Chapter 1 Defining Direct Marketing & the Importance of Direct Marketing

Direct marketing is a system of marketing by which organizations directly communicate with the target customer/s to generate a response or transaction. This response may take the form of an inquiry, a purchase or even a vote.

“Direct Marketing is the total of activities by which the seller in effecting the exchange of goods and/or services with the buyer, directs efforts to target audience using one or more media(direct selling, direct mail, telemarketing, direct-action advertising, catalogue selling, cable TV selling, mobile marketing etc) for the purpose of soliciting a response by phone, mail or personal visit from a prospect or customer.”

- Peter Bennet

2

Direct Marketing involves all activities of marketing: Marketing Research, Segmentation, Target Marketing, Evaluation.

Direct Marketing is an interactive system of marketing which uses one or more media to effect the ‘measurable’ response or transaction at any level.

D.M. is used for Niche products, Service Products or Programs.

Traditionally Direct Marketing was performed using Catalogues, Direct mail, Telemarketing.

Strategies of D.M.- uses a number of media and each medium performs specific functions. Generally, they follow-

One-Step Approach- the medium is used directly to obtain an order. Goal is to generate immediate sale.

Two-Step Approach- can involve the use of more than one medium. The first effort- to screen or qualify potential buyers. The second effort generates the response. Telemarketing + Direct Mail. 3

Basic Reasons for the Growth of Direct MarketingChanging Market Place: Growth of delivery systems and media

fragmentation. Affordable computing power & growth of databases

(databases used for future purpose of marketing).Changing Role of Direct Marketing & Business focus:Building & maintaining customer relationshipTo maximize salesTo maximize customer loyaltyChanging Cost Structures:It is getting to be more expensive to use mass-media.Advertising is done thro’ line extensions- since advt. is

above- the- line expenditure.

Increasing clutter in media.Technological development: (Advances &

Innovations) Changes in the market place- B2B selling- it has

increased or has seen tremendous growth.The change place of market- e.g. home, office etc.Alternative distribution channels.Changing lifestyles and demographics.Evolving economy and international competition.“ Direct marketing is an interactive system of

marketing which uses one or more advertising media to effect a measurable response and/or transaction at any location.”

There are three key elements of this definition. They are as follows:

First, direct marketing is ‘interactive’ in that marketer and prospective customer engage in two-way communication. The response or non-response of the customer completes the communication loop in the direct marketing process. E.g. filling in the response coupon by the customer and mailing it. That is, direct marketing activities give the target market of the communication an opportunity to respond.

Second, all direct marketing activities are significantly more ‘measurable’ than traditional general advertising and sales promotion. A response or the lack of it can be associated with each direct mail piece, each catalog mailing, or each direct response television advertisement. Direct marketers use direct marketing databases of stored purchase behavior and

other information about individuals & households to analyze customer characteristics and plan new campaigns. These databases are the foundation of effective direct marketing.

Third, direct marketing activities can take place from any ‘location.’ Marketer can interact with the customer over phone, through mail, Internet, by fax.

WHY DIRECT MARKETING?The environment has become more complex.Bargaining power of the consumer has increased.Market has become more competitive.Cost of marketing a product has increased. The

retail shelf cost at outlets in major cities is costly.

Advertising budgets are high.Less customer loyalty.DM helps companies focus on their marketing

efforts.Consumer lifestyle has changed. Today,

customers look out for convenience in shopping. Tele-shopping, home shopping, catalog marketing and online marketing cater to core customer value.

Globalization has facilitated the growth of direct marketing.

Niche markets with distinct preferences- DMTechnology has changed and enhanced the

DM activity.

Competencies of Direct MarketingDirect marketers seeks to persuade people to buy

products or services, like other forms of promotion. Virtually, all of direct marketing’s special competencies derive from the fact that the communications are directed at specific individuals and not at mass markets via mass media. This includes the combination of advertising and selling into a single function, the prominence of customer service, the ability to precisely target individuals, and the ability to create personalized messages that call for immediate action. Finally, the results of direct marketing campaigns can be monitored and measured.

