CHAPTER 10
Direct Marketing
PPT 10-1
KEY TERMS
direct marketing
cost per inquiry (CPI)
cost per order (CPO)
mailing list
internal lists
external lists
marketing database
RFM analysis
frequency-marketing
programs
cross-selling
direct-response
advertising
direct mail
telemarketing
infomercial
SUMMARY
PPT 10-2
LO1 Identify purposes served by direct marketing.
Many types of organizations are increasing their expenditures on direct marketing. These
expenditures serve three primary purposes: offering potent tools for closing sales with
LO2 Explain the popularity of direct marketing.
The growing popularity of direct marketing can be attributed to several factors. Direct
marketers make consumption convenient: Credit cards, 800 numbers, and the Internet
LO3 Distinguish a mailing list from a marketing database, and review the
applications of each.
A mailing list is a file of names and addresses of current or potential customers, such as
lists that might be generated by a credit card company or a catalog retailer. Internal lists
are valuable for creating relationships with current customers, and external lists are useful
Chapter 10: Direct Marketing ❖ 2
about how to attract new customers.
LO4 Describe the media used by direct marketers in delivering messages to
consumers.
Direct-marketing programs emanate from mailing lists and databases, but there is still a
need to deliver a message to the customer. Direct mail and telemarketing are the most
common means used in executing direct marketing programs. Email has emerged as a
CHAPTER OUTLINE
INTRODUCTORY SCENARIO: Luring Consumers with ePrizes
This scenario introduces students to an innovator in online direct marketing, Josh Linkler,
founder of ePrize.
The lesson for students is that direct marketing for the right product with the right
message is a technique that can affect sales volume. Other key features of direct
marketing highlighted in this scenario are:
• One hallmark of direct marketing is gathering data about consumers, so
messages can reach them individually and invite an immediate response. How
do you get consumers to give information? Linkler nails it: “If you want
consumers to speak to you and provide information, you have to give them
something to get them to react.”
• Marketers use the information they gather to adapt their campaigns. This
adaptiveness is especially well suited to online promotion.
• This scenario also highlights another important feature of direct marketing: at its
most effective, it is one part of an integrated campaign.
Evolution of Direct Marketing
This chapter examines the growing promotional area of direct marketing in addition. The
official definition from the Direct Marketing Association (DMA) provides an excellent
starting point:
Direct marketing is an interactive system of marketing that uses one or more advertising
media to effect a measurable response and/or transaction at any location.
• Direct marketing is interactive—the marketer is attempting to develop an
ongoing dialogue with the customer. Programs are planned with the notion that
one contact will lead to another and then another, so the marketer’s message can
become more focused and refined with each interaction.
Chapter 10: Direct Marketing ❖ 3
• Multiple media can be used in direct-marketing programs. This is an important
point for two reasons. First, we do not want to equate direct mail and direct
marketing. Second, as noted before, a combination of media is likely to be more
effective than any one medium used by itself.
• Direct-marketing programs are designed to produce some form of immediate,
measurable response.
• The final element of the definition notes that a direct-marketing transaction can
take place anywhere. The key idea here is that customers do not have to make a
trip to a retail store for a direct-marketing program to work.
A. A Look Back
From Johannes Gutenberg to Benjamin Franklin to Richard Sears, Alvah
Roebuck, and Lillian Vernon, the evolution of direct marketing has involved
some of the great pioneers in business. Exhibit 10.1 shows students some
milestones in direct marketing dating back to the 15th century. Students may
benefit from a quick review of how far-reaching events created a favorable route
for the evolution and growth of this promotional tool.
I. Direct Marketing Today
PPT 10-3, 10-4
The modern versions of direct marketing are rooted in the legacy of mail-order giants and
catalog merchandisers like L.L.Bean, Lillian Vernon, Publishers’ Clearinghouse, and
JCPenney. However, in the 1990s, direct marketing broke free from its mail-order
heritage to become a complex and diverse tool used by all types of organizations
throughout the world.
With these defining features in mind, we can see that direct-marketing programs are
commonly used for three principal purposes:
• The most common use is to close a sale with a customer. This can be done as
a stand-alone program, or it can be carefully coordinated with a firm’s other
promotional activities.
• A second purpose is to identify prospects for future contacts and, at the same
time, provide in-depth information to selected customers.
• Direct-marketing programs are also initiated to engage customers by seeking
their advice, furnishing helpful information about using a product, rewarding
customers for using a brand, or fostering brand loyalty in general.
II. Growing Popularity
PPT 10-5, 10-6
The growth in popularity of direct marketing stems from a number of factors.
