Direct Mail and the Dynamics of Response
Part I: The Interactive Medium
The last ten years have seen dramatic growth in the use of direct response methods by an ever wider constituency of marketers. From the book clubs, magazine publishers and catalogers who pioneered most of today's successful direct marketing techniques to such relative newcomers as packaged goods manufacturers and virtually the entire Fortune 500...from the local merchant who's simple postcard announces an annual pre-season sale, to Dell's mail order juggernaut selling $16 million of computers a day...more and more companies large and small are engaging in "targeted marketing," "database marketing," "relationship marketing," "accountable marketing," "closed loop" marketing, or some similar designation.
Clearly, responsible marketers are increasingly turning to direct marketing or database marketing as a major player in the marketing mix. Indeed, given the pressures toward niche marketing generally, the increased difficulties of profitable channel distribution and sales, the ever increasing costs and questionable results of traditional mass media, direct marketing arguably has become the hottest ticket in town!
This report is intended to help small to mid-sized companies and entrepreneurs enhance their understanding of direct marketing generally and of direct mail in particular. To help you identify "Direct's" unique dynamics. To understand what it is and what it isn't. To learn how it works and how to put it to work more effectively.
After several years applying direct marketing techniques to a wide variety of products and services, I believe there are some areas that still bear clarification if small business owners and marketers are to reap the full benefits that database / accountable / relationship / targeted marketing has to offer. Here we will refer to it as direct marketing.
Entrepreneurs especially need to know the boundaries of direct marketing (and more specifically, direct mail), including the cost of entry, realistic results projections, and how to maximize the medium to start and grow a business.
Direct Marketing: An Interactive Process
Direct marketing is a comprehensive system of media and methods designed to elicit a response from a prospect or customer in order to develop or enhance a "client relationship." In lead generation or "two-step" marketing, our goal is to convert a "suspect" into a "prospect" through list or individual qualification. Then we want to convert our prospect into a "customer" with an initial sale. Our customer is transformed into a "client" through repeat sales and finally, if our customer service and followup methods are effective, our client becomes an "advocate" - a source of new sales to other prospects through word of mouth recommendation, by providing testimonials, case studies and more. In order generation or direct sales, many of the same qualifying dynamics apply. As we'll see in a minute, you gain nothing in direct marketing by selling one product to one user one time. The task is to create a database of customers to whom you can sell additional products at higher response rates and with greater cost effectiveness.
The system we use to accomplish this process includes print and broadcast media, direct mail, and telemarketing, employed individually or in combination. Electronic media including the CD-ROM and online services like Compuserve, America Online and MSN are growing factors in the media mix. The Internet - and especially the booming World Wide Web - while still flamingly resistant to the more traditional forms of advertising, is rapidly becoming an ever more powerful medium for many products and services. (Interestingly, in an article in Jeff Tartar's Soft*Letter a few years ago, Leslie Laredo, Ziff-Davis Interactive's then director of advertising development, stated, "Direct mail is the best place to learn the techniques that work best in electronic media." Since then, it is safe to say that the World Wide Web has become widely regarded as a direct marketing medium. Another good reason to understand the dynamics of direct mail.)
Direct mail is primarily a selling medium. It isn't advertising, and it isn't correspondence - although it borrows elements from both.
It is direct marketing. Its task is to sell something or to obtain an inquiry. Right here, right now. Across time and space. A sale or invitation to an unknown person by an invisible salesman. And it is designed to receive payment or a request for information by return mail or telephone.
Direct mail achieves this startling task through the application of a variety of techniques, mostly proven over time in general terms, and tested as likely strategies in specific cases.
The most common applications of direct mail include:
- Selling products and services directly to prospects and customers.
- Generating qualified leads for sales followup.
- Converting inquiries or leads into sales.
- Increasing sales to current customers. (Database Marketing)
- Introducing new products and services, especially to specialized or vertical markets.
- Selling vertical applications of horizontal products.
- Building or promoting a dealer/distributor network.
- Selling followup or aftermarket products and services.
