Direct Marketing

Published on June 2016 | Categories: Documents | Downloads: 65 | Comments: 0 | Views: 1379
of 60
Download PDF   Embed   Report

Comments

Content

Direct Marketing

INTRODUCTION
If a person is a Citibank, Visa or Master card holder, living in a metro or Class one town, by now he would probably be accustomed to receive some unexpected mail inviting him to a launch function of a new product, a live demonstration of a gadget, an exhibition of designer jewellery or a music concert sponsored by some business firm. He may also get some promotional literature about an investment scheme or some share application forms for public issue of companies, or be offered a hefty discount on subscription of a magazine or an early bird incentive in booking a residential flat.

Even in the class two and smaller towns, people are getting surprise gifts and greetings cards on occasions like anniversaries, birthdays and the New Year. This is an indication that direct marketing is catching up in the post-liberalization era in India. Several firms, otherwise marketing their products through conventional channels, are now also using the direct approach to communicate with and retain their customers. Different firms use different methods to zero in on the prospects included in their ‘hit lists’. Direct marketing as a concept has evolved to its present-day form through various stages of transformation. Originally a form of marketing in which goods moved from producer to consumers without involving middleman, firms selling directly to the end users through their own retail outlets and / or

Salesperson were said to be involved in direct marketing. With the development of other form of personal communication, such as the telephone, direct marketing was redefined.

1

Direct Marketing

According to the direct marketing association of the U.S.A (as quoted in Kotler 1991 ), ‘Direct Marketing is a international system of marketing which uses one or more advertising media to effect a measurable response and/ or transaction at any location’. Direct marketing thus includes any activity whereby firms reach the customer directly as an individual, who responds to them directly. It differs from conventional marketing in sense that it talks directly to the prospect on a one-to-one basis without involving any intermediary. Direct marketing firms are usually designed to achieve a measurable result in a relatively short duration of time. These differ from other promotional activities, though they may use the same media or sometimes the same techniques, such as coupons and samples. In the absence of conceptual clarity, direct marketing is often defined very narrowly as a synonym of some simple specific function such as direct selling, mail order selling or distribution. In fact, it is much more than all these. A complete system of integrated functions aimed at satisfying customer needs more effectively, it is much more than all these. A complete system of integrated functions aimed at satisfying customer needs more effectively, it is by no means a short-term quick buck affair. In conventional marketing, firms wait for the customer to walk into their stones, whereas in direct mode firms prefer to go out and get the customer before he steps out of his home. It is a much focused activity that follows a firm to concentrate on a chosen segment of customers and interacts with them more effectively through different media. Being a more precise and goal-oriented activity it is more suitable for firms operating in specific niche markets.

2

Direct Marketing

According to the number one direct-selling firm in the word, Amway Corporation of the U.S.A. (estimated sales for 1995 US$ 6.3billion0, ‘Direct Selling moves products from the manufacture/ supplier to the seller and consumer without intermediaries. It differs from direct marketing in a sense that direct marketing companies depend more on mailing, catalogue sales, direct responses an coupon sales, telephone and telemarketing and the like; and now they are also selling via computer networks such as the Internet. In contrast, direct selling is always performed through the sales person.’ (As quoted at the CII- Amway seminar 1996).

In direct marketing goods move from Manufacturer Consumer ----------------------------

In direct selling goods move from Manufacturer Consumer --------- Distributor -----------

Some newer forms of direct selling such as multiplayer marketing (MLM) may involve different layers of distributors and sales persons selling to the customers directly. Amway’s definition not withstanding, direct selling as a concept is nothing than a mode of direct distribution.

3

Direct Marketing

The early practitioners of direct marketing in India include Readers` Digest magazine, bull worker exerciser and some regional language publications that used mail coupons to increase circulation. Of late, catalogue-shopping firm such as Burlington’s have also made forays into the Indian market, but achieved only limited success. However, in the late 1980`s it was the success of ‘Eureka Forbes’ vacuum cleaners and Real Value Appliances’ Cease Fire brand of fire extinguishers (will you call it direct marketing or direct selling?) that signaled the dawn of direct marketing in India. At the professional level, the credit of pioneering direct marketing in India goes to the media person Ram Nathan Shridhar who founded O & M Direct in 1987, exclusively to handle and promote direct marketing activities in a professional manner. Since then, he has been selling the idea of Direct Marketing to savvy marketers with missionary zeal and spirit. Today, all major advertising agencies in the country such as Hindustan Thompson Associates (HTA), Lintas, Mudra, Trikaya Grey, Response, Contract and many others have set up separate divisions to cope up with the growing demand for direct marketing. Presently, direct marketing accounts for only about 14 percent of the Rs.45,000 million ad spend, but going by the current trend of 35 percent annual increment in expenditure on direct marketing, it is going to be a big business in the next couple of years. The Direct Marketing Association (DMA) defines direct marketing as follows:

4

Direct Marketing

Direct Marketing is an interactive marketing system that uses one or more advertising media to affect a measurable response and/or transaction at any location. This definition emphasizes a measurable response; typically a customer order. Thus direct marketing is sometimes called direct-order marketing. Today, many direct marketers see direct marketing as playing a broader role, that of building a long-term relationship with the customer (direct relationship marketing). Direct marketers occasionally send birthday cards, information materials, or small premiums to select members in their customer base. Airlines, hotels, and other business build strong customer relationships through frequency award programs and club programs.

5

Direct Marketing

THE SCOPE OF DIRECT MARKETING
What Is Direct Marketing?

It is only within the past 10 or 15 years that direct marketing has come of age. It has grown faster than almost every other marketing activity for nearly two decades. Most companies that make up the Fortune 500 use some form of it, as do the largest firms in the service sector of our economy. It is extensively practiced by retailers, banks, and other local businesses. What is direct marketing? It is many things. The full answer to this question is the theme of this book, which, it is hoped, will yield valuable insights as to how business can profitably use direct marketing in its operations. Although direct marketing has come to prominence in recent times, the activity is old and has been described in many ways. The most common definitions include direct mail, mail order, and direct response advertising. All three of these concepts are related to each other. Direct mail is a promotional medium whereby postal services provide the means of communicating with would-be buyers. These commercial messages come in different shapes and sizes-letters, postcards, catalogs, leaflets, coupons. Hardly a mailbox in America has escaped the vigorous assaults of these promotions. Advertisers in 1989

6

Direct Marketing spent just short of $22 billion for direct mail, putting it behind only newspapers and television in terms of expenditures in measured media. Mail order is a device for advertising goods and services through any medium: television, magazines, or newspapers. But orders are fulfilled by mail. Today, mail order has been expanded to telephone to telephone. The modern customer finds it easier to phone in an order than to write it out on a standard form, stuff it into an often ill-fitting envelope and remember to drop it into a mailbox on the way to work. Whether the response is written or oral, the mail order technique is basically a method of product distribution and accounts for a little less than 10 percent of all retail sales. Direct response advertising sends out sale s messages by any medium, like mail order, but does not confine fulfillment to the narrow post office boundaries. In that respect, direct response advertising embraces the broadest range of activities Direct marketing includes all three of these somewhat overlapping concepts, and more. To put it into one succinct statement, direct marketing is paid-for communication in media, expressly eliciting a direct, measurable response, such as an order, an inquiry, or a visit to a store or showroom. Direct Marketing magazine defines it as follows: Direct Marketing is an interactive system of marketing that uses one or more advertising media to affect a measurable response and/or transaction at any location.

7

Direct Marketing

CHARACTERISTICS OF DIRECT MARKETING
A definition is like a reference file. It differentiates a thing from all other things in one clear statement and makes it easier to look up particular subjects. But it tells little about content, the inner workings of what has been defined. For a better understanding of direct marketing, we must cross the boundary of definition and go from outward to inward, from lookup labels to functioning details, from superficial titles to practical elements used in the day-to-day conduct of business. Direct Marketing is an obvious tool of promotion. Like most promotions, it tries to make things happen by affecting customer behavior. Yet direct marketing also contains qualities that set it apart from other forms of promotion. What are they? Three in particular come to the fore: advertising –action unity, specificity, and feedback.

