171 DM Questions – What is DM?

15. What is Direct Marketing?

A few years ago I saw that, in a survey of 133 leading American direct marketers, no clear agreement on what the business is emerged.

You may consider the need for a simple definition unimportant. But imagine spending millions without clearly understanding what you are spending them on. Not an imaginary scenario, I assure you.

For instance I recall a debate taking place with one of the world’s biggest automobile firms. Was direct marketing advertising? In that case the people in charge of advertising should make the decision. Was it ‘below the line’? Then the firm’s policy meant that a different department, usually concerned with procurement of everything down to stationery, would deal with it.

In the end different decisions were made in different countries for different reasons – most to do with these varying views of what exactly direct marketing is. This is obviously stupid.

When direct marketing comes up, many people immediately think of the mediumof direct mail. Others think of direct marketing as a method of selling,like off-the-page selling. Others confuse it with a channel of distribution, like mail order.

Quite a few seem unaware that commerce on the world’s fastest growing medium, the internet, is all direct marketing.

What’s more, many practitioners are not even agreed that direct marketing ought to be called direct marketing. As a result of this, combined with particular firms desire to give brand names to their approaches to the business, all sorts of names have cropped up.

They include ‘curriculum marketing’, ‘dialogue marketing’, ‘personal marketing’, ‘relationship marketing’ ‘one-to-one marketing’ and ‘database marketing’. Not to mention two new favourites ‘digital’ and ‘online’.

Nevertheless, these terms do reveal important facts about the nature of the business. Certainly direct marketing revolves around the building and exploitation of a database – though there is more to it than that. Equally, building a relationship is one of our objectives – but only one.

And the approach is – or should be – personal; and in building a relationship, you can guide your prospect through a curriculum whereby you learn more about them and they learn more about you. It can be one-to-one, as with telemarketing, and it can go through digital or on-line channels. But my simple definition of direct marketing is:

‘any advertising activity which creates and exploits a direct relationship between you and your prospect or customer as an individual’.

You will immediately appreciate that this encompasses a very wide range of activities.

Ignore the intert for a minute and consider the following

You have been stopped on occasion by people standing on street corners with questionnaires bearing such inane queries as: ‘Are you able to save as much money as you’d like to?’ If you are not careful, these will lead to calls from an insurance salesman.

Clearly these people are making a direct contact and trying to initiate a relationship with you as an individual.

In the same way, a leaflet inviting you to go into your local hamburger joint and win a prize; or the ad for the introduction agency offering love everlasting; the note in the shop window selling a used hi fi system; the ad suggesting you apply for shares in British Telecom; the leaflet coming through your door in praise of your local Lib-Dem candidate – they’re all direct marketing. In fact the most popular section in many papers – the classified section – is nothing but direct marketing.

16. How does DM differ from other disciplines like advertising?

Advertising speaks to people en masse, not as individuals.

It normally does not demand an immediate response, but aims to influence customers’ attitudes so that they choose your brand when they reach the point of sale – the shop.

Sales promotion is normally designed to get action at the point of sale.

Often it uses the same methods as Direct Marketing. It can also generate lists. But rarely is there an attempt to build a lasting relationship with respondents by exploiting the full possibilities of a database.

Public relations employs media controlled by others to create a favourable climate of opinion.

It, too, can create a database – e.g. replies to editorials, which are usually of very good quality.

Packaging protects and draws attention to the product.

It can also strengthen people’s belief in your product, reassure them, make offers – and collect names cheaply for the database.

17. Why has DM grown?

Two statistics:

The average person in 1995 had more raw computing power in their wrist watch than did IBM 360 main frame in 1961 … That’s the machine used on space launches – the one credited with inaugurating the computer age.

One of those funny musical birthday cards has more computing power than existed in the world before 1950.

These facts highlight one reason why direct marketing grew so fast. Whilst practically everything else in the world has been going up in price fairly constantly, the computer – the engine of modern direct marketing – has been coming down in price at an astonishing rate.

And, linked to it, the fastest growing form of communication, the e-mail, is far cheaper than direct mail, as is the SMS message.

But at least seven factors contribute to the growth of direct marketing, through whatever medium:

  • Customers seek individual recognition and expression.
  • Media inflation encourages more precise targeting.
  • Print and computer technology enable you to communicate personally.
  • “Since the launch of the personal computer in the early 1980’s we have seen a 1,000 fold improvement in the semiconductor price-to-performance ratio” – “ The Economist” November 4th 1995
  • A need to seize back the direct customer- link from retailers.
  • Customers often prefer to obtain information or buy directly.
  • Hi-tech products – like a computer – and complex services are hard to explain in mass advertising and costly to sell face-to-face.
  • Rising overheads force businesses to use accountable methods.

18. What is the aim of DM?

“Isolate your prospects and customers as individuals and build a continuing relationship to their greater benefit and your greater profit.” Commonsense Direct Marketing – 1982-2007

19. What can DM do for my business?

Peter Drucker once observed that the first duty of a marketer was to avoid making a loss.

Direct Marketing can minimise risk because, before you spend big money on large numbers, you always test with small money.

It can increase profitability, because you should always test one approach against another and go with the one that makes most money for you.

It can stop you squandering money, because good direct marketers measure everything.

The result is that they only talk to the audiences that prove profitable, using messages that prove profitable. They don’t speak to everybody when they only need to speak to somebody.