- Selling into marginal territories.
As the cost of a sales call passes the $500 mark, the need for better qualified sales leads has become an increasingly critical imperative of responsible, cost-effective marketing.
In addition, the efficiencies of marketing to a database have made a compelling case for direct marketing. (Pareto's Law has been telling us for years that 80% of our business comes from 20% of our customers. In talking to my seminar attendees over the years, I have yet to find an exception.)
And while direct marketing may work with general advertising, PR, sales promotion, and other disciplines, it remains separate and distinct from all of those with its own unique strategies and techniques, and its own innate dynamics. It especially is not advertising.
Why Direct Marketing Isn't Advertising - And Why It Matters
Most of us know - or think we know - advertising. We're raised with it. We're bombarded by it to the tune of some 600 ad impressions per day.
Marketing people enjoy advertising. So does senior management.
They especially like to write and design ads. It's fun. It's sexy. Many marketing people, designers, ad agency types and others with overall marketing responsibility, untrained in direct response, tend to apply the same copy and design principles they learned in advertising to mail, space and the other media.
That's dangerous thinking. For in fact, about all advertising and direct marketing have in common is the English language. Here's why.
The primary functions of general advertising are to build brand awareness or to create demand for a new product category. To provide a context for a sale at a later time and place.
General advertising does this through multiple impressions via a variety of media. TV, radio, newspapers, magazines, billboards, point-of-purchase and more are orchestrated in a complex media mix to deliver x millions of impressions over y weeks or months. The information flow is transitive: from the advertiser to the market.
The sales transaction is executed through a third party (dealer, supermarket, VAR,) at a time and place chosen by the buyer, not by the seller.
The dynamics of direct marketing are exactly the opposite.
First, direct marketing is structured to sell now. Either immediately by phone or mail, or within an established time frame through a sales contact. (Even in lead generation we expect the initial response to be immediate or nearly so.)
Secondly, in direct marketing, the information flow is from the prospect to the advertiser. It's interactive, not transitive.
When we mail, we want to determine which lists -- what segments of mail order buyers -- will respond best to our offer. So we test lists and list segments. Then we research the responders to find out as much about them as we can, so we can duplicate them for further mailings.
List testing is the single most significant element in any direct mail program's success. It represents roughly 40% of the success of your program. We start with mail order or direct mail buyers whenever we can, because experience shows that "response" lists -- those that include the mail purchase behavior -- yield significantly higher rates of response than "compiled" lists.Lists compiled from telephone directories, membership roles and other such sources are absent that purchase behavior. Often, however, response lists are simply not available in sufficient quantities for effective marketing and compiled lists are the only way to go.
We want to learn what we have to offer these prospects and how best to present that offer. So we test offers (the proposition) and formats. (The offer is the second most important element...another 40%.)
We want to know how much our prospects are willing to pay for our product or service. So we test price.
Most importantly, We want to know what else we might profitably sell to these people, once they become our customers.
Because our ultimate purpose is to build our own personal marketplace. One that we can go back to again and again and sell followup, aftermarket or new products at much higher rates of response than the 2%, 1 % or less we typically experience in the prospecting phase.
I emphasize this fact because it is the single greatest barrier to entry into direct mail marketing for the start-up entrepreneur. Many entrepreneurs have just one product that they hope to sell by direct mail. Often the price point is below $100. It is difficult, if not impossible, to sell such a product to cold lists at sufficiently high rates of response to show a profit. Direct mail just costs too much, and "cold" lists simply do not respond much beyond 2% gross -- often much less.
Naturally, company identity, price point, offer, and more all impact the rate of response. But forget the dreams of 10% response. It probably won't happen for a "cold" sale.
In fact, direct marketers often prospect at a loss in order to build a customer file that will later respond at rates of 10%, 15%, 25% or more. We want to get Pareto's Law working for us instead of against us.
Think of direct response as a process of obtaining marketing information, paid for (in whole or in part) by sales.