Unity of Advertising and Action In so far as direct marketing communicates through paid media, it differs little from advertising. Messages in both direct marketing and advertising are sponsored by an interested source, usually a firm selling a good or service that identifies itself as such. Then how does one distinguish direct marketing and general advertising? The biggest difference lies in communication objectives. Direct marketing unites advertising with action; it solicits an immediate

8

Direct Marketing response. The typical national advertisement does not do that. Rather, it is part of a campaign, a series of ads, aimed at creating some desired image, favorable attitude, or buying predisposition. Actually, general and direct-response advertising have the same ultimate goal-making sales. But the former sees the road to sales as indirect, a devious passageway winding through the confusing and littleunderstood labyrinths of consumer minds. It presumes that the right mental image must exist prior to purchase; attitudes precede purchases. In accordance with this philosophy, advertising is often produced as an obscure. After about a century of consistent effort, general advertisers have yet to prove a strong connection between their messages and the sales they are supposed to generate. Direct marketing makes no claim that carefully built-up attitudes are prerequisites to sales. They help, yes. Direct marketers do not deny that. But they do not concern themselves much with gentle appeals to consumer psyches and shun everything else. They forgo oblique innuendoes and ask directly for orders. Every direct marketing message focuses on performance. It pleads with customers to do something, to act. Now! Indeed, direct marketing has much in common with retailing, whose advertising often exudes a keen sense of urgency. Headlines scream at their audiences to buy now. Oriental rug Sale. Fantastic Super values! No limitations, not machine-made, no looks-alike… Limited quantities!!! Largest Sale Ever, Plus… No Interest & No Payments ‘til July!

9

Direct Marketing

The marriage of advertising and selling goes a long way toward explaining why direct marketing holds great attraction for retailers. Of the 300 leading mail houses listed in the Scourge Directory, almost one fourth run retail operations. The sales volume of these establishments is proportionately greater than their numbers, for they include such giants as Sears, J.C. Penney, Neiman-Marcus, Marshall Fields, Bloomingdale’s and Saks Fifth Avenue. All these stores conduct extensive mail order businesses. J.C. Penney reports more than 300 million catalogs distributed each year. Sears does not release figures on the number of annual mailings. But it issues more than 50 full-color catalogs per year, in addition to brochures and newspaper inserts across the country. Catalog supplements al9one total more than 300 million copies annually, and in 1985 the firm’s catalog sales amounted close to $7 billion. By combining advertising and selling, direct marketing eliminates the need for personal selling or, for that matter, shopping at sellers’ premises. In many merchandise lines direct marketing thus acts as a substitute for retailing. The two rivals-direct marketing and retailing-vie for sales in ready-to-wear apparel, sporting goods, books, records, tapes, and crafts. At the same time, direct marketing complements retailing in many ways. A symbiotic relationship exists in which both distribution systems draw support and sustenance from each other. Dependence flows in two directions, from retailing to direct marketing and vice versa.

10

Direct Marketing

In the first instance, retailers can extend their trading zones without incurring large capital expenditures. J.C. Penney, for example, sent catalogs into Texas and fulfilled orders from out-of-state distribution centers before any stories were opened in the Lone Star State. Brooks Brothers, long known for quality men’s clothing, tapped new markets by an aggressive program of specialty catalogs in the 1980’s. Offerings such as “Brook gate,” geared to young male executives, attracted customers living beyond easy traveling distance to brooks Brothers stores. The group of new catalogs filled huge gaps between the firm’s major trading zones and increased the number of customers on a national scale. Another way in which in-store operations breed mail order is when retailers seek better returns from self-space. Large department stores carry as many as 50,000 items or more but find space limited. All possible variations in a line, or even just the profitable ones, cannot be displayed in the store. Generally speaking, replacing low-turnover production with better-selling ones produces more revenue per linear foot of space. If that is the name of the game, a retailer has two choices: drop the slow mover or sell the vacated merchandise by direct marketing. The latter alternative gives the retailers the option of maintaining full product lines without sacrificing economical use of space. It also yields incremental revenue by adding products that would ordinarily not be offered. The other scenario is retailing that follows direct marketing. Spiegel, one of the largest mail order companies in the United States, opened more than a half dozen outlet store for overstocks. Here the retail store is used as a device to move excess merchandise resulting from direct marketing. Likewise, Lillian Vernon in 1985 opened a test store in New Rochelle, New York, to see if its 3000 plus items sold by catalog can form a base for a retail business.

11

Direct Marketing

Sharper image provides another example of retail following direct marketing. The firm originally sold customer electronics, apparel, and health-related products. In the early 1980s, it decided to use its mail order facilities as a springboard into retailing. The first store opened in San Francisco in 1983, and within five years some 15 outlets came into existence. No matter which comes first, direct marketing and retailing are often inseparable. As so aptly phrased in a Royal Silk management report, stores generate new customers for catalog mailings and, in turn, catalogs serve as in-home advertisements for the stores. The marriage of retailing and direct marketing does not always have a fairy-tale ending. The Royal silk cohabitants did not live happily ever after; in December of 1988 the company filed for bankruptcy under chapter 11. Having leveraged itself to ride the swelling waves to growth, the corporation foundered when unforeseen events hit. Royal Silk sold off its 17 retail stores and, at this writing, is busy trimming off the corporate fat that it added imprudently in the go-go days of the 1980s. Royal Silk’s failure does not discredit the mutual benefits of direct marketing and retailing that management described in an hour of optimism. The majority of such ventures perform satisfactorily. All business holds risk, but that is no reason to avoid business undertakings.

Specificity A second characteristic unique to direct marketing is the use of media to transmit messages to specific, reselected individuals. For lack of a better word, we call this feature specificity.

12

Direct Marketing Some idea of the scope of direct marketing can be gotten by examining advertising expenditures. These are given in table 1-1, which shows advertising expenditures in measured media. Except for direct mail, which forms the backbone of direct marketing, and the yellow pages, all media in table 1-1 reflect general advertising. Some prints and broadcast advertising solicits direct response, but such ads make up insignificant proportion of the total. Such means of general advertising, both national and local, are ”open systems.” Messages cannot be directed precisely to particular individuals. Rating surveys give broadcasters estimates of audience, but they cannot tell exactly who watches and who does not. People are treated as a mass and are given probabilities, which apply to no particular individuals. The audience for magazines is a little more precise, especially those that distribute a goodly portion of their copies by subscription. Yet all subscribers do not read every issue, and for many magazines the major part of their readership is composed of non-subscribers. At least that is the conclusion of the syndicated audience studies, such as Simmons and MRI. Unless delivered directly to homes, newspapers similarly cannot direct advertising to particular homes or individuals, and unless no circumstances can they control readership. Medium Newspapers Television Direct mail Yellow pages Radio Expenditu re 32.368 26,891 21,945 8,330 8,323

13

Direct Marketing

Magazines Business publications Outdoor Miscellaneous Total

6,928 2,763 1,111 15,271 123,930

Outdoor advertisers also reckon circulation in terms of broad, overall averages. They make counts of road traffic but cannot say exactly who drives past a billboard, let alone who sees it and takes note. Advertisements in these media take on the characteristics of their carriers. Marshall Mc Luhan many years ago epitomized this tendency: ”the medium is the message.” Media that convey general advertising reach out in unrestricted fashion to find audiences, and the coupling is a chance encounter. Advertisements thus are generalized messages, addressed “to whom it may concern”. In contrast, direct mail and telephone calls, the two pillars that support the direct marketing edifice, go to specific homes. A mail out must have an exact address to be delivered, even if sent to an unnamed “occupant.” A phone call is made to a specific number and is answered only by a person in that home- or sometimes by an answering machine. But that automation is nevertheless an extension of a person. These media, direct mail and telephone, account for some 85 percent of total direct marketing expenditures. These specifically directed media have obvious advantages over their generalized cousins. Messages are not transmitted haphazardly. They are finely focused. They communicate one to one. But control extends only to transmission, not reception. People may throw mailings

14

Direct Marketing into a thrash can without reading them. They may hang up on telephone solicitors, not wanting to be disturbed at home. Marketers thus control only one part of a communication system. The firm produces and sends commercial messages, but cannot how these messages are received or acted on. However, although marketers cannot mandate customer response, they can influence it. This is done in two main ways. The first way is to segment the marketplace so as to appeal to those sectors of the general population that are most likely to buy. Putting this notion into practice calls for market analysis, product design, and media selection. The idea is to offer the most appropriate products to the “right” audiences. Specificity gives direct marketing the ability to fulfill individual tastes and demands, to tailor products to particular customers. The oneon-one approach is perhaps best exemplified by GM’s Saturn model. Customers can choose from many alternative features, and cars are manufactured to order by programmable robots. The “have it your way” concept has come full circle from simple hamburgers to complex products such as automobiles. The second way of influencing response is by presenting the offer in an attractive and interesting manner. This job entails creativity and skill of copywriters, layout specialists, art directors, and production people and goes under the name of copy development.