It can help you keep your customers longer and thus make them more profitable, because direct marketers keep communicating as long as it pays.

In direct marketing you know what works, and you stick to it. You don’t chase wild fancies.

20. How does DM work for FMCG products?

On a per unit sale basis, these businesses operate on very slim margins. Many people are daunted by the expense of direct mail – in particular when they look at cost per thousand compared to advertising. How can it be justified?

Margin per unit sale is not the issue for direct marketers. It is revenue per customer over time. To determine whether the investment is worth it, you must find out which customers spend enough, or could spend enough to make direct marketing pay.

A customer will stay with you for a certain period, and make a certain number of purchases over that period. But all customers are not the same. A small number are responsible for a disproportionately high number of sales.

So planning starts with trying to establish how much a given customer could be worth to you. How much do they buy, how long do they keep buying, do they buy your brand all the time, or just occasionally?

(Mind you, research by Ehrenberg and others suggests that such customers are extremely rare and, indeed, almost non-existent. Most customers buy from a selection of brands.)

You learn how much a customer could be worth by studying purchase patterns on the database, and comparing how similar types of customer have behaved in the past. You can use research – household panels, diary panels, retail scanning information.

Let’s assume you have a brand which appeals to 25% of the population. It has been estimated that it will cost almost exactly ten times as much to reach those people using direct marketing as to give them one opportunity to see the TV advertising.

However, that direct mail piece will be infinitely more memorable and intrusive. It will literally touch the customer. And, if well targeted, it will only be speaking to likely prospects and customers. But will it pay you to make such an investment? The answer is “probably”, but only to your heavy, core users.

Consider the dog food category. A customer who generally feeds his dog on scraps, and only gives it branded dog food occasionally is not a good prospect. On the other hand, someone with two dogs who feeds them on nothing but your brand is perfect.

21. How can DM help me serve my customer better?

One of the most successful direct marketing firms ever is Time-Life Books. Its founder, Jerome S Hardy, called his staff together at the outset of the business and said something which I think bears repeating a few times: ‘We are going to give our customers a service better than they have any right to expect.’

It’s worth examining here some of the reasons why customers find direct marketing helps them.

Perhaps the major one is that it suits them to receive information or to buy directly from the vendor. It’s often both convenient and pleasant to sit in your own home and choose at leisure from a catalogue. You don’t have to get in your car or on the bus and go into town, find the right store, and the right department, and sometimes hunt down an assistant to tell you what you want to know.

Many people also resent spending time listening to people talk about things that could be presented to them just as easily in writing. Direct mail in particular is very good at conveying complex information in a structured and easily digestible form – something people often seem unable to do.

This is particularly true in business. Too often it is forgotten that the businessman is not a special breed: he is a customer when he is at home – and he doesn’t grow a second head on his way to the office. Not surprisingly, we don’t like salesmen at work any more than we do at home.

I discovered years ago when working for IBM Direct that if businesses were buying a typewriter (remember them?) they were happy to buy it through the post. It was more convenient than wasting time talking to a salesman. Similarly, research conducted in 1986 revealed that the majority of prospects prefer to receive information about new office products not through advertising or salespeople (the most common means) but via direct mail. And they wish to inquire through the most convenient medium: the telephone.

When we were examining possible pension plans for my firm, I had to spend hours listening to presentations from salesmen. It was time I could spare with difficulty. And none of these salesmen had clearly written explanatory material which I could have read in order to make the right decision. Probably nobody could have closed the deal without a personal presentation. But a lead could have been solicited and the initial selling done through the post.

Even in advertisements, direct marketers can often do a better job than sales people. Some years ago we ran an advertisement for a watch in a double page spread in a colour magazine. The ad was tightly packed with small type and many pictures. If you read through it, you ended up knowing more about that watch than any shop assistant could tell you – from the type of chip that was used to the ways you could use it to time sporting events.

As goods proliferate and become more and more technologically complex it’s almost impossible for one relatively untrained shop assistant to understand all about every item he or she sells. But a skilled copywriter, given sufficient time, can write an infinitely detailed description of a product. A photographer can make it look good – maybe even better than it is (which may put up the number of people who ask for their money back!).

Other reasons why buying or dealing direct seems to work for the customer include the fact that some products may not easily be available through any other distribution channel. For instance, specialised products such as rare coins, gourmet foods and wines, collectibles, specialised sporting goods like horseriding tackle, do well.

In other instances, people prefer to deal direct quite simply because of embarrassment. This could be because of the nature of the product, or the customer. One of our clients used to sell a beauty course through the post, and we noticed that a significant proportion of the customers appeared to be gay.

People often feel embarrassed, too, about money: a good reason why loans through the post and other financial propositions have done very well. And, of course, most of us are quite simply shy and don’t like to deal with pushy salespeople. I am sure you have sometimes been approached by an aggressive salesperson in a store and walked out.

One reason which induces both marketer and customer to deal directly is price. Customers very often think they are going to get a better deal by buying direct; merchants often think they’ll be able to cut their selling expenses for the same reason. This is not necessarily true; but, nonetheless, it seems to be a powerful motivator.

Direct marketing will continue growing quite simply because it is a wonderful way of serving your customer better. It is quite clear that if you can understand that customer and their motivations better, you’ll be able to do a better job. You’ll be able to build a really good relationship with that customer.

