
Direct marketers have identified three criteria that help them predict who is most
likely to repurchase: recency, frequency, and monetary (RFM). The more
recently customers bought from a company, the more likely they are to buy again.
Also, the more money customers have spent buying from a company, the more
likely they are to buy again. Computer models are used to conduct ongoing
analyses of customers’ buying behaviors and to produce lists using these criteria.
Similar to media planning, this modeling is also called optimization.
Principle: The more recently customers have bought from a company, the more
frequently they have bought, and more they have spent all increase the odds that
they will buy again.
For acquiring new customers, a targeting strategy is to profile current customers
and then look for potential customers who have similar profiles from databases of
customer information.
The Offer and Response
All direct-marketing messages contain an offer, typically consisting of a
description of the product, terms of sale, and payment, delivery, and warranty
information. In its offer, a successful DBC campaign must communicate benefits
to buyers by answering the enduring question: “What’s in it for me?” Also, many
DBC offers include an incentive for responding quickly.
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All of the variables that are intended to satisfy the needs of the consumer are
considered part of the offer. These variables include the price, the cost of shipping
and handling, optional features, future obligations, availability of credit, extra
incentives, time and quality limits, and guarantees or warranties. The offer is
supported by a message strategy, a media strategy, and the database.
Because DBC messages are tightly targeted, they are often longer, personalized,
containing sufficient information to help a consumer make a decision. They also
try to reduce rick, usually with guarantees or warranties.
A DBC message should reflect whether the offer is a one-step offer or a two-step
offer. Because a one-step offer asks for a direct sales response, it must include a
mechanism for responding to the offer. A two-step offer is designed to gather
leads, answer consumer questions, and drive customers to a website or retail store.
To maximize the response/order rate, the DBC message must make it as easy as
possible for customers to respond. One way to do this is to offer a variety of ways
in which to respond—online, mail, phone, and fax. To create urgency, the direct-
marketing message may also include a promotional device such as a gift or
limited-time-only price deal.
Fulfillment and Customer Maintenance
The next step in the direct-marketing process is called fulfillment, which is
responding to customers’ responses by getting the product to those who ordered it.
Fulfillment includes all of the back-end activities of processing the transaction,
including delivering the product, receiving payment, and providing customers
with tracking numbers. The most critical aspect of successful direct marketing,
however, is maintaining a customer relationship.
Relationship Building
Direct marketers use a database to track customer interactions and transactions,
the final step in Figure 16.2. Measuring and evaluating consumer behavior helps
the direct marketer understand how the customers have responded to direct
marketing messages, and it also helps to predict their future behavior.
Direct marketing (DM) is not a “shot-in-the-dark” approach. DM professionals
continually evaluate and accurately measure the effectiveness of various offers in
a single campaign. Because of this constant evaluation, there is an emphasis in
DM on learning what is most effective and employing that information in
succeeding efforts. Such accurate measurements and adjustments are largely
responsible for DBC’s success.
Principle:Because direct-marketing messages are constantly being measured, it is
good practice to learn what works and to modify succeeding campaigns based on
results.
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WHAT ARE THE PRIMARY TOOLS AND MEDIA OF DBC?
In this section, we will review a number of the tools and media used in direct-response
communication, starting with personal sales.
Personal Sales
Personal selling is the original and most effective, but also most expensive form
of direct marketing. Companies that have used personal selling very successfully
include Mary Kay, Tupperware, Fuller Brush, Avon, and Amway.
Beyond personal sales, direct marketing employs five primary tools to achieve its
objectives: (1) direct-response advertising, (2) direct mail, (3) catalogs, (4)
telemarketing, and (5) online-based e-marketing. Professor Karen Mallia observes
that “direct marketers have known for years that people considering expensive or
complex products want information, and people will be persuaded when that
information is delivered in copy that sells while it tells.”
Direct Response Advertising Media
In addition to direct mail, catalogs, and telemarketing, direct marketers use a variety of
traditional and nontraditional media, which is discussed below.
Print Media
Ads in the mass media are less directly targeted than are direct mail and catalogs,
but they can still provide the opportunity for a direct response. Ads in newspapers
and magazines can carry a coupon, an order form, an address, or a toll-free
number. A classic example of the power of direct-response advertising is the
“97-Pound Weakling” ads for the Charles Atlas body building mail-order courses.
Broadcast Media
A direct-response commercial on radio or TV can provide the necessary
information for the consumer to request information or even make a purchase.
Radio’s big advantage is its highly targeted audience. In contrast, television is a
good medium for direct marketers who are advertising to a broadly targeted
product. As more national marketers move into the medium, the direct-response
commercial is becoming more general in appeal.
Direct-response TV also makes good use of the infomercial format that blurs the
lines between retail and direct response. They have been around since the
emergence of the cable industry and have become a multibillion dollar industry.
Today the infomercial is viewed as a viable medium because: (1) consumers now
have confidence in infomercials and the products they sell, (2) with the
involvement of upscale advertisers, the quality of infomercial production and
supportive research has improved, (3) consumers can be better segmented and
infomercials are coordinated with respect to these audiences, and (4) infomercials
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can easily be introduced into foreign markets. Marketers are more likely to use the
infomercial format if their product needs to be demonstrated, is not readily
available through retail outlets, and has a relatively high profit margin.