Feedback Direct marketing gives its practitioners the ability to measure response objectively. An order for goods or a request for information is a hard, indisputable fact. By keying advertisements, these actions can be traced directly to a particular communication source. When carrying

15

Direct Marketing direct response advertising, even such generalized media as print and broadcast identify buyers by name and address and specify the source of such response. Tracking individual transactions is often referred to as feedback. This term came from cybernetics, the science of control, and applies strictly to mechanical systems. Whether ideas of the physical sciences can be carried over to marketing is debatable. For one thing, marketing lacks the high degree of regulation that is inherent in a mechanical system. Unlike engineers, marketers cannot control every part of the communication system with which they are involved. Governance of output is especially weak, although that is the most vital part of a marketing system. The vast majority of consumers who receive a telephone call or a mailing piece do not respond in a positive way. After all, isn’t all marketing geared toward accomplishing some predetermined result? Yet direct marketing, more than any other branch of selling or advertising can rightly claim the advantages of feedback. Direct marketers don’t have to fall back on John Wane maker’s oft-quoted remark to evaluate their effort: “I know that half my advertising works, but I don’t know which half.” They know what worked, what didn’t, and how much response came from each ad. Direct marketing measures advertising results specifically and objectively. There are no inferences drawn from sets of disputable assumptions. Advertising thus becomes more accountable. A firm can judge the value of its advertising by comparing expenditures with returns. Feedback is enhanced by the ever-decreasing costs of data processing. Computerized databases have enormously expanded

16

Direct Marketing capacities to record and store information. Companies can track individual transactions as never before, and many experts think that this development forms the essence of direct marketing.

Products and Markets

Many practitioners insist that almost any product can be sold by direct marketing. The goods and services sold by this method, however, are not random. Some items rely heavily on direct marketing and others not at all. When would a business lean toward direct marketing, and others when would it move away from it? The answer depends on the nature of the products and the markets the firm enters. On the whole, specialties and general merchandise make up a substantial portion of the goods category. Insurance and credit cards hold prominent positions in the service area. Exact figures are hard to come by, but a number of consumer surveys provide estimates. Table 1-2 presents a select list of items ordered by mail or phone, as reported by Simmons Market Research Bureau. These figures are based on a national probability sample of some 38,000 interviews conducted over a two-year period. The percentages are small, but when they are projected to the entire adult population, the numbers become imposing. For example, the

17

Direct Marketing 4.2 percent who bought audio cassette tapes translates into more than 7 million customers 18 years of age or older. According to Simmons Market Research Bureau, roughly 45 percent of adults bought something by mail or phone during a 12-month span.

The products listed in Table 1-2, excluding insurance, were the most commonly mentioned in the Simmons survey. Insurance is bought less frequently than magazines, books, or records, but prices of insurance policies are much higher. Consequently, insurance vaults to the top of direct marketing sales in terms of dollar volume. This conclusion is buttressed by examining the companies-12 in all- whose mail order sales in 1998 amounted to $1 billion or more. Of the 12 leading mail order operators, five offer insurance. General merchandise, publishing materials, apparel, and entertainment rank among the top sellers.

TABLE 1.2 Months Product Magazines Clothing

Products Ordered by Mail or Phone in Last 12

Percent of Adults Ordering 13.3 11.6 5.3

Books from book clubs

18

Direct Marketing Other books Travel information Audio cassette tapes Records Credit cards Toys Plants, trees, seeds Insurance 4.1 4.2 4.2 3.6 3.5 3.4 3.3 1.9

What do these leading products have in common? What generalizations apply to items that lend themselves to direct marketing? PRODUCTS WITH GAPS IN DISTRIBUTION

The most popular items said by direct marketing lack wide, extensive coverage in distribution. Products available everywhere are more conveniently purchased at local stores- drug outlets, supermarkets, variety stores. Packaged goods are a prime example. Why wait for such merchandise to arrive by mail or private carrier when it can be obtained with so little effort, and cheaper?

PRODUCTS WHOSE CUSTOMERS ARE WIDELY DISPERSED

Low customer density makes retailing uneconomical, especially for low-priced goods and services. Consumers order in small quantities, and store traffic is a major contributor to profitability. When demand is low, nonstore selling becomes a viable alternative. The same holds for industrial goods. Firms cannot support personal selling when customers are scattered and unit prices are low- unless order

19

Direct Marketing size is large. In the absence of quantity orders. Direct marketing offers an attractive way of overcoming spatial gaps in demand.

FAMILIAR PRODUCTS WITH STANDARD SPECIFICATIONS.

By the very nature of direct marketing, customers buy sight unseen. A picture in print or on television is not the same as the actual product, and people have a natural reluctance to order things when they are not sure exactly what they are getting. Buyers want dependability and freedom from risk. “I usually buy from companies I have heard of before.” That refrain was sounded most often in a recent Gallup purchase survey of more than 1,550 consumers. A good reputation is a valuable corporate asset, not only in direct marketing nut in all fields of business. But reputation does not come about overnight; it matures over a lengthy period of time. To reduce risks of sight-unseen buying, unconditional guarantees have become an almost permanent feature of direct marketing. Ads frequently assure buyers of satisfaction or money back. This has been a long-standing policy of Sears, Penney, and many other resellers. Another way of lessening buyer risk is to offer products for examination, on a trial basis. Many books and records, the contents of which are not precisely known, are sold in this manner. Such items can be returned within a specific period free of charge if a buyer isn’t satisfied. Nevertheless, steps to assure consumers that their expectations will be met encounter various obstacles. Many consumers regard nonstore buying as a hassle. Most companies issuing unconditional guarantees stand behind their products but do not pay for returned merchandise.

20

Direct Marketing

Product familiarity is closely related to questions of standardization. If a size 10 shoe varies from one manufacturer to another, there is no telling whether the footwear will fit. Similarly, purchasing agents are not prone to order goods for their companies if product specifications are not standardized. Company familiarity is not the only quality that breeds orders. Product awareness is also a prominent factor. Items must have common meanings among consumers with respect to product features and specifications. DELIVERY TIME

Delivery time looms important in business-to-business transactions, especially with the growing trend toward just-in-time inventories. The most popular items sold to industry through direct marketing are standardized, off-the-shelf supplies. When they are produced for future demand, they can be shipped in minimum time. Likewise, consumer markets may make stringent demands on delivery time. Almost 50 percent of consumers surveyed by the Gallop Organization agreed with the statement: “I find it difficult to order products through the mail because of the time it takes to get them.” The telephone has shortened the time from order placement to receipt of goods, and the toll-free 800 numbers encourage consumers to call from a distance. Yet time of delivery has remained a major concern. Consumer complaints about delays in shipments have occasioned a host of federal and state regulations.