Combinations of Advertising & Selling: Direct marketers use paid messages in mass media to elicit a response from their prospective customer. In the process, the communication performs both an advertising and selling function without an intermediary. This makes it cost effective because it reduces intermediary mark ups to increase profits.

Customer Service: Customer service plays an important role in direct marketing. For most firms, customer loyalty is an important issue because companies make money from repetitive pattern of purchases rather than from just one sale. Customer service is important and encourages regular interactions between the direct marketer and the customer. A popular idea- Relationship Marketing.

Precision targeting: Direct marketing communications are frequently aimed at individuals. This is particularly true of direct-mail and telemarketing campaigns based on the use of segmented lists that come from information contained in databases. Targeted marketing reduces the waste that occurs in other forms of communications.

Call for Immediate action: Direct marketing offers calls for specific and immediate action. The prospect is encouraged to place an order or request more information by calling a number or sending in a card.

Personalization: In direct marketing communications, individual consumers are addressed by name. while business prospects should be addressed by name & title. Information from a database is used to produce a specific appeal based on

consumer’s personal characteristics and/or past purchase behavior.

Measurement: Direct marketing activities have an advantage since it facilitates performance tracking. Campaigns can be monitored to determine its success and precisely identifying what worked and what did not. This helps in the efficient allocation of marketing resources. Tracking performance allows direct marketers to analyze relationships between customer characteristics & buyer behavior in their database.

Invisible strategies: Direct marketers have the advantage to conceal their strategies from their competitors or make it less visible since they are on a one-to-one communication with their customers.

Mass Marketing Vs One-to- One Marketing MASS MARKETING ONE TO ONE

MARKETINGAverage customer Individual customerCustomer anonymity Customer profileStandard product Customized market

offeringsMass production Customized productionMass distribution Individualized distributionMass advertising Individualized messagesMass promotion Individualized incentivesOne way communication Two way communicationEconomies of scale Economies of scopeShare of market Share of customersAll customers Profitable customersCustomer attraction Customer retention

Benefits of Direct marketingHome shopping- hassle free & fun, convenient.Saves time.Introduces a customer to a large variety of

products at a time.Comparative shopping is possible by browsing

through mail order catalogues & online shopping.Can order goods for ourselves & others also.Sellers also benefit, they can personalize,

customize messages.Direct marketers can build a continuous

relationship with each customer. E.g. Parents of newborn babies may receive periodic mailings on clothes, toys etc as the child grows. Nestle baby division builds a database

continuously of new mothers and sends personalized packages of gifts and advice at the key stages in the baby’s life.

Direct marketing strategies can be timed to reach prospects at the right time and moments. Thus, DM receives a higher readership because it is sent to more interested prospects.

Direct marketing strategies & offer benefit the marketer

since it is less visible to the competitors. Direct marketing helps in building effective long-

term relationships with the customers and this helps in getting customers to stay loyal.

The measurable response to direct marketing campaigns help to decide the more profitable ones.

Decision Variables in Direct MarketingFor Direct Marketing, the following variables are

associated with making program decisions: 1. Offer 2. Creative 3. Media 4. Timing/sequencing 5. Customer serviceOffer: The ‘Offer’ is the complete proposition made to

a prospective customer by the firm selling the good or service. It includes the product or service, the positioning of the product or service in terms of needs or benefits, the price of the offering, any risk-reduction mechanisms such as money-back guarantee, or price refund or discounts available to the buyer.

Creative: The creative component includes the copy platform, graphic design elements, involvement

techniques, and production considerations such as personalization.

Media: The media used by direct marketers include all those used by general marketers as well as direct mail, telephone, and online services. Direct- response print & TV advertising are particularly effective in generating responses to complex offers that contain items that can be displayed visually.