• Most important is convenience. Dramatic growth in the number of dual-
income and single-person households has reduced the time people have to
visit retail stores.
Chapter 10: Direct Marketing ❖ 4
• Attitudes about the use of credit and the accumulation of debt have become
more liberal, making it easier to place orders.
• Developments in telecommunications have also eased the direct-marketing
transaction. Toll-free 800 and 888 numbers have exploded in popularity.
• Computer technology allows firms to track, keep records on, and interact with
some 5 million customers for what it cost to track a single customer in 1950.
• Future developments in new media will also add to the prevalence of direct
marketing. Shopping opportunities have become widely available online.
Many, if not most, traditional catalog merchandisers are on the Web, which
helps them expand their markets globally.
• Direct-marketing programs also offer unique advantages over conventional
mass marketing:
• Precise segmentation
• Ongoing contact for relationship building
• More measurable results than other mass-marketing techniques. It is
common to find calculations like cost per inquiry (CPI) or cost per
order (CPO) featured in evaluations of direct-marketing programs.
III. Database Marketing
PPT 10-7, 10-8, 10-9
The one characteristic of direct marketing that distinguishes it from marketing more
generally is its emphasis on database development. Databases are the centerpieces in
direct-marketing campaigns, take many forms, and can contain many different layers of
information about customers.
A. Mailing Lists
A mailing list is a file of names and addresses that can be used to contact prospective
or prior customers. Each time a consumer subscribes to a magazine, orders from a
catalog, registers an automobile, fills out a warranty card, redeems a rebate offer,
applies for credit, or joins a professional society, the name and address go on another
mailing list.
• Internal lists are an organization’s records of its customers, subscribers,
donors, and inquirers.
• External lists are purchased from a list compiler or rented from a list broker.
B. List Enhancement
The next step in the evolution of a database is mailing-list enhancement. This
involves augmenting an internal list by combining it with external lists or databases.
External lists can be appended to or integrated with a house list.
• The most straightforward list enhancements are adding more names and
addresses to an internal list.
Chapter 10: Direct Marketing ❖ 5
• A second type of list enhancement involves incorporating information from
external databases into a house list. Typically, this kind of enhancement
includes any of four categories of information:
• Demographic data—the basic descriptors of individuals and households
available from the Census Bureau.
• Geodemographic data—information that reveals the characteristics of the
neighborhood in which a person resides.
• Psychographic data—data that allow for a more qualitative assessment of
a customer’s general lifestyle, interests, and opinions.
• Behavioral data—information about other products and services a
customer has purchased. Prior purchases can help reveal a customer’s
preferences.
C. Marketing Databases
Beyond being a mailing list, a marketing database also includes information
collected directly from individual customers.
• Building a marketing database entails pursuing an ongoing dialogue with
customers and continuous updating of records with new information.
• A marketing database has a dynamic quality that sets it apart: it can be an
organization’s living memory of who its customers are and what they want
from the organization.
D. Marketing Database Applications
The database allows an organization to quantify how much business the organization
is actually doing with its current, best customers. A good way to isolate the best
customers is with a recency, frequency, and monetary (RFM) analysis:
• An RFM analysis asks how recently and how often a specific customer is
buying from a company and how much money he or she is spending per order
and over time. With these transaction data, it is simple to calculate the value
of every customer to the organization and identify those customers who have
given the organization the most business in the past.
• A marketing database can also be a powerful tool for organizations that seek
to create a genuine relationship with their customers. The makers of Ben &
Jerry’s ice cream use their database for two things: to find out how customers
react to potential new flavors and product ideas, and to involve their
customers in social causes.
• Reinforcing and recognizing preferred customers is another valuable
application of the marketing database. Marketers use frequency-marketing
programs to do so. Frequency-marketing programs have three basic
elements:
• A database—the collective memory for the program.
Chapter 10: Direct Marketing ❖ 6
• A benefit structure—designed to attract and retain customers.
• A communication strategy—emphasizes a regular dialogue with the
organization’s best customers.
• Another common application for the marketing database is cross-selling.
Most organizations have many different products or services they hope to sell.
One of the best ways to build business is to identify customers who already
purchase some of a firm’s products and create marketing programs aimed at
these customers that feature other products.
• Once an organization gets to know who its current customers are and what
they like about various products, it is in a much stronger position to go out and
seek new customers. The basic premise is simply to try to find prospects who
share many of the same characteristics and interests of current customers.