21

Direct Marketing

TASKS OF DIRECT MARKETING

Like other businesses, direct marketing is a performance system. It is called on to perform certain tasks, which are quite diverse. From a marketing perspective, we can group tasks into two broad categories: those that are product related and those that are not. Each of these categories, in turn, can be subdivided into two parts. Product- related ads can do the entire selling job or play a supportive role. Advertisements that do not feature products can have commercial transactions as their goals, or they can be devised with no commercial transaction in mind. These tasks are related as below 1. Product - Related Tasks ---- 1. Does entire selling job 2. Supports the selling effort 2. Tasks Not Product-Related ---- 1. Related to transactions 2. Unrelated to transactions

22

Direct Marketing Product – Related Tasks

Most direct marketing efforts are geared toward sales in the short run. No matter what the long-term strategy may be, the operational focus is on the present. Results can come in one of two ways. First, a direct response as can do the entire selling job. For example, direct mail pieces have merchandise order forms. Telephone solicitors frequently try to close sales. Printed ads with coupons and TV commercials with 800 numbers urge people to buy goods and services directly. On the other hand, a number of direct marketing techniques are designed as supportive devices. That is, they work with other elements of the marketing mix in a somewhat subordinate role. Business-to-business marketing, for example, often confines direct marketing to lead generation, leaving closing to sales personnel. Service industries such as airlines employ direct marketing in much the same way. Advertisements for special tours and flights direct interested prospects to get in touch with their nearest travel agent or airline representative. Auto manufacturers and real estate operators may run sweepstakes, contests, and incentive offers to increase traffic at sellers’ premises. Here, direct marketing functions like lead – generation programs, relying on personal selling to bring about the transaction. Non product Tasks Some direct marketing solicitations, probably about 10 percent, feature neither goods nor services. Then what sort of response do they seek? One kind promotes an organization. Such advertising aims at inducing requests for company brochures, annual reports, and information about corporate projects and related company concerns.

23

Direct Marketing

These may offer

activities

have

two

prime

objectives.

One

involves such

transactions of some sort, but the route is indirect. For example, utilities free literature on energy conservation. Whether promotions eventually result in less electric or gas usage, additional insulation, or installation of storm windows, they effect transactions. Another objective of transaction-related activity is to enhance the value of a corporation, usually the value of its stock. This job must be done circumspectly, for it is illegal to tout company stock by advertising or promotion.

Regardless of whether objectives encompass products or financial assets, products are not featured. Rather, the focus rests on the corporation. Results ensue indirectly; they are not measurable. In that respect, the approach is not much different from that of general advertising. The response is an intermediate one and not traceable to eventual action. A second sort of solicitation involves no commercial transaction whatsoever. These direct marketing messages concern themselves with social or political issues, such as fund raising for charities, political, and social causes, and candidates running for office. Although direct marketing techniques are commonly used in these endeavors, there are serious questions as to whether they can really be called marketing. These actions, which have the same outward form as product advertising, do not give rise to exchange in a marketplace.

24

Direct Marketing

THE FLOW OF INFLUENCE Tasks are duties that people set for themselves or for others. They arise from a set of objectives, which can be laid our formally, as in a marketing plan, or simply kept in an individual’s head. It matters little whether these objects are formal or private. In either case, they depend heavily on products and markets. These relationships suggest a flow of influence illustrated by a familiar planning model, portrayed in figure 1-5. The general planning model shown in figure 1-5 depicts objectives as dependent on analyses of a firm’s products and markets. This view accords with a management science philosophy of decision making, in which procedures follow a rational, problem-solving approach. Every “problem” in the context of decision theory must specify a goal or objective, something management wants to attain. In keeping with rationalism, goal setting takes place after in-depth analysis of the

25

Direct Marketing marketing context. For example, a goal to generate a certain number of leads for an industrial product assumes that personal selling is the best instrument for closing sales. This is based on an intimate knowledge of an industry, of both its products and its markets. An objective to renew a certain proportion of magazine subscriptions has some realistic basiseither past experience, new knowledge about renewals trends, a market test, or any combination of these information sources. MARKETS I I I --- OBJECTIVES --- STRATEGY TACTICS --- RESPONSE

PRODUCTS Strategies and tactics are ways of accomplishing objectives. Strategies are long-term plans. Tactics are means of implementing a strategy. Consider the following: 1. Objective: to increase sales of our product by x amount 2. Strategy: to generate more leads so as to give our sales force more opportunities to make sales. 3. Tactics: a saturation campaign in the business press, offering free brochures and literature through reader service cards. Installation of an 800 number to handle requests for information



26

Direct Marketing  A follow-up program whereby outgoing phone calls are used to qualify these leads Integration of this program with personal selling, so that qualified prospects can be contacted by our sales personnel in y days at the latest. The type of response is largely a consequence of the tactics employed. A mailing of cents-off coupons results only in redemptions at the store. An offer of a prospectus by a mutual fund yields only requests for the financial literature. What ensues depends on the actions that are called for. The level of response is another matter. Several factors have a bearing on results: what is offered, to whom the offer is made, and how it is presented. An offer is what a seller proposes in an exchange. The more attractive its items, the higher the level of response. A free catalog will bring a greater response than one for which consumers must pay.

Determining who gets the offer involves media selection-the choice between mailing lists, magazines, and TV shows, for example. The better an offer is matched with markets, the higher the response. An ad read by interested prospects will get a more favorable reception than one seen by the general public. A bigger response, however, is not necessarily a more profitable response. The free catalog offer, for instance, may produce more requests for the publication, but it may lead to fewer orders than a catalog for which consumers pay. The marketer must consider the trade-off between

27

Direct Marketing a larger market potential with lower purchase probabilities and a more selective market with more likely buyers. Finally, the way an offer is presented influences the level of response. In advertising parlance, this refers to copy quality, a unique combination of verbal and visual elements that make up a message. Response is not uniform. It varies markedly across products and markets. A coupon for 50 cents off will bring in more redemptions than a $1,000 rebate on an automobile. In part, this is because the market potentials of the two products are very unequal. Second, 50 cents may represent a higher proportion of the respective product’s price than the $1,000 rebate. Each product market has its own range of effective response, and planning for direct marketing requires an understanding of the limitations. The flow-of-influence model implies that response is a mix of various activities, including both planning and implementation. The job of coordinating management. these widely diverse activities falls to marketing

28

Direct Marketing

DIRECT MARKETING IS DYNAMIC

So far, direct marketing has been portrayed in accordance with its mainstream features. Yet direct marketing is not a body of unchanging practices. Although its growth slowed toward the end of 1989, direct response is still expanding at a faster rate than majority phases of marketing. After adjustment for inflation, direct marketing advanced more than 5 percent per annum during the entire decade of the 1980s that rate of increase is about double the real growth of the total economy. Growth usually breeds change. For one thing, the more an idea is used, the more it is altered. Although mail and telephone are still mainstays of the industry, direct marketing is slowly changing its face.

29

Direct Marketing Among the emerging agents of change is technology. The computer has introduced completely new ways of doing business. It has allowed database to be used in new and profitable ways, such as identifying prospective customers through a wider range of demographic and purchasing criteria. The following are just a few concrete examples of how the computer has impacted the industry. • Supermarkets have begun “frequent shopping” programs. With the use of cards that are electronically scanned with purchases at checkout counters, retailers can get a more accurate picture of individual or household buying habits.



More firms are adopting computer-aided telemarketing systems. These handle towering amounts of information, including customer profiles, past contracts and purchases, daily call reports, progress reports on leads and statistical summaries of activities, campaigns, and results.



More than 300 billion coupons, or some 3,600 per home, are disturbed each year. Advances in computer technology have made this gigantic volume easily manageable.



Although the industry is littered with past failures, home electronic information services keep appearing. The most notable is that of Trintex, a joint venture of Sears and IBM, whose development costs are estimated at better than $250 million. The service, called Prodigy, made its market entry in the latter part of 1988. It offers computer owners access to news from USA Today and The Associated Press, stock quotations from Dow Jones, and merchandise orders conducted electronically.

30

Direct Marketing Other changes have come from technological developments and innovations in business practice. Cable TV systems sport “alphanumeric” formed on special events and promotions. More relevant to direct marketing are shopping programs that allow viewers to order by dialing an 800 number.