22. How should DM fit in with my current business needs?

How can direct marketing assist, complement or even replace what you already do?

There is ample evidence to show that linking your direct marketing to advertising and public relations produces great synergy.

Moreover, your customers positively welcome certain aspects of direct marketing.

For instance Gallup research showed that a coupon in an advertisement increases the credibility of that advertisement. Other research showed that over 90% of customers either actively welcome or certainly do not mind being given the opportunity to respond to advertisements, commercials and so forth. No surprise really, because if people have read something and they’re interested, then they want to know what to do next.

It is also proven that if you time your other marketing activities to fit in with your direct marketing or vice versa you will do better. If you put elements from your conventional advertising in your direct marketing, you will increase response and you will also increase the awareness you are seeking with the group who receive your direct marketing messages.

23. How can DM help me get more new business?

“Chance favours the prepared mind” Louis Pasteur

Let’s review some typical direct marketing opportunities. How many might apply to your business?

  • Does your business already have a continuing relationship built in?
  • Do you offer sales service?
  • Do you have a guarantee people fill in?
  • Do you have a family of related products?
  • Do you offer account facilities or sell on credit and have to invoice people regularly?
  • Do you have accessories or software to sell?
  • Do you have (or need) repeat purchases?

Every problem contains the seeds of an opportunity:

  • Your shops are empty on some days … or badly situated … or have high rentals: make offers to entice people in.
  • Long considered purchases – e.g. cars or costly business equipment: use questionnaires to find out when people will be ready to buy – and what they want.
  • Your sales force spends too much time canvassing, not enough selling: get leads for them (and learn when prospects are interested).
  • Retailers or wholesalers who dictate to you: go direct to customers and build a database.
  • A brand that is constantly under attack: offer incentives to keep your customers loyal.
  • A limited market, geographically, or in some other way (e.g. financial or professional): be highly selective. After all, why speak to the whole world if you don’t need to?
  • You can’t afford to advertise as much as you’d like: sell or get enquiries from your ads.
  • If yours is a business which sells to other businesses, then direct marketing certainly will normally pay. And to be more precise, in this writer’s experience direct mail will pay better than trade advertising, as will the telephone.

It is an interesting fact that advertising agencies who are notoriously reluctant to recommend direct mail to their clients almost invariably use it for themselves to get business.

24. Where should DM fit in my firm’s structure?

To whom should it report?

I do not know the right answer to this question; it will depend upon your organisation. One thing is certain: it should be a question which is asked and answered – carefully.

People frequently see direct marketing (and most other things, to be honest) in a tactical way. They will perhaps feel that it should report as a function to whichever part of the organisation is likely to use it most. Thus in a large organisation selling to customers, the direct marketing function may well be required to report to whoever is in charge of customer marketing.

Yet direct marketing can play a very important role when dealing with employees, shareholders, the trade, opinion formers – just about anyone.

One thing to watch out for very carefully is the possibility that the direct marketing unit might prove a bottle neck. I am increasingly inclined to believe that if yours is a large organisation then every marketing unit should have at least one person in it who really understands direct marketing whether you do or do not have a separate direct marketing function.

25. How does DM work if I sell to other businesses?

It is astounding how many businesses are still squandering money on inefficient selling.

Personal selling costs are high – and rising.

Sales people should be selling, not getting leads: phone and mail can get them more cheaply.

They can handle lower value customers, freeing your sales force to work where their cost is justified.

What is more, direct marketing can help you solve a problem which everybody who sells to business is familiar with: the different people involved in making the decision have different motivations. Here’s an example:

  • Chairman “Is it right for my firm?”
  • Manager “Will it help things run better?”
  • Financial Director “Is it value for money?”
  • Marketing Head: “Will it help the sales force?”
  • Operations Manager “Is it reliable?”
  • Operator “Is it easy to use?”
  • They all buy for different reasons
  • They rarely discuss the decision together.
  • It may take a long time – months, even years.
  • You can’t afford to send a salesperson to each one every month.
  • But you can afford to keep in touch via mail or the phone.
  • You can give each person a different message.
  • You’re dealing with people in their business, not their personal lives.
  • So motives are similar, but not identical.
  • They’re usually not spending their own money, so they’re easier to sell to.
  • The margins are usually high. You can invest more per sale.

26. What are the ten most important direct marketing rules?

1. Understand how direct marketing works

You can divide the process into three parts, which we call the Three Graces.

Isolate your prospects and customers as individuals.
By storing their names on a database, with relevant information which enables you to speak to them as individuals and drive your marketing accurately.

Build a continuing relationship.
By communicating in a way that fits the individual; at relevant times, with appropriate messages.

Build a profitable relationship.
By testing new products or services and ways of offering them, be it through new offers, or new creative treatments, or new combinations and sequences of media.

2. Build your database and exploit it

A few years ago ‘Direct Marketing’ magazine suggested the principal role of a Direct Marketing agency was to build its clients’ databases. This may be over simple, but unless you have a good database and make the most of it, you can’t succeed.

There is so much highfaluting bullshit flying around about databases that their nature and purpose are easy to misunderstand. A database is simply a list of names placed on computer software, with relevant facts about those names incorporated. These facts enable you to communicate with individuals or firms in a way which is more relevant to them, and thus more profitable to you.

In 1973 Peter Drucker suggested that the aim of marketing was “To make selling superfluous… to know and understand the customer so well that the product or service fits him and sells itself”.