E. Protecting Privacy
As highlighted in Chapter 6, one dark cloud looms on the horizon for database
marketers, and that cloud is consumer concern about invasion of privacy. Many
Americans are uneasy about the way personal information about them is being
gathered and exchanged by businesses and the government without their knowledge,
participation, or consent.
Direct-marketing firms are concerned that the “Do Not Call Registry” could cost
telemarketers up to $50 billion a year in lost sales, due to lack of access to potential
customers.
Individual organizations can address their customers’ concerns about privacy if they
remember two fundamental premises of database marketing:
1. A primary goal for developing a marketing database is to get to know
customers in such a way that an organization can offer those products and
services that better meet their needs. If customers are offered something of
value, they will welcome being in the database.
2. Developing a marketing database is about creating meaningful, long-term
relationships with customers. If the organization is planning to sell this
information to a third party, it must get customers’ permission. If the
organization pledges that the information will remain confidential, it must
honor that pledge.
IV. Media Used in Direct Marketing
PPT 10-10, 10-11, 10-12
As we saw in the definition of direct marketing, multiple media can be deployed, and
some form of immediate, measurable response is typically an overriding goal. Because
advertising conducted in direct-marketing campaigns is typified by this emphasis on
immediate response, it is commonly referred to as direct-response advertising.
Direct mail and telemarketing are the direct marketer’s prime media. All conventional
media, like magazines, radio, and television, however, can be used to deliver direct-
Chapter 10: Direct Marketing ❖ 7
response advertising. In addition, email and the infomercial have emerged as useful
direct-marketing media.
A. Direct Mail
Direct mail has some notable faults as an advertising medium:
• It can cost 15 to 20 times more to reach a person with a direct-mail piece
than to reach that person with a television commercial or newspaper
advertisement.
• In a society where people are constantly on the move, mailing lists are
commonly plagued by bad addresses.
• Direct-mail delivery dates, especially for bulk, third-class mailings, can be
unpredictable. When the timing of a message is critical to its success,
direct mail can be the wrong choice.
Direct mail has advantages as well:
• The medium is selective. When a marketer begins with a database of
prospects, direct mail can be the perfect vehicle for reaching those
prospects with little waste.
• Direct mail is a flexible medium that allows message adaptations literally
household by household.
• Direct mail lends itself to testing and experimentation. With direct mail, it
is common to test two or more different appeal letters using a modest
budget and small sample of households.
• The choice of formats an organization can send to customers is virtually
limitless, including large, expensive brochures, CDs, or DVDs, and print
pieces can include pop-ups, foldouts, scratch-and-sniff strips, or just
simple postcards.
B. Telemarketing
Telemarketing can be a direct marketer’s most potent tool. Its benefits are similar to
those for direct mail:
• Contacts can be selectively targeted.
• The impact of programs is easy to track.
• Experimentation with different scripts and delivery formats is simple and
practical.
• Because telemarketing involves real, live, person–to-person dialogue, no
medium produces better response rates.
Telemarketing shares many of direct mail’s limitations:
• Telemarketing is very expensive on a cost-per-contact basis.
Chapter 10: Direct Marketing ❖ 9
television advertisement made possible by the lower cost of ad space on many cable
and satellite channels. Infomercials range from 3 to 60 minutes, but the common
length is 30 minutes. Infomercials are about direct selling, with several keys to their
success:
1. A critical factor is testimonials from satisfied users. Celebrity testimonials can
help catch a viewer as he or she is channel surfing by the program, but
celebrities aren’t necessary.
2. Another key is that viewers are not likely to stay tuned for the full 30 minutes.
The implication is that the call to action should not come at the end of the
3. It is difficult to generate a profit using infomercials for any item priced below
4. Research shows that direct response ads are the least likely to be zapped by
TiVo users.
SOLUTIONS TO REVIEW QUESTIONS
1. Direct marketing is defined as an interactive system of marketing. Explain the
meaning of the term interactive system, and give an example of a noninteractive system.
How would an interactive system be helpful in the cultivation of brand loyalty?
In an interactive system, marketing planning begins with the assumption that one goal
of the program will be to create a dialogue with key customers. Direct-marketing
2. Review the major forces that have promoted the growth in popularity of direct
marketing. Can you come up with any reasons why its popularity might be peaking?
What are the threats to its continuing popularity as a marketing approach?
Many factors have contributed to the growing popularity of direct marketing,
including convenience for the customer and computerized customer tracking. Direct
Chapter 10: Direct Marketing ❖ 10
3. Describe the various categories of information that a credit card company might use
to enhance its internal mailing list. For each category, comment on the possible value of
the information for improving the company’s market segmentation strategy.