Some marketers have begun to exploit videocassettes as a selling tool. Real estate developers send out videos to brokers, who can show different properties to clients. Some have marketed these videos directly to individuals, who can inspect homes of various styles prices in the comfort of their living rooms. Cadillac in 1987 demonstrated its new ultraluxury model, Allente, in videotapes mailed to upscale homes. Several large retailers have developed videocassette catalogs to expand marketing alternatives. Video stores are even renting tapes with coupons and direct response offers inside video boxes. Many of these changes were occasioned by large national advertisers embracing direct marketing in major ways. Indeed, these large companies have acted as a powerful force in propelling the rapid growth of direct response. When large companies adopt direct marketing, they seldom substitute it completely for other selling techniques. Rather, they add direct marketing to their already-bulging bag of tools, incorporating it into their

Marketing mix, For example, the Allente videotape promotion ran side with a heavy schedule of television spots and printed advertisements that extolled the graceful lines created by the famous Italian designer Sergio Pininfarina. Ina similar vein, Visa, Master Card, and American Express spent millions on television advertising at the same time American consumers were being deluged by various mail offers of credit cards.

31

Direct Marketing

When direct marketing is part of an integrated advertising program, its results are difficult, if not impossible, to measure. What proportion of Allente’s sales resulted from videotapes as opposed to the TV ads? How many cardholders were brought in by direct mail when ad campaigns were saturating other media, such as television and top-selling magazines? Like the mythical Gordian knot, the combination of direct marketing with other types of promotion cannot be disentangled to measure results by source of expenditure. Feedback acquires murky boundaries. Fifteen years ago, direct mail usage would have approached 100 percent in virtually every case. Direct mail still reigns as the top direct response medium, but its eminence is weakening.

HOW DIRECT MARKETING WORKS
Direct marketing, as practiced by professionally managed firms is a fourstep process:  Identifying prospects  Establishing contact  Booking the order

 Maintaining contacts to develop a mutually beneficial, longterm business relationship

32

Direct Marketing Identifying prospects and segmenting them into various categories based on certain specific criteria is critical to the success of direct marketing. This is done in different phases. In the first phase, a preliminary list of potential or ‘may be’ customers is made through random mailing, house calls, or mass media advertisements using coupons or some other contact device. In marketing parlance is termed ‘cold listing’. This cold list is thoroughly scrutinized and attempts are made to identify those who are not likely to use the proposed product or service due to those who are not likely to use the proposed product or service due to incompatibility of need, income, age, sex, occupation or any other reason. All such people who don’t qualify as prospects are dropped from the list. The residual list is then known as the ‘hot list’. Firms may sometimes seek to gather additional information about those included in the initial list by contacting them on telephone or through other convenient media.

The next step is to draw a detailed profile of the prospect. This may include information and on consumption social class, habits, purchase to behavior, and personality lifestyle, exposure media;

demographic particulars such as age, income, education, profession, family size, domicile, and complete postal address. Technically this step is known as ‘profiling the respondent’ or ‘response graphic’. The list is further split into separate cluster of identical groups, using some demographic, psychographic, or behavioral parameters. This exercise is termed segmentation. Firm now adopt many innovative ways of clustering, using novel parameters such as traveling habits, food preferences, ownership of automobiles, possession of assets and durables, and taste for music and art.

33

Direct Marketing

Finally, each cluster is researched using some predetermined criteria, to identify the specific segment or segments to be targeted for the marketing the product. This exercise is known as targeting. If the product is a high-value item such as jewellery, a computer or an expensive gadget direct marketing goes into further details and makes an elaborate study of each individual included in the target segment. This is known as individualization. Now the firm may focus on the specific needs of the individual customer. Let us now see how it works in actual practice. Having identified the customer and prepared a database of individual profiles, the next step is to call at the residence of individual prospects for live demonstration or to offer a free sample of the product. Since the individualistic approach ensures better chances of being heard, it is far less difficult to get an order for the product. In the afore-said example, the firm was successful not only in selling its gadget to a majority of the host-listed respondents, but in the future too, this database may be of immense help in identifying and targeting customers if it introduces some related product such as a blood sugar or body weight monitor, or a self testing kit for diabetic patients.

Finally, having been able to sell the product or service to a customer, it i9s essential to keep in touch with him / her through mail, telephone or any other means of communication, to retain him / her as a customer. To create a lasting relationship, firms must maintain regular contact and update their data according to the changing needs and tastes of the customers.

34

Direct Marketing

THE BENEFITS OF DIRECT MARKETING
Direct marketing benefits customers in many ways. Home shopping is fun, convenient, and hassle-free. It saves time and introduces consumers to a larger selection of merchandise. They can do comparative shopping by browsing through mail catalogs and on-line shopping services. They can order for goods for themselves or others. Business customer also benefits by learning about available products and services without trying up time in meeting sales people. Sellers also benefit. Direct marketers can buy a mailing list containing the names of almost any group: left-handed people, overweight people, and millionaires. They can personalize and customize their messages.

35

Direct Marketing According to Pierre Passavant: “We will store hundreds…of messages in memory. We will select ten thousand families with twelve or twenty or fifty specific characteristics and send them very individualized laserprinted letters.” Direct marketers can build a continuous relationship with each customer. The parents of the newborn baby will receive periodic mailings describing new clothes, toys, and other goods as the child grows. Nestle’s baby food division continuously builds a database of new mothers and mails six personalized packages of gifts and advice at key stages in the baby’s life. Direct marketing can be timed to reach prospects at the right moment, and direct marketing material receives higher readership because it is sent to more interested prospects. Direct marketing permits the testing of alternative media and messages in search of the most costeffective approach. Direct marketing also makes the direct marketers offer strategy less visible to competitors; finally, direct marketers can measure responses to their campaigns to decide which have been the most profitable.

FACTORS CONRIBUTING TO GROWTH OF DIRECT MARKETING IN INDIA
In the international market direct marketing has evolved through the catalogue route. It was the catalogue marketer of the 1930s who set the pace, but it took direct marketing several decades to reach its presentday multimedia, interactive modes status. In India, direct marketing was launched on the mail-order platform in the 1950s but the growth in the earlier days was sluggish and the practice was confined to only a product categories. Most major developments in this area took place only after the consumer boom in the mid 1980s.

36

Direct Marketing

Direct marketing in India has since grown by leaps and bounds. With the advent of competition in the 1990s, several firms such as Philips, Telco, Titan and BPL who were earlier marketing their product through conventional channels only are now turning to direct marketing to strengthen their marketing efforts and increase their consumer base. They are integrating direct marketing with conventional distribution to get closer to their customer. The following major factors have contributed to the quick growth of direct marketing in India: Successful replication of overseas products and marketing practices in India. Eureka Forbes made history of sorts in India by successfully marketing vacuum cleaners through door-to-door selling. The firm had, in fact not done anything new. It had only been replicating here the strategy, which was earlier used in the European markets quite successfully. Nevertheless, its success in India provided a role model for other firms to emulate.  Change in the Indian business environment due to liberalization Some major changes in the Indian business environment, especially after 1991, made the domestic markets for many consumer and industrial products more competitive. For the first time, several business firms that were well entrenched in their markets felt the heat of competition. It was now essential for them to get closer to the customers to protect their markets. Many of them, such as ONIDA, HMV, BPL and Titan who were selling their products only through agents and middlemen, switched to a



37

Direct Marketing parallel channel of direct marketing by opening several exclusive retail shops. The aim was to keep in direct touch with the customers and provide certain services that were not being provided by the middlemen. Another objective of opening exclusive showrooms was to build an upmarket image of the company by demonstrating the full range of products. The ambience and décor of the exclusive showrooms also helped these firms in adding value to their brands. LML Vespa, Liberty shoes, Bausch & Lomb eye care products and several others ventured into direct retailing probably due to this reason alone. Service firms such as ITC Hotels and ANZ Grindlays Bank found direct marketing very effective in retailing customers and weathering competition. Middlemen getting stronger. Several firms such as those in the publishing business are now increasingly opting for direct marketing to reduce their costs of distribution. Over the years, middlemen in India have become very strong and demanding. In pharmaceuticals, IMFL (Indian made foreign liquor), packaged food and several other industries, the market is in fact controlled by middlemen, who dictate terms to manufacturers. In the FMCG category any new firm wanting to enter the market is virtually at the mercy of middleman. Because of the higher mark-ups the cost of distribution for products like soft drinks, confectionery, ice-cream and frozen goods has gone up to the extent that in some cases it is even higher than the cost of production. If the trend continues, it may prompt many more firms to check the direct marketing alternative. Another reason for the spurt in direct marketing activities is that dealers usually push brands selectively, depending upon their equation with the manufacturers. Therefore to protect their brands from



38

Direct Marketing discrimination and to get direct aces to the market, more and more firms are now opening their exclusive showrooms, especially in large cities and towns. Advent cable television. Proliferation of satellite television channels and the resultant rise in cable TV connections in urban and semi-urban India has offered an excellent opportunity for marketing firms to exploit this new high-tech medium for direct communication. Teleshopping firms such as Dee’s Teleshopping, Teleshopping Networks (TSN) and Asian Sky Shop (ASS) are now marketing jewellery, toys, cosmetics, watches, leisure products, domestic gadgets, car finance and many more products and services through their small screen. The UPS of Teleshopping is the convenience of shopping from home and getting the goods delivered at one’s doorstep. The selection of products to be marketed through teleshopping, therefore, depends largely on the target audience and the timing of the programme. As this medium of retailing is relatively new to Indian firms, companies are mostly concentrating on unique household items and targeting up-market housewives.