Timing/Sequencing: Timing & Sequencing of direct marketing communications determine whether the product or service is offered once or as a part of a campaign, that is, as one-shot message or as multiple messages. Also at issue is whether a campaign should be on intermittently (pulsing) or continuously, as well as how often should the communication be repeated.

Customer Service: Customer service is an important aspect of DM. It leads to strong customer franchise and loyalty. Satisfaction with service is a prime consideration in customers’ repurchase decisions. In fact, many direct marketers consider expenditures on customer service and loyalty as an investment. The types of customer service that build businesses include speedy and accurate order fulfillment; prompt and satisfactory handling of customer inquiries and complaints; and a guaranteed return policy (such as- ‘if damaged/defective, email us at or write to us at-----’ or ‘to provide you a worry free shopping experience, we offer you a No Questions Asked Return Policy, within 7 days…..’). Other important elements of customer service are toll-free telephone numbers, money-back guarantees, and the acceptance of credit cards.

Direct Marketing Advantages Selective Reach- DM reaches a large number of

people, reduces waste coverage, and targets consumers with the highest potential.

Segmentation Capabilities- Direct marketers maintain lists of recent product purchasers, car buyers, property buyers, bank-card holders, credit-card holders, cellular service users and so on. Segmentation is done through these lists on the basis of geographic area, occupation, demographics, psychographics. Marketers develop effective segmentation strategies.

Frequency- Direct marketers build frequency levels through the medium /media used. Direct-response TV advertising is quite inexpensive. The frequency through direct mail is not easily accomplished.

Flexibility- Direct marketing uses a variety of creative forms. A direct mail provides detailed information; direct-response TV advertising combines sound, sight and motion and allows product demonstration and so on.

Timing- DM, unlike other media can be much more timely. For e.g. a direct mail can be put together very quickly and distributed to the target population.

Personalization- Direct marketers can personalize the messages & offers most effectively.

Costs- the CPM for direct mail is high but its ability to specifically target the audience eliminates any waste coverage and hence reduces the actual CPM. Cost per consumer purchase contributes to cost-effectiveness of direct-response advertising. The cost of media is low, and each sale generated is inexpensive.

Measures the Effectiveness- Direct marketing program measures the effectiveness of the activity effectively. The feedback generated is immediate and accurate. This helps in the measurement of the DM activity.

Direct Marketing Disadvantages Image Factors- Direct marketing suffers from

poor image factors. Direct mail is often treated as junk mail. Direct-response ads on TV are often low-budget ads for low-priced products. This contributes to the image that something less than the best products are marketed although home shopping channels do promote some expensive products. Telemarketing and spam are irritating to many consumers thus lowering the image of the direct marketing industry.

Accuracy- One of the advantages of DM is targeting specific, potential customers. But, the effectiveness depends on the accuracy of the lists used which is very often inaccurate. Lists must be continually updated. Selectivity decreases if lists are not kept current.

Computerization has improved the currency of lists, yet the ability to generate lists remain a problem.

Content Support- Direct-response advertising requires the creation of mood but it is limited to the surrounding program and/or editorial content. Direct mail, online services also unlikely to create a desirable mood.

Rising Costs- The Rising costs of direct marketing program serves as a disadvantage to the marketer.

Limitations of Direct MarketingAcquisition of data of individual customers may be

difficult – Direct marketing is effective only when all information about the individual customer is available. It may be difficult to acquire this data, as people would be reluctant to part with personal information.

The customers could be exposed to information overload – In today’s rich business and personal environment everyone is bombarded with all types of data. Daily people receive letters, voice mails, catalogues etc. Welcome and unwelcome information accosts the senses through the radio, television, telephone, books etc. Direct marketers are perceived to be contributing to this overload.

Requires highly skilled staff to analyze each customer profile – In Direct marketing communications, individual customers should be addressed by name & title. Also information from database is used to produce specific appeal based on consumers personal characters &/or past purchase behavior. It is therefore important that the profile of each individual customer is accurately maintained. This would be possible only if the staff employed is highly competent to carry out this accurately.