Clearly you cannot know the customer properly unless you know that customer as an individual. Direct marketing, through the database, enables you to do that. It enables you to vary the way in which you speak to people, the frequency with which you speak to people, and what you speak to people about, depending upon what the database reveals about them.

3. Remember your positioning.

If I am the same as you, why should anyone choose me in preference to you? That is why positioning is important. Positioning might be described as the personality you have as opposed to your physical characteristics. Take the American Express Card: its promotion was determined by its positioning as the world’s most prestigious financial instrument for business or pleasure. This positioning determines the tone of voice and the type of creative work used by American Express.

In the big battle to win supremacy in the card industry, Visa has a very different positioning: “It’s everywhere you want to be”. Two very different approaches for selling what is virtually the same thing.

4. Discover the value of a customer and invest accordingly.

The Marketing Director of a major catalogue firm came to visit my partners and myself. We showed him a client’s advertisement for a handbag festooned with pockets which was successfully making money off the page.

Shortly afterwards our visitor advertised a similar handbag at half the price. He wiped us out. Why? Because his objective was not to make an immediate profit; he knew how much each customer was worth to him over time, once recruited. He therefore simply wished to recruit customers at an acceptable cost. Our client didn’t know how much a customer was worth to him and sought an immediate profit.

Only if you discover how much a customer is worth to you over time, can you set proper recruitment objectives. If you don’t know the answer to this question you are working in the dark.

5. Honour your existing customers before seeking new ones.

Joe Girard, the world’s most successful car salesman was asked how he managed to sell more cars than anyone else in America, although his area is not exceptionally wealthy.

His secret? “I realise that the next sale begins the minute I deliver the new car”.

Your best customer is your existing customer. You can pay 4 … 6 … even 10 times as much to recruit a new customer as to sell to an existing one. If your product is good, your customer is happy. Why should he switch?

Research in the US revealed why customers stopped buying.

4% moved away or died
5% other firm friendships (e.g. the brother-in-law has a shop)
9% competition
14% product dissatisfaction
68% no contact, indifference, attitude of sales force

These figures have hardly changed in the twenty odd years since I first saw them, and they are much the same in different countries.

So the vast majority move simply because they think you don’t care. In order to show you care, you must communicate often. You must communicate with the objective of building more relationships with your customers. Bank research a few years ago in the United States showed that if somebody had only one account with you there was an evens chance that they would leave and go to another bank. If, however, they had four accounts, then it was a 100:1 against them leaving you.

6. Never forget to test and keep on testing.

He who says: “I don’t have the time to test, or the money to test”, or – perish the thought – “I know the answer without testing”, is a buffoon.

In a series of tests for one client the best combination of creative, list, price, timing and response vehicle was 58 times as effective as the least.

One client tested a new title for his service. Results jumped by 30%.

Recently, a simple letter without a brochure sent in an inexpensive envelope outpulled a longer envelope with an elaborate, glossy brochure in a big eye-catching envelope by 2:1. Only testing could have discovered these things.

As Claude Hopkins observed 60-odd years ago: “There is only one way to find the answer to any advertising question. Ask the customer. That is the court of the last resort.”

7. Seek out and understand new technology

The early personalised mailings increased responses by 50% or even 100%. Today the technology that makes this possible can be afforded by even the smallest business.

In a 1987 ‘Direct Marketing’ magazine article it was calculated that since 1960 the cost of computer mainframe storage had plummeted roughly 20,000 times – while the speed of operation has increased by a factor of about 1 million. There is now a 50%-100% gain in efficiency per year.

Technology is making remarkable things possible. ‘Farm Journal’ in the US now has copies segmented. A farmer on one side of the road raising cattle for milk gets a different magazine to one on the other side of the road raising them for beef. It’s done through the database.

I am a technological halfwit. I can’t even understand such mechanisms as the electrical plug. The computer is a mystery to me. Yet I try to understand what all these things can do for my clients because, time and again, new technology has moved the goalposts.

8. Make your budgets flexible or you will miss opportunities.

Many enter Direct Marketing from general advertising or marketing. They think in terms of fixed budgets. This is outmoded.

If you know the value of a customer over time, your budget should be determined by how many customers you can get at an acceptable cost. If you can afford to recruit customers at break-even, spend as much as you can doing so. As long as you have the resources to do so, why be hamstrung by an arbitrary, predetermined budget?

This thinking is not merely at the heart of Direct Marketing. It applies to any business. Suppose you are a retailer. Discover how much each customer who walks through your door is worth. You can then set your budget month by month based on what you can afford to recruit customers at an acceptable cost.

9. Know your customers and prospects; conduct research.

Jerry Huntsinger, a brilliant US expert on fundraising, once said: “I don’t know why people reply to fundraising letters – and I don’t care.”…

I used to think that way once. I was wrong. Some of the most valuable research is the simplest. For instance, supposing a mailing doesn’t work. It doesn’t cost a great deal of money to ring up a panel of people who received that mailing and find out whether they remembered it or whether they understood and, of course, what they thought of the proposition. Why they didn’t reply.

Most direct mail richly merits the description ‘junk mail’. That’s because we don’t know enough about who we are writing to, what interests them, or how they think. So our communications are often tactless intrusions, not welcome ones.