PRODUCT SUITABLE FOR DIRECT MARKETING
Industrial goods are traditionally sold through the company’s own sales force. In case of high-value industrial products, such as machines, equipments, high-tech engineering goods, and projects where long-term standing in the marketing and one-to-one relationship with the customers are both important, direct marketing may produce better results as

39

Direct Marketing compared to other approach. Madras based medium sized engineering firm, RKKR Steels has demonstrated that even construction grade steel products (such as bars, angles and frames) can be marketed directly to builders, contractors and individual buyers. Services come next in the list of favorites for direct marketing. In service oriented business, retaining the customers and getting repeat business is critical for the success of any venture. Perhaps because of this an ever-increasing number of foreign and private sector banks, hotels, airlines, corporate hospitals, health clubs and couriers firms are now banking more on direct marketing. Individual approach, as used in direct marketing helps in creating customer loyalty, the backbone of service organization. In India, firms like ANZ Grindlays bank, DHL Worldwide, ITC Hotels, NEPC Airlines and many more have benefited immensely by direct marketing during the last couple of years. Direct approach is also being used extensively in the marketing of financial products such as new issues of shares, fixed deposits schemes and mutual funds. Real estates and plantation firm like Anasal’s properties, sterling Holiday resorts, Anubhav Plantation, teak Equity and many more have been making the most direct marketing. Nevertheless, direct marketing is Viable only if the margins in the business are high enough to absorb the cost of maintaining regular contract with customers; otherwise it may turn out to be a losing proposition. The next category of products suitable for direct marketing is high value, high involvement consumer products such as expensive cars, jewellery, designer watches and furniture, some specialty products that have a small customer base, such as medical equipment, health care

40

Direct Marketing products and special application gadgets may also be marketed by making direct contracts with prospects. High-value, low volume niche marketing items such as Single malt whisky, ray-ban sunglasses, Bausch & Lomb eye care products and premium blends of tea (e.g., editor’s choice) are ideally suited for direct marketing. Many such products like exercisers, executive diaries, new compact music disks, car accessories, new kitchen appliances and expensive perfumes are normally not available at retail stores. Because of their novelty value, these may evoke better response if marketed directly to the consumers. Amway Corporations lists of items more suitable for direct selling includes cosmetics, vitamins, books, cutlery, domestic electronic goods, air and water filters, clothing, food and wine, Kitchen appliances, Kitchenware, cleaning products, toys and crafts, hobby items, hand tools, automobile accessories, as well as an endless variety of catalogue items either unique to the company or sourced from third parties. Direct marketing is also effective where the firm has a family of products to offer to the same person or household. It is far more economical and makes better business sense to sell to the known customers rather than finding a new customer every time. Some publication groups such as Living media and Spectrum Communication, who offers a variety of publications for different tastes, have taken this route successfully. Eureka Forbes benefited immensely from their database about the vacuum cleaner buyers, when they introduced another novelty product (water purifier) in the market. With the advent of multinational brands in the Indian market, direct marketing may also penetrate into lifestyle product categories such as

41

Direct Marketing fashion garments, perfumes, shoes, wristwatches and toiletries. ITC has already shown the way by opening exclusive showroom in a few select metros for its Classic brand premium cigarettes and golf accessories.

STRATEGIES FOR DIRECT MARKETING
Strategies for direct marketing a product or service to the target customer would normally encompass the following equally importance elements:

 Planning the product offer

42

Direct Marketing  Pricing policy  Media strategy  Distributing Evolving the basic strategy for direct marketing requires a careful study of the market and the product, and logical planning.

 Planning the product offer
A product offered through direct marketing may be one of the three types. A product specifically developed for direct marketing A product designed and priced exclusively for direct marketing is not available in retail shops or through any other outlet. It’s designing, packaging, pricing and positioning is normally done in a way that it may be offered with or without some add-on attachments for free trail, and distributed directly through post or courier. Bull work exerciser, cease fire extinguisher, editor’s choice tea and many other were developed (or blended) especially for direct marketing. Several electrical gadgets, kitchen appliances, hand tools and fashion items marketed exclusively but tele shopping organizations are still not available through any other outlet.





A retail product adapted for direct marketing Retail may be adapted with minor changes for use in direct

marketing. There are several ways of making such changes. Changing

43

Direct Marketing the packaging, accessories, attachments and even the brand name are some of the common techniques of adoption. A multi-part product such as different volumes of an encyclopedia may be marketed as separate units. Dramatization of some features of product to make it look like different offer is another way of adapting a retail product for direct marketing. For instance it is a no-frills, basic products, the firm may stress on simplicity, user-friendliness and responsible price. On the contrary, if the product is complicated and difficult to operate, you may stress on advance technology. Nash (1986) termed this strategy as ‘turning lemons into lemonade.’ Another method of adaptation involves repositioning the product on some different attributes or usage patterns so that it looks like a different product. Nash (1986) calls it ‘changing the product without changing it.’ Anyone who doesn’t believe this may have a hard look at some of the products currently being offered through mail order and telescoping. A retail product marketed without any modification through both conventional as well as direct channels. It is always possible for a firm to use direct marketing as an additional channel to market its products, without making any change or modification in the retail version of the products. Most magazines, music CDs, encyclopedia, premium whiskeys, exercising equipment, computers, etc., are usually marketed through direct as well as conventional channels in identical forms and formats. In the US markets, many computer firms are hawking their hardware with identical configurations by using the conventional as well as direct route. Let us examine the following case.



44

Direct Marketing

 Pricing strategy In direct marketing, price is often used to spearhead the overall marketing strategy of the firm. Not only the price but the way it is expressed is also very important. It may be quoted in several ways: as net price excluding all accessories, freight and forwarding costs and taxes or as a package-deal price including all of these; or with some additional offers such as free gifts, guarantee or credit offers. The Tele Shopping Network (TSN), for example, offered BPL microwave oven to buyers in Mumbai and Madras at the same price as ion the market, with free Borosil bowls. A new product may be launched with a special introductory offer, or at a low invitation price or special subscription price, or with an opportunity to participate in some contest or sweepstake. Pricing strategy for direct marketing thus has to be flexible and adaptable to different situations.  Media strategy Media strategy for direct marketing may incorporate a logical testing plan with some calculated risk, to exploit a productive campaign as quickly as possible. The media commonly available to direct marketers are direct mail, press coupons, telephone, cable TV, and television and computer networks. Each of these has its own merits and demerits. Press Coupon is gaining popularity because it is economical and gives quick feedback. The advantage of direct mail lies in its highly individualized communication. The activity of the firm therefore remains unnoticed by the competitors for a long time. Due to this unique benefit, many new products in the West are launched through direct mail.