Cable television lends itself to direct response because the medium is more tightly
targeted to particular interests. QVC and HSN reach more than 70 million
households and service their calls with huge phone banks.
Direct Mail
Of those organizations that use direct marketing, direct mail is the most popular
method. Advertising mail represented more than 63 percent of all mail received to
households, according to the U.S. Postal Service’s Household Diary Study.
A direct-mail piece is a print advertising message for a product or service that is
delivered by mail. With advances in digital printing, it is now possible to
personalize not only the address and salutation on the letter, but also other parts of
the information as well as the offer. Called variable data campaigns, these
marketing messages can be highly targeted, even unique to the recipient.
The following guidelines can be helpful for putting together
direct-mail pieces:
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.
Most direct mail is sent using a third-class bulk mail permit, which requires 200
identical pieces. This is cheaper than first class, but it also takes longer for
delivery. Estimates of non-delivery of third-class mail run as high as 8 percent.
The response rate for direct mail can vary from .01 to 50 percent, but it’s typically
in the 2 to 3 percent range. The primary variables are the offer and target
audience. Offers mailed to current customers generally have a higher response
rate than those sent to noncustomers.
Because of the high level of non-response, direct mail is also a fairly costly tool in
terms of CPM. It can be cost efficient, however, because it can be designed to
reach a highly targeted audience with an offer of interest. It is also much easier to
calculate the actual payout rate, which is why it is considered so much more
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accountable than other forms of marketing communication. A table in this chapter
summarizes the advantages and limitations of direct mail.
Direct-Mail Message Design
How the direct-mail piece looks is as important as what it says. The most critical
decision made by the target is whether to read the mailing or throw it away, and
that decision is based on the attractiveness and attention-getting power of the
outer envelope. The envelope should spark curiosity through a creative idea.
Ideas about using direct mail creatively are offered in this chapter’s Inside Story
feature.
The functions of a direct-mail message are similar to the steps in the sales
process. The message must move the reader through the entire process, from
generating interest to creating conviction and inducing sales. It is all done with a
complex package of printed pieces.
Most direct-mail pieces follow a fairly conventional format. They usually consist
of an outer envelope, a letter, a brochure, supplemental flyers or folders, and a
reply card with a return envelope. These can be one-page flyers, multipanel
folders, multipage brochures, or spectacular broadsheets that fold out like maps
big enough to cover the top of a table.
Historically, the letter has been the most difficult element in a direct-mail package
and therefore the focus of much research. Over the years, many techniques have
proven effective in getting consumers to read a direct-mail letter, flyer, or
brochure. Here are some hints for writing an effective direct-response letter:
1. Get Attention. To grab attention or generate curiosity, use pictures and
headlines that tout the product’s benefits.
2. Be Relevant. Send the right message to the right person.
3. Personalize. Use a personalized salutation. If the individual’s name is not
available, the salutation should at least be personalized to the topic, such
as “Dear Cat Lover.”
4. Use a Strong Lead-in. Begin the letter with a brief yet compelling or
surprising statement—“Dear Friend: I could really kick myself!”
5. The Offer. Make the offer as early in the body of the letter as possible.
6. The Letter. Explain the details of the offer and use testimonials or other
particulars that clearly describe benefits to the customer.
7. Drive to Website. Use short pieces and drive interested prospects to the
website for details.
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8. The Closing. End by repeating the offer and stating additional incentives
or guarantees and a clear call to action.
9. Test, Test, Test. Check every single element – small changes can boost
conversion rates dramatically.
One advantage of direct mail is that it has a tactile quality that is missing in most
other forms of marketing communication.
Test, Test, Test
The secret behind effective direct mail is scale. In other words, enough pieces are
sent using various strategies to determine what increases the response and what
does not.
Issue: Trees, Water, and Waste
Critics of direct mail cite its environmental impact. Production of direct mail is
estimated to use 100 million trees and 28 billion gallons of water annually. And
untold millions of dollars are spent for disposal and recycling.
Is there a need for an aggressive ban on direct mail? Does the waste and irritation
factor of “junk mail” justify a ban on this form of marketing communication? On
the other side of the debate, might banning direct mail infringe on the right to
commercial free speech? What’s fair, what’s right, and what is the responsible
thing for marketers to do?
Catalogs
Catalogs have been effective direct-response marketers for as long as there has
been mail. A catalog is a multipage direct-mail publication that shows a variety of
merchandise. Following the explosion of digital media, however, catalogs also
evolved into easy-to-use online publications.
The growth in the 21st century is in specialty catalogs, which are aimed at niche
markets. There are catalogs for every hobby and more general interests. The
traditional catalogs contain a variety of brands and products, but there are also
brand catalogs whose merchandise is all from the sponsoring brand, such as J.
Crew and the Marriott Hotel.
Another factor in the effectiveness of catalogs is the nature of the interactions
between customers and the company, whether over the phone or the Internet.
Lands’ End has been a model of customer care that leads to not only brand
loyalty, but brand love.
Some catalog retailers have their own stores, such as Williams-Sonoma and
Tiffany’s. Banana Republic, which began as a catalog marketer and then moved
into retailing, is now launching its first catalog since 1988.
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Many large retailers are now multichannel, using catalogs, websites, and stores. A
number of marketers are using video or CD catalogs because these provide more
information about their products.
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