Here is another interesting piece of research about response devices. 98% of customers and 94% of business people believe “firms should provide a direct means of response in all their advertising”. 77% of customers and 61% of business people think the mere presence of a response device “said something positive about a firm”. 21% of customers weren’t sure what effect a response device had, and 33% of business people were uncertain.

So 2% of customers and 6% of businessmen thought response devices said nothing about a firm or made a negative impression. This information conveys a message which I will put flippantly as follows: people who don’t use response devices are anywhere between 94% and 98% stupid.

10. Use Direct Marketing throughout your business

Why do people regard direct marketing as something separate from the rest of their business? It is naive and old fashioned.

They worry enormously about the firm’s image when they create general advertising. Yet they send out tatty direct mail, cheaply produced and cheaply printed. Because it’s “below the line”, isn’t it?

Well, customers don’t look at it that way. They just look at it as another face of the firm. A face which has high impact. Nine months after a mail shot was sent out, 70% or more of recipients remembered it. Could you say that of a TV commercial? Three months after receiving a direct mail shot recipients were 248% more likely to choose a service costing hundreds of £’s than a panel who had not received the direct mail shot. Moreover, their recall of the general advertising was nearly 50% higher.

In short, even when not going for an immediate sale, Direct Marketing has great persuasive power. Once you accept that its objective is to build loyalty over time, you can use it in any area of your business. Nor merely with your customers, but with your suppliers or – very important – your staff.

You can use it for small transactions, or large ones, or simply to change a point of view. You can apply it to customers or to business customers.
Unless you appreciate that Direct Marketing, in whatever medium, is immensely influential and can relate to everything you do, you cannot succeed.

27. What state should my database be in to use it effectively?

Your database is your storehouse of knowledge about perhaps your most valuable asset: your customers. It is also like a diary. It tells you all about your relationship with each of those customers.

It becomes useful to you the minute it enables you to address different messages to different groups of people, because this almost invariably pays more in incremental profit that it costs to carry out.

There are many practical considerations to bear in mind, like as the fact that, if it is in such a state that names and addresses are inaccurate, it is not going to be very much use to you.

It is essential that it be controlled and run by people who clearly understand the long-term objectives of the business. In the past, firm databases have been set up and run by administrators or finance people, for invoicing, paying wages and so forth.

When direct marketers attempted to move in, conflict often resulted. Those controlling the database were concerned to protect their territory. More to the point, having administrative backgrounds, they tended very often to have little sympathy with the marketer.

Many direct marketers have roundly condemned the computer processing specialists and administrators as people of little imagination and no awareness of the real objectives of the business. They have dismissed them as bean counters.

This actually shows a lack of imagination amongst direct marketers. Some of the brightest people I have encountered in marketing have come up via computers or finance.

28. What are the major aims of direct marketers? How do I achieve them?

There are many ways in which direct marketing can be applied, but you can break down all the activities I know of into four simple categories. You can ask people to:

  • Buy through the post, over the phone, on the internet or off the TV set, either for cash or by quoting a credit card or account number. Here I include charity donations.
  • Ask for catalogues, or literature, or information which may come through the post, on the telephone, by e-mail or in the hands of salesmen (with or without the customer’s prior knowledge).
  • Request a demonstration either in the home, at work, or even at the seller’s premises.
  • Visit a retail establishment, a film show or exhibition – or even a political or community event.
  • Notice that in all cases we are asking people to do something. Direct marketing is asking for action, whereas general advertising is usually trying to influence thoughts and feelings. A critical distinction.

To reach your chosen objective, you can choose from a variety of routes. The possibilities and permutations are bewildering, but it is essential that you are aware of them all.

A sale you could never make profitably in one step, for example, could be easily made if the product is broken down and sold in stages as a continuity product, or if the sale is made by asking for an enquiry and then following up repeatedly.

Equally, a product you could not sell easily for cash might do very well if you offered it on free trial.

So let’s look through the possibilities.

1. One-stage selling

When people use the words ‘mail order’ they usually think either of the bargain spaces in the weekend papers, glossy colour advertisements in the Sunday magazines, or those hard-sell advertisements that promise to change your life – or shape, or looks – overnight.

This kind of selling does not, in fact, represent the largest segment of the direct marketing industry. Indeed, as you’ve already gathered (if you didn’t already know) any firm that depends on this activity alone to make money is unlikely to prosper long. But the one-stage sell is a way you can establish the initial relationship with a customer (or, in the case of a political party or charity, a sympathiser).

Some one-stage selling – the least sophisticated form of direct marketing – is as simple as offering a product for sale in exchange for the full cash price, to be sent in advance of the goods being delivered. However, as you can appreciate, any way in which you can soften or delay the awful moment when the customer has to part with money tends to pay off. Nobody likes paying for anything; even less do they like sending money off to someone they have never met for something they have never actually experienced or held in their hands.