45

Direct Marketing

Direct markets may use different media depending on the nature of the product and the target audience. Mumbai-based Burlingtons, for instance are currently using mail order catalogue; Music Today is using direct mail; Shie perfume and Dollop ice-cream use the telephone. O & M direct had earlier used television to enroll volunteers for the national Literacy Mission Campaign. In India, teleshopping is an emerging mode of direct marketing. The shape it will acquire in the future will depend more on how the current players perform. In order to increase the visual appeal and make the communication more authentic and believable, the display of products is important; equally important is how and by whom. TSN has therefore hosts which images go well with the products they present. So, Priya Tendulkar (of Rajani fame) with her ‘quality conscious housewife’ image demonstrated kitchen appliances, Mandira Bedi with all her charm hosts jewellery shows, and health products are hawked by sports star Mickey Mehta. These carefully selected hosts add the much-needed zing to mundane selling and buying.

MAJOR DECISIONS IN DIRECT MARKETING

46

Direct Marketing In preparing a direct-marketing campaign, marketers must decide on their objectives, targets, offer, strategy, various tests, and measures of campaign success. Here we will receive these decisions.

 Objectives:
The direct marketer normally aims to secure immediate purchases from prospects. The campaign success is judged by the response rate. A response rate of 2% is normally considered good in direct marketing sales campaign. Yet this rate also implies that 98% of the campaign effort was wasted. That is not necessarily the case. The direct marketing presumably had some effect on awareness and intension to buy at a later date. Furthermore, not all direct marketing aims to produce an immediate sale. One major use of direct marketing is to produce prospects leads for the sales force. Direct marketers also send communication to strengthen brand image and company preference; examples include banks that send birthday greetings to their best customers. Some direct marketers run campaign to inform and educate their customer to prepare them for later purchases; thus Ford send out booklets on ‘how to take good care of your Car’. Given the variety of direct marketing objectives, the direct marketer needs to carefully spell out the campaign objectives.

 Target customers:

Direct marketer needs to figure out the characteristics of customers and prospects that would be most able, willing, and ready to buy. Bob Stone recommends applying the R-M-F formulae (recency, frequency, monetary amount) for rating and selecting customers from a list. The best

47

Direct Marketing customers target who bought most recently, who buy frequently and who spend most. Points are established for varying R-M-F levels, and each customer is scored; the higher the score, the more attractive is the customer.

Direct marketers can use segmentation criteria in targeting prospects. Good prospects can be identified on the basis of such variables as age, sex, income, education, previous mail-order purchases, and so forth. Occasions also provide a good segmentation departure points. New mothers will be in the market for baby’s clothes and baby toys; college freshman will buy computers and clothing and newly married will be looking for housing furniture, appliances and bank loans. Another good segmentation departure points are consumer lifestyles. There are consumers who are marketers have targeted these groups and won their ears and minds. Companies and industries 24-1 provides the survey findings of Japanese consumer who tended to purchase through direct mail. Once the target market is defined, the direct marketer needs to obtain names of good prospects in the target market. Here is where list acquisition and management skills come into play. The direct marketer’s best list is typically the house list of past customers who have bought the company’s products. The direct marketers can buy additional lists from list brokers. Manes on these lists are priced at so much a name. But external lists have problems, including name duplication, incomplete data, obsolete address, and so on. The better list include over lays of demographic and psychographic information, in addition to simple addresses. The main point is that the direct marketer needs to test in advance to know their worth.

48

Direct Marketing

 Offer strategy:
Direct marketers have to figure out an effective offer strategy to meet the target’s needs. Nash sees the offer strategy as consisting of five elements-the product, the offer, the medium, the distribution method, and the creative strategy. Fortunately all of these elements can be tested.

Each medium has its own rule for effective use. Consider direct mail. In developing a package mailing, the direct marketer has to decide of five components. Each component can help or hurt the overall response rate. The outside envelope will be more effective if it contains an illustration, preferably in colors and / or a catch reason to open then envelope, such as the announcement of the contest, premium, or benefit to the recipient. Envelops are more effective—but more costly—when they contain a colorful commemorative stamp, when the address is hand typed or hand written, and when the envelope differs in size or shape from standard envelops. The sales letter should use a personal salutation and start with a headline in bold type in the form of news lead, a how / what / why statement, a narrative, or a question to gain attention. The letter should be printed on good quality paper and run for as many pages as are necessary to make the sale, with some indented paragraphs and underlining of pertinent phrases and sentences. A computer-typed letter usually out pulls a printed letter and the presence of a pithy P.S. at the letters end increases the response rate, as does the signature of someone whose title is appropriate and impressive. A colorful circular accompanying the letter will also increase the response rate in most

49

Direct Marketing cases by more than its costs. The reply should feature a toll-free number and contain a perforated receipt stub and guarantee of satisfaction. The inclusion of postage-free reply envelope will dramatically increase the response rate. Consider on the other hand, a telemarketing campaign. Effective telemarketing depends on choosing the right telemarketers, training them well, and incentivizing them. Telemarketers should have pleasant voices and project enthusiasm. Women are a script an eventually move towards more improvisation. The opening lines are critical. They should be brief and lead with a good question that catches the listener’s interest.

The telemarketers need to know how to end the conversation if the prospect seems to be poor one. The call should be made at the right times, which are late morning / afternoon to reach business prospects and the evening hours between 7 to 9 to reach households. The telemarketing supervisor can build up telemarketer enthusiasm by offering prices to the first one who gets an order to the top performer. Given the higher cost per contact telemarketing and privacy issues precise list selection and targeting is critical. Clearly, other media, such as catalogue mail order, TV home shopping, and so on, have their own rules for effective use.

50

Direct Marketing

TESTING DIRECT MARKETING ELEMENTS
One of the great advantages of direct marketing is the ability to test under real marketplace conditions the efficiency of different components of the offer strategy. Direct marketers can test product features, copy, prices, media, mailing lists, and the like. Although direct-marketing response rates are at the single-digit level, testing these components can add substantially to the overall response rate and profitability. The response rate to direct marketing campaign typically

understates the long-term impact of the campaign. Suppose only 2% of recipients of a direct-mail piece advertising Samsonite luggage place an order. A much larger percentage became aware (direct mail has high leadership), and some percentage form an intension to buy at a later date (the purchase will occur at a retail outlet). Furthermore some percentage of the audience may mention Samsonite luggage to others as a result of seeing the promotion. Some companies are now measuring the impact of direct marketing on awareness, intension to buy, and word-of-mouth to derive a large estimate of the promotion’s impact than is measured by the response rate alone.



Measuring the campaign’s success: By adding up the campaign costs, the direct marketer can figure

out in advance the needed break-even response rate. This rate must be net of returned merchandise and bad debts. Returned merchandise can kill an otherwise effective campaign. The direct marketers needs to analyze the main causes of return merchandise, such as late arrival,

51

Direct Marketing defective merchandise, and damage in transit, not as advertised and incorrect order fulfillment. By carefully analyzing past campaigns, direct marketers can steadily improve their performance. Even when a specific campaign fails to break even, it might still be profitable. Suppose a membership organization spends $10,000 on a newmember campaign and attracts hundred new members each paying $70. it appears that the campaign has lost $3,000 ( =$10,000 - $7,000 ). But if 80% of new members renew their membership in the second year the origination gets another $5,600 without any effort. It has now received $12,600 (=$7,000 + $5,600) for its investment of $10,000. To figure out the long-term break-even rate one needs to figure out not only the initial response rate but the percentage that renew each year and for how many year they renew. This example introduces the concept of customer lifetime value. The ultimate value of the customer is not reveled by the customer’s purchase during a particular mailing. Rather the customer’s ultimate value is the profit made on all the customer’s purchase overtime less the customer acquisition and maintenance costs. For an average customer, one would calculate the average customer longevity, average customer’s annual expenditure, and average gross margin, properly discounted for the opportunity cost of money, less the average customers whose expected life time value the company wants to assess. After assessing customer lifetime values, the company can focus its communication efforts on the more attractive customers. These efforts include sending communications that may not even sell the customer anything-but maintain the customer’s interest in the company and its

52

Direct Marketing products. Such communications include free news letters, tips and birthday greetings, all serving to build a customer relationship. Direct marketing and has spawned a growing It adds body a of theory, of

measurement,

competent

practice.

number

communication concepts and capabilities to the marketer’s toolbox. When tied to a carefully developed customer database, it can increase sales and profit yields and strengthens customer relationship. It can provide more accurate prospect leads and trigger new sales at a lower cost. Ultimately, marketers will make direct marketing and database marketing an integral part of their marketing strategy and planning. Yet they must do this responsibility.