4. What is RFM analysis, and what is it generally used for? How would RFM analysis
allow an organization to get more impact from a limited marketing budget? (Keep in
mind that every organization views its marketing budget as too small to accomplish all
that needs to be done.)
An RFM analysis asks how recently and how often a specific customer buys from a
company, and how much he or she spends per order and over time. A primary
5. Although it is common to talk about building relationships and loyalty with the tools
of direct marketing, direct-marketing tools such as email considered spam and telephone
calls that interrupt consumers’ dinner are constant irritants. How does one build
relationships by using irritants? In your opinion, when is it realistic to think that the tools
of direct marketing could be used to build long-term relationships with customers?
We do see a paradox in the direct-marketing field. Despite all the talk about
establishing meaningful dialogues and building long-term relationships with key
customers, the reality of the marketplace is mailboxes cluttered with unwanted
Chapter 10: Direct Marketing ❖ 11
want to have dialogues with marketers (and we suspect that most don’t), what’s the
6. What characteristics of direct marketing make its growing popularity a threat to the
traditional advertising agency?
The growing popularity of direct marketing means that organizations are investing
more of their marketing budgets in this activity. This usually means that someone
else’s budget is cut. Typically, direct marketing programs will come at the expense of
SOLUTIONS TO EXPERIENTIAL EXERCISES
1. Working in small teams, assess the direct-marketing components at the website of
Moosejaw, the athletic apparel retailer popular on college campuses
(http://www.moosejaw.com). For each direct marketing appeal that you can identify on
the site, explain how the company would be able to measure the effectiveness of the
appeal. As you evaluate the site, also identify any and all opportunities for the company
to gather customer information that could enhance its database marketing efforts.
Students will find a wide array of direct-marketing appeals at the home page of a
2. The chapter discusses how database marketing can be used not only as a tool to reach
customers and close sales, but also to aid product development. Working again in small
teams, identify three distinct offerings that could be developed for well-known brands
based on input and knowledge gleaned from customer and sales databases. As you
propose the new products or services, identify specific types of database information that
could influence the development process.
Chapter 10: Direct Marketing ❖ 12
Customer databases can provide valuable information for companies as they
3. Imagine that you have been hired by a travel agency to develop a direct appeal letter
for a spring break ski trip to Colorado, targeting college-age young adults. Write a three-
to four-paragraph appeal letter for the vacation package, and then explain how the travel
agency would measure response to the appeal and what next steps you would recommend
in the direct-marketing campaign to further engage potential customers and to close the
sale.
Students can try their hand at direct-marketing copywriting in this exercise, but
4. This chapter discusses serious privacy concerns raised by database marketing.
Today’s marketers are gathering enormous amounts of information about individuals,
and much of the database development occurs without the consent or awareness of
consumers. Visit the following sites, and explain the contribution of each to the issue of
online privacy.
Better Business Bureau: http://www.bbbonline.org
TRUSTe: http://www.truste.com
The Better Business Bureau system has, over the years, fashioned and promoted
helpful voluntary codes that serve a variety of industries and organizations.
BBBOnLine has developed various website seal programs designed to identify
sites compliant with BBBOnLine standards. These are the most widely adopted
seals on the Web to date.
All websites that display the TRUSTe mark must disclose their personal
information collection and privacy practices in a straightforward privacy
Chapter 10: Direct Marketing ❖ 14
3. What is the customer incentive for accessing the Pedigree “Charlie’s Story” website?
4. How would Pedigree’s “Charlie’s Story” website potentially be part of a building a
marketing database? In your answer, describe how this specific promotion might be used
to gather information about target audiences and how it might be used.
The good answer would point out that the trackability of audiences to websites could
5. The book points out that direct marketing uses multiple media to generate a sale or
other measureable response. In the Pedigree “Charlie’s Story” example, what might
possible marketing related measurements be?
Pizza Hut: iPhone app
1. The video Pizza Hut “iPhone” demonstrates how technology changes have affected
direct marketing. Describe at least two of the iPhone app features and how they apply to
direct marketing.
The good answer will include some of the following: convenience in ordering, ability
2. The video Pizza Hut “iPhone” features what video game as part of the app?
3. The video Pizza Hut “iPhone” has which of the following taglines:
Chapter 10: Direct Marketing ❖ 15
4. The video Pizza Hut “iPhone” offers incentives and coupons in what virtual place in
the app?
5. Which of the following can you do on the Pizza Hut “iPhone” app?