Thus one may offer:

  • The Free Trial, where goods or services may be enjoyed on approval for a period before the buyer is committed. Response leaps when you use this offer. You must, however, have checking system since in the UK, for example, in some cases as many as 50 % of replies can be bad debt risks.
  • The Sale on Credit where only a down payment is demanded. This is a method worth using if you have the necessary facilities. However, with the growth of charge and credit card usage it is becoming increasingly restricted to less wealthy markets. As I have already indicated, for years it was widely imagined that no item above £10 could be sold without offering credit: my client selling land was a rare exception. However, the growing acceptance of direct marketing and the decline in the value of money means that this is no longer the case. A high percentage – over 50 % of the revenue from an ad in an up-market medium like the Sunday Times – may be through credit card payments.
  • The Sale on Credit where no down-payment is demanded. This is, of course, the easiest payment option of all for the customer and thus the method which will generate your greatest response.
  • Once again, if you have the credit-checking facilities and the financial resources to be able to afford to wait for your money, this can be the most profitable method of selling in the long run. Significantly, many of the most successful direct marketers often use this method; e.g. Reader’s Digest and the mail order catalogues.
  • The conditional free trial where you may have to send all or part of the money before getting the goods, but you are not committed to buy until a certain period has elapsed. This method was used by Joe Karbo to sell his book The Lazy Man’s Way to Get Rich. He said he would not cash customers’ cheques for 30 days, so they could be absolutely sure they were satisfied before being committed.

There is, in addition, of course:

The sale by credit or charge card where any of the above four options may also be offered. This is the easiest sale of all, because it’s the least painful way for your customer to pay.

2. The continuity relationship

Since the best direct marketing builds a continuing relationship between the buyer and the seller, many marketers establish a contract with the respondent which has a continuing arrangement built in from the start. Typical are:

  • Insurance offers, where the initial application may lead to a ten or even twenty year contract.
  • Loan offers, where people may be repaying for five years or longer.
  • Mortgage offers, which also end up in a relationship over a number of years.
  • Charity appeals or political appeals, where the group may solicit a covenant (and in the case of many charities, this relationship may last so long that the final payment will be after death, in a bequest).
  • Credit card applications, where the relationship may endure for decades.
  • Membership offers – such as those made by the Customers’ Association, or the Automobile Association – which may endure until death brings a merciful release.
  • Club offers, where the respondent may be offered a very low price for a selection of books or records or even a free gift to start a collection of cookery cards, for example, and have to make a positive effort to extricate himself from the relationship.
  • Collector’s offers, where one starts with the first of a series of collectible items, and carries on through to the end, unless one wishes to cease.

Of course, exactly the same sort of financial offers you make to encourage a one-stage sale apply to a continuity sale. Thus, insurance firms selling direct often offer what they call in their quaint argot ‘a deviated first premium’. For instance, the first month’s premium may be free, or call for a payment of only £1. This, obviously, is a soft option for the prospect.

Equally, you can offer your prospect a free trial period of three months. Offering customers the opportunity to fill in a post-dated direct debit form in the advertisement or the order form will generally pay off. By the time it comes to cancel the mandate, the customer doesn’t bother. This is really a sophisticated variation of the technique I mentioned previously, used by Joe Karbo. It is really a free trial offer with a hidden pitfall. I introduced this (for the first time in the UK, I think) in 1969 for the Business Ideas Letter.

From your point of view a continuity relationship gives you a much greater margin with which to finance the original sale. Obviously, if you are making a single sale, then the margin to pay for the promotion has to be built into that one item. But when you know that over a period of time you may sell as many as 40 or 50 items, or receive payments over a period of years, you can afford to finance the initial sale to a greater degree – or, to put it another way, you can wait for quite a while to recoup the value of that investment. To give one relevant example, I recall that a few years ago, a major marketer of book series did not recover their investment in recruiting a customer until 48 months after the first transaction.

3. Multi-stage selling

Flexibility of a different sort governs the third category we are going to consider: multi-stage selling. When you make a one-stage sale, then once the prospect has either responded or not responded, that’s it. Either you’ve made money, or you’ve lost your chance to make money until the next time that reader sees your ad or mailing.

If you are merely going for an inquiry, then once that prospect has responded and you have his or her name on your database, you have an infinite number of opportunities to turn that inquiry into a sale. In fact, even if you don’t sell the product or service you originally offered, you can try and sell an alternative.

Moreover, a one-stage sale predetermines the way in which the respondent buys: either they react in the way you suggest at the price you quoted or they don’t. But multi-stage selling is much more flexible – and in one form or another is the area with the greatest potential for most businesses.

Suppose you generated an inquiry and followed it up with a letter and brochure. If those don’t produce a sale, there’s nothing to stop you following up with a phone call or a salesman. For that matter, if you followed up the inquiry with a salesman who did not succeed, there is no reason to believe that a letter later on may not achieve the desired effect. It’s worth remembering that to get that sale you can vary terms, reduce the price, or make a free trial offer and further follow-ups. Indeed, you can keep contacting that prospect for as long as it is economically worthwhile for you.

Financially, the implications are simple. Once you have paid your entrance fee – i.e. paid for the inquiry – you can keep on ‘milking’ it until the cost of doing so exceeds the marginal profits. To take a simple example: when I was handling the marketing for the Bullworker, we used to send out up to nine follow-up mailings.

And like so many other simple examples in the customer market this principle applies to the business-to-business market. If you are trying to sell an expensive piece of office equipment with a great deal of margin built in, once you have that original inquiry put onto your database, you can keep on exploiting it many times, in many different ways.