 Channels of distribution:
Direct marketing use several channels of products to the target customers. Pioneers of direct marketing in India have successfully tried door-to-door selling. This versatile mode of distribution can be used with equal effectiveness for high-value gadgets such as water purifiers, specialty items such as health care product, life style products like perfume and cigarettes, as also for items of mass consumption such as detergent, toilet soaps and eatables. The only problem is its high costs. Mail order delivery has its limitations. It is more suitable for books, magazines, audio and video cassettes, small gifts and specialty items such as fashion garments. Distribution through firms’ exclusive shops is more suitable for up-market consumer product that requires selective distribution and / or efficient after- sales services.

53

Direct Marketing

PUBLIC AND ETHICAL ISSUES IN DIRECT MARKETING
Direct marketers and their customer usually enjoy mutually rewarding relationships. Occasionally, however, a darker side emerges:

 Irritation:
Many people find the increasing number of hard-sale directmarketing solicitations to be a nuisance. They dislike direct-response TV commercials that are too loud, too long and too insistent. Especially, bothersome are dinner time or late-night phone calls, poorly trained callers and computerized calls placed by an auto-dial recorded-message player.

 Unfairness:
Some direct marketers take advantage of impulsive or less sophisticated buyers. TV shopping shows and infomercials may be the worst culprits. They feature smooth-talking hosts, elaborately staged demonstrations, claims of drastic price reductions, “while they last” time limitations, and unexcelled ease of purchase to capture buyers who have low sales resistance. Deception and fraud: Some direct marketers’ design mailers and write copy intended to mislead buyers. They may exaggerate product size, performance claims,



54

Direct Marketing or the “retail price.” Political fundraisers sometimes use gimmicks such as “look-alike” envelopes that resemble official documents, simulated newspaper clippings, and fake honors and awards. Some nonprofit organizations pretend to be conducting research surveys when they are actually asking leading questions to identify donors. The Federal Trade Commission receives thousands of complaints each year about fraudulent investment scams or phony charities. By the time the buyers realize they have been hiked and alert the authorities, the thieves have fled to another location. Invasion of privacy: It seems that almost every time consumers order products by mail or telephone, enter a sweepstakes, apply for a credit card, or take out a magazine subscription, their names, addresses, and purchasing behavior may be added to several company databases. Critics worry that marketers may know too much about consumer’s lives, and that they may use this knowledge to take unfair advantage. Should AT&T be allowed to sell marketers the names of consumers who frequently call catalog companies 800 numbers? Is it right for credit bureaus to compile and sell lists of people who have recently applied for credit cards? Is it right for states to sell the names and addresses of driver’s license holders, along with height, weight, and gender information, allowing apparel retailers to target people with special clothing offers? People in the direct-marketing industry are attempting to address these issues. They know that, left untended, such problems will lead to increasingly negative consumer attitudes, lower response rates, and calls for greater state and federal regulation. In the final analysis, most direct marketers want the same thing that consumers want: honest and well-



55

Direct Marketing designed marketing offers targeted only to those consumers who appreciate hearing about the offer.

NEWER DIMENSIONS OF DIRECT MARKETING
Some emerging trends in direct marketing are telemarketing (marketing through telephone) and electronic shopping. In India, suppliers of industrial components and materials catering firms and service organization (such as hotels and transporters) have being booking orders on telephone since long. But telemarketing in an organized for emerged only in 1990s new-concept products such as perfect ice and brands of established firms such as lakme (shie), Cadbury (dollops) and Shaw Wallace (single malt whisky) were the earlier practitioners of tele marketing. With the expansion of communication network this phenomena is catching up fast. Citibank has come out with tele banking in the metros. Television marketing is a visual of telemarketing. The marketers buy a time-slot on television to demonstrate and describe the product, and customers can call toll free number and order the product. Private Cable TV network are also being used for television marketing. Electronic shopping has two firms the videotext system permits a customer having interactive cable TV connection to order products displayed on TV screen by operating a small terminal. Alternatively, he can computer network to receive information about different products and their prices, compare various offers, choose the product and key in his

56

Direct Marketing product. Many firms have also started hawking their ware on the worldwide computer web Internet. Another significant development in the Indian context is the emergence of syndicated distribution network services like the Bangalore –based “fresh force” the organization has created a pool of about 15,000 educated and trained sales persons ready for hire by any direct marketing firm. In the beginning, only a few publishing firms have shown interest, but if the experiment is successful several, consumer goods companies may follow suit. More so because this is not only cost effective but also promises quicker cash inflow. More recently, another distribution trend to hit the Indian market is multi-layered marketing (MLM), detailed as part of distribution. But this may not exactly fit the definition of marketing. In the changing business environment, direct marketing is an important alternative mode of approaching the customers. It makes sense for the companies to integrate direct marketing with conventional marketing, to keep track of the customers and maintain regular contract with him. Not only will it promise a more customer-friendly and caring image of the company; it will also facilitate creation of a long-term customer relationship. Firms such as Telco Philips, titan and nestle, who otherwise their market through conventional channels have already developed large database on their customers and maintain regular contract with them through direct communication. With more and more firms realizing the value of retaining a customer, an integrated approach towards marketing will gain more currency.

57

Direct Marketing

CASE EXAMPLE
Direct marketing of a blood pressure instrument. An electronic gadgets manufacturing firm wanted to market in India a small, hand-held electronic instrument for measuring blood pressure at home. The price of the instrument was fixed around Rs.3,000 a piece. Being a specialty product, it was perceived to have only a limited clientele. As the firm had no establishment channel of distribution, it decided to take the direct-marketing route. The product was unique in the sense that it offered the convenience of constant monitoring of blood pressure at home, in the office, or anywhere, without having to visit the doctor. It could save a lot of time and inconvenience, especially for busy professional, executives, businessmen and all those who had a hectic work schedule. Since it was relatively expensive product, senior executive, professional and businessman over 45 years of age, having an income of more than Rs.15,000 per month were expected to be the perspective buyers. The firm adopted the following procedure for identifying and enlisting prospects. In order to prepare a cold list, an advertisement of the product, along with a coupon, was released in two leading newspapers in Mumbai. Interested

58

Direct Marketing individuals were asked to fill up the printed coupon, and send it to the firm within 10 days to get a free booklet on management of blood pressure. Personal particulars relevant to identifying the ‘qualifying prospects’ such as income, age, profession, residential address and details of any health-related problem were to be filled in the coupon.

A majority of people who responded were found to be suffering from blood pressure, obesity or heart-related problems. A cold list of about 5000 individuals was generated on the basis of filled-in coupons. This list was further scrutinized and names of apparently non-serious responding who might have sent the coupons more out of curiosity. The residual list of about 3500 respondents was treated as the hot list. Another alternative to this newspaper ad approach, as suggested by the research agency was to obtain a list of credit card holders from reputed banks such as ANZ Grindlays, Citibank, Canara bank, State Bank of India and Bank of Baroda. The firm could then have sort out the names of cardholders who were above the age of 40 and occupied senior executive positions in private or public organizations. This would have formed the cold list. Next the firms could have sent a brochure and a personal letter to them offering to arrange a free demonstration would have formed the hot lists. However this approach was not taken due to some logistic problem. The respondents were then clustered into different segments on the basis of their health status: those who had only mild blood pressure but no other problem; those suffering from obesity and blood pressure both; those suffering from blood pressure and some cardiac problems; those who had blood pressure and diabetes with or without some cardiac problem; and so on. This database of all the listed people with their

59

Direct Marketing detailed profiles helped the firm in identifying specific needs of the respondents.

60

Sponsor Documents

Or use your account on DocShare.tips

Hide

Forgot your password?

Or register your new account on DocShare.tips

Hide

Lost your password? Please enter your email address. You will receive a link to create a new password.

Back to log-in

Close