We do that by building a database...a comprehensive, interactive record of the customers, prospects and even the suspects that comprise our marketing universe. (By itself, a customer file is not necessarily a database.)
There are several more key ways in which direct marketing differs from general advertising.
Where advertising uses many impressions and a mix of media, the typical direct marketer uses one. Either space or mail, perhaps with telemarketing followup. Some mega-marketers use several: space, mail, tv, telemarketing, etc. But they are the exception rather than the rule.
For most marketers, that ad or mailing typically must do the job alone. And whether it's a solo mailing or ad, or a 3-part or 5-part campaign, it has to work now, as we said.
Advertising builds awareness for a sale at some other time and place, under the control of the buyer.
Direct marketing makes the sale or contact now, directly with the customer, at a time and place controlled by the seller.
Advertising is only vaguely measurable, usually in terms of "market share," which is affected by a great deal more than just the advertising. Indeed, many top advertising pros acknowledge that general advertising's effectiveness really isn't measurable at all.
Direct marketing, conversely, is fully accountable. Every response is measured. Cost per order, cost per lead and the dollar value of a customer are common calculations in direct marketing.
You know exactly what your money is doing for you...or not doing. And you know now, so you can take appropriate action.
Advertising creates markets, direct marketing discovers them. (Through the testing process described above).
Advertising seeks to influence behavior, direct marketing tries to repeat or model it. (If you think your current word processor is great, wait till you try ours -- with our special competitive upgrade offer!)
Advertising sells products. Direct Marketing sells offers. (In lead generation, for example, we may actually want to conceal the product or service, at least initially.)
Advertising deals largely in emotional imagery, direct mail deals almost exclusively in facts. (Specific benefits derived from enumerated features, backed by proofs including performance comparisons, user testimonials, etc.)
Advertising design is complimentary, often image-driven. Art and photography are frequently the primary communicators.
Response design must be functional and disruptive. It supports the copy as the primary communicator.
If advertising is an art, direct mail is a science. (In fact, you can think of a direct mail campaign as a scientific experiment.
We want to document all the variables, test them and turn them into constants so we can "replicate" the experiment with the same or better results again and again and again, to larger and larger lists.)
Clearly, the functions of advertising and direct marketing could not be more different.
In order for direct mail to prompt that response now, in the precious few seconds of the customer's attention that our mailing piece or ad may succeed in capturing, we employ a battery of proven strategies and techniques, always testing them in various combinations in order to achieve maximum marketing results at lowest cost.
If I seem to belabor this point, it's because more and more direct marketing today is being executed by small to mid-sized advertising agencies and design shops, some even by printers. Much of it is done by folks with scant direct marketing experience, beyond a seminar or a book, and little concern with direct marketing dynamics.
I know from talking and working with dozens of designers in recent years that many of them have no desire to do what they prefer to think of as "junk" mail, and will actively resist attempts to get them to use response design techniques. They prefer to bend direct marketing to fit their preconceived, often egoistic notions of what constitutes "creative" copy and design rather than learn and apply the proven, often more prosaic techniques of direct response.
As the client, you may pay the price of this creative arrogance if you aren't sufficiently well grounded in direct marketing principles to know the difference, and if you yourself aren't sufficiently motivated to demand response design in your response promotions.
Some folks -- client and agency alike -- have a personal antipathy for direct mail. They may dislike the so-called "bells and whistles" -- the copy teasers, the tokens, the simulations, the banners and other visual devices that direct mail employs so effectively.
In corporate or business-to-business marketing we need to tread lightly, to be sure, in how aggressively we employ these tools. However, many of these techniques can frequently be used as effectively in business-to-business marketing as they are every day in consumer direct mail.
Furthermore, as professionals, we are charged with doing our job, regardless of personal prejudices. Our responsibility is to do what works for our company, our product and our customer, not our own egos.
There are dozens of topics, elements and techniques that come into play in creating successful direct mail programs including list selection and database development, direct marketing mathematics, printing technologies and more.
However, for the purposes of this report we'll consider direct mail's three key creative elements: the offer, interactive design and interactive copy.