Let us therefore look at some simple multi-stage operations:

  • Sales follow-ups, where information about a product is advertised, information is sent out and a salesman follows up. Common examples in the customer field are double glazing and other home improvements; in business-to-business, computers, copying machines or laser printers would apply.
  • Retail combination, where a product may be advertised in the press (or in a catalogue sent out by the store) and the respondent may go into the store rather than buy direct.
  • Catalogue offers, which may be divided into those where: the prospect sends for a catalogue to buy things from; the prospect sends for a catalogue for which he or she may become an agent, deriving commission (savings); the prospect buys and is later offered the chance of becoming an agent.
  • Agent’s offers, other than the ones outlined above, where the agent will represent a given line of products and may or may not have to buy the merchandise in advance, with or without a guarantee of money back if the goods are not sold successfully.
  • Recruitment, where the respondent replies to an ad, gets information and then goes for an interview (as with the armed services) or may go directly to an interview.
  • As in so many other areas of business, some of these categories merge into each other. For instance, Avon recruits ladies who become spare time agents. The firm also has a permanent sales force which ‘runs’ the sales ladies in given areas.

In December 1984, Avon’s business in Germany was not doing very well. How could direct marketing revitalise it?

Among the major problems were insufficient new Avon ladies; lack of motivation amongst the new recruits; and not enough time and effort from the area sales force devoted to handling and motivating these ladies. The reason was that the area salespeople were so worried about trying to find new ladies. Each year, for every twelve they hired they would lose two. The solution, quite simply, was to motivate the new ladies. They were written letters when they joined and welcomed to the organisation. They were congratulated on their individual achievements, all of which could be monitored through the database.

But how could new ladies be recruited? The answer was to run advertisements in the form of questionnaires. These were based upon what was discovered through database and research about the nature of the perfect Avon lady. Depending on the answers to the questionnaires, the respondents were handled in two different ways.

Those who did not fit in with the profile of a good Avon lady were simply given a free gift and thanked for their interest, together with news of what had emerged from the quiz they had replied to. Those who did sound like perfect Avon ladies were written to and told that they would do extremely well with the firm, and that they should go to their local area representative and collect a free gift. At the same time, a computer profile of the lady was sent to the local area representative who was then able to deal more effectively with her new recruit.

This project, which was devised by Ogilvy & Mather Direct’s Frankfurt office, was particularly interesting to me. It used original thinking to create and utilise a database containing details of both the potential new recruit and the existing sales representative, leading to an intelligent personalised approach. A few years ago it would have been difficult to have accomplished anything like this. Technology has made the difference.

Finally, two more multi-stage operations:

  • Franchise offers, where the respondent sends for details, meets the firm or its representative, and may end up going into business with them.
  • Sequence selling. There are many cases where you can afford to be quite patient in getting a sale. You can afford to try and mould people’s opinions about your product or service before actually going in for the kill.

The simplest form of sequence probably would be where you send out an advance mailing or make a telephone call to say you are going to make a very generous offer to someone; you then make the offer; and then you may follow up with another call or mailing to remind people to take advantage of the opportunity before it lapses.

In some cases you may find it worthwhile to send out a series of newsletters or regular mailings which are intended to inform, educate and persuade people of the virtues of your product or service – or, for that matter, your firm.

Ford in America, for example, send out a long series of mailings of which the earlier ones are not looking for a sale, but designed to build an opinion which will lead to one. This is similar in thinking to an advertising campaign. You are building a preference over a period of time but at the same time ensuring you are ready to make a sale at the right moment. If it takes two years on average from the time when somebody buys a new car to the time when they buy another one, then you can stage a series of communications to keep them loyal to your brand, making sure that you frequently recheck when they are actually going to buy – since people’s decisions are often affected by changing circumstances.

This sort of approach is also particularly appropriate for a profession like accountancy, the law or advertising. People do not wake up every morning and decide they need a new advertising agency or lawyer. You are simply trying to make sure that when they do have to make such a decision, they will choose in your favour.

4. Sales promotion – linked opportunities

Many firms – perhaps most firms that are reasonably sophisticated – make offers of one kind or another which can with a little ingenuity be turned into direct marketing opportunities.

What they all have in common is that a list of names can be generated. Names can be very valuable, as I indicated when discussing the selling of Avon cosmetics. So if your firm is engaged in any of the following activities, you have a direct marketing opportunity:

  • Competitions, where the respondent may or may not have to offer proof of purchase.
  • Discounts and free offers, where a coupon may have to be redeemed at the store, or by post. These may be offered in advertisements; in the package, as with a cigarette pack; or on the back of the pack, as with sugar cartons.
  • Self-liquidating offers, where a product may be offered cheaply as long as you prove you have purchased the brand.
  • Direct offers of merchandise bearing the brand name, as with offers of Guinness sweaters, or Coca Cola beachwear, or London Transport T-shirts.
  • In all these cases, either direct contact is involved, or it can be introduced. Thus, for instance, if you are running an advertisement which bears a redeemable coupon, then if you require that people give the name and address when redeeming that coupon you are able to capture a name and address.

My former partner, Glenmore Trenear-Harvey, worked on a number of sales promotions during his time in the advertising agency business. He often lamented, when he became a direct marketer, how it was the standard practice at that time to keep the names of promotion respondents until it was certain there would be no complaints about the offer, then throw them away. ‘Like throwing money away,’ he would say. ‘But we never knew it.

29. Which prospect and customer names get best response?

The most responsive customers and prospects are, to state an obvious truth, those who have been shown to be responsive in the past.

Apart from that, people who have bought from you recently are going to be more responsive than people who have not; indeed the best time to sell to somebody is actually when you are delivering the product or service. Apart from anything else, since you have to communicate with people, it costs you less to sell to them.

People who have in the past bought frequently are good prospects, and so of course are people who have spent more than the average amount of money.

There is more on this subject when you turn to the questions concerning mailing lists.

When you come to consider which prospects are most likely to do well for you, then it is a good idea to remember a simple maxim I either coined or stole from somebody: “The customer you want is like the customer you’ve got”. So prospects who have similar characteristics to your existing best customers will prove your best prospects. If they live in similar areas or have similar types of name or are of similar age, they are likely to be worth looking at.

Below and on the next page are some figures supplied by the UK’s Direct Mail Information Service about response rates in various categories. I would only make one comment about these figures: interesting, but in my experience not very impressive. If these are the sort of response rates you are getting, then perhaps you should try harder.

Response rates by sector and medium

Customer

Category (number of campaigns)

Response Rate % Cost per item (pence) Number of Campaigns
Give coupon to retailer

24 68 22
Free event

18 55 5
Questionnaire

15 81 11
Free trial

14 181 9
Visit store

9 42 22
Order without payment

7 50 54
Donation

6 36 39
Order with payment

5 39 283
Request further information

5 29 136
Prize draw

4 38 77

Business

Action

Response Rate % Cost per item (pence) Number of Campaigns
Give coupon to retailer

0.86 30 5
Free event

6 157 16
Questionnaire

12 66 14
Free trial

9 58 9
Visit store

9 153 2
Order without payment

3 50 149
Donation

0.1 80 1
Order with payment

1.5 34 112
Request further information

5 67 362
Prize draw

8 1 67

Source = DMIS

Action Response Rate % Cost per item (pence) Cost per response (£) Average quantity mailed (000s)
Entertainment (32) 34 81 2 40
Packaged goods (46) 26 104 4 138
Food and drink (32) 20 135 7 37
General books and mags (25) 15 70 5 53
Customer goods (34) 13 55 4 49
Retail (19) 9 36 4 281
Customer services (16) 7.9 33 4 60
Automotive (46)

6 78 13 129
Mail order (30)

5 52 10 44
Charity (69) 4 37 9 151
Travel (41) 4 33 8 151
Magazines (24) 4 47 12 318
Software (53)

3 91 30 45
Insurance (49)

3 31 10 217
Electrical Goods (22) 3 41 14 40
Books (17) 3 48 16 309
Other financial (62) 2 28 14 421
Investments (55)

1 35 35 161

30. Where should I invest to get the best return?

Mass media cover customers, good prospects, bad prospects and many who will never be prospects. There’s high waste.

As Italian economist Pareto pointed out, the 80/20 rule applies in every market. Why waste costly one-to-one communications on the 80%?

So who are the 20% you want? They will have the most need for the generic product. E.g. if you are selling petrol, they will be people with big cars, more than one car, or who travel a lot.

The most profitable targets will not only have those characteristics, but be customers loyal to your brand.

There are three categories you should be interested in:

  • Loyal, high spenders. Your Direct Marketing should concentrate on maintaining these customers.
  • Relatively low spenders who are loyal to your product. You should try to upgrade them.
  • High spenders who are not loyal to your product. You should try to switch them.

The great mass who do not fit into those categories are largely a waste of time.

31. What are the benefits – and dangers – of promotions?

Promotions are the perfect opportunity to build your database. Years ago firms used to run contests or sweepstakes and not even bother to keep the names, although these people are twice as responsive as similar people who have not responded to promotions.

In the case of a sweepstakes offer run by a cosmetics firm, we generated a 51 % response from a list of such names.

But beware of how you use promotions. Research over a number of years shows that firms which use them more than they use advertising are less profitable than firms which do the reverse for four simple reasons:

  • The people most likely to respond to your promotion are your existing customers. They would have bought anyhow, and simply alter the timing of their purchases. They help create a blip in sales – followed by a trough.
  • The group most likely of all to respond are your best customers, so you’re actually continually bribing them, and teaching them that they can get something for nothing.
  • People who only buy when there is a promotion on are not much use to you anyhow.
  • It is particularly dangerous to spend too much money on in-pack promotions for all the reasons outlined above.

32. I’m not really a direct marketer – How should I recruit good DM people?

Under no circumstances try to recruit good direct people if you don’t know anything about the subject. Get the help of someone who does. Of the recruitment consultancies, Direct Recruitment specialise in this kind of personnel.

Never forget the golden rule in recruitment: make sure you speak to at least three people your potential employee has worked for. It would be a good idea to find out if your potential recruit has experience in a “classic” direct marketing firm – one of the mail order firms for instance, or Reader’s Digest, which is often described as the University of Direct Marketing.

33. What sort of experience and talents should new staff have?

Clearly they should have direct marketing experience. Beware of people who have experience in related fields like advertising or sales promotion. They rarely understand what direct marketing is about.

Whether they have experience or not, successful direct marketers tend to have certain characteristics. These include:

  • A keen eye for detail. There are an amazing number of things that can go wrong in putting together, for instance, a direct mail programme. One reason of course is that direct marketing tends to use a lot of copy. That means, to put it at its lowest, that you have to check lots of words.
  • They tend to enjoy persuading people to part with money. If this sounds rather obvious, remember that many people in advertising, for example, are much more interested in doing clever creative work. A poll of creative directors showed a few years ago that they were much more interested in awards than selling.
  • They tend to be extremely down-to-earth individuals with a strong interest in other people.