Customer Service rather than customer loyalty is more important in direct marketing

 

For successful implementation of direct marketing program, a company needs to take a number of decisions. It is important to determine:

What the program’s objective will beWhich markets to target through the use of a list

or a marketing databaseWhat direct marketing strategies will be employedHow must the effectiveness of the program be

evaluated To determine the effectiveness of database, the

database must be frequently updated. RFM Scoring method must be employed to

databases. RFM- Recency, Frequency, Monetary

transactions between the company and the customer.

It is important to enter the data each time a transaction is made. The company can keep a track of :

How recently purchases have been madeHow often are they madeWhat amounts of money are spent Tracking which products/services are used

increases the ability to track the customer population & develop effective marketing strategies.

Objectives of Direct MarketingSale of products/ServicesLead Generation- People who respond to DM or

are interested.Lead Qualification- A prospectEstablishing & Maintaining Customer Relations. SUSPECTS PROSPECTS CUSTOMERS CLIENTS ADVOCATESDirect Marketing- Direct contact with customers

through emails, telephone, direct mail or Direct response using mass media such as TV, Internet.

Direct Mail- Fax mail. Email, Voice mail, Solo mails, Product catalogue/ brochures.

Direct-response TV & Radio- direct response; Infomercials, Space advertising-print, Specialty advertising in print; Binding cards ( Response cards- magazines), Specialty advertising in various media- coupons, samples etc.

Principles of Direct MarketingThere are eight key principles of direct marketing &

they are as follows:Planning your marketing activity: All direct

marketing should form part of a controlled marketing strategy, which has been produced as a result of market and competitor analysis and in relation to achievable objectives.

Targeting your customer: Customer information should be stored and capable of manipulation and retrieval from your customer database, to contact your existing customers. Analysis of this also helps you to identify characteristics of potential future customers.

Measuring your marketing activity: The results of direct marketing should be measured to tell you what

works and what doesn't.Tracking: This involves monitoring customers'

responses over time, ideally for as long as your relationship with them lasts. This enables you to measure their value and understand how much of it is a result of how you marketed to them.

Customer behavior: Tracking the spending patterns and general behavior of your customer can help you establish which products are popular and which aren't. This can help you determine future products and strategy.

Future strategies: One aim of marketing is to maximize the value of your customers. So the previous steps will ensure you have the information to plan effective and efficient marketing to achieve this aim.

Developing long-term loyalty: By targeting the right customers, offering them what they want and encouraging them to take more of your products, you will protect your customer database. Your customers will be more likely to stay with you for longer.

Encouraging profitable business growth: Increasing the number of loyal and valuable customers you have and limiting the number of customers with low value and/or high risk to achieve the profitable growth of business. This increases turnover and profit, which can be reinvested to ensure that service and product standards are maintained and ensure that your customers stay happy.

Elements of Direct Marketing ProgramEstablish your market objective:• Estimate the size of the market. There are two ways

of doing it- (i) increased conception of existing users

(ii) increased conception of the market.Evaluate the market place: (i) Business environment (ii) Competitive analysis-

who are they? Entry barrier. (iii) Customer-market segments- SEC, demographics, psychographics, identifying TG. (iv) Product-use behavior- heavy & medium user. (v) Product & market phase (vi)Evaluating past performance- % response rate, sales, no. of requests for information, no. of qualified leads, new customers acquired, lapsed customers, customer acquisition cost (ratio of marketing cost &

customer acquired), Customer lifetime value evaluation.

Developing a Communication Strategy:• Identifying TG• Positioning of the brand• Key selling proposition (USP)

Types of Direct Marketing

Direct marketing can be applied to all three key business sectors:

• Business to consumers • Business to intermediaries • Business to businessApproaches to Direct MarketingStand-Alone Direct Marketing This could be regarded as the “ultimate"

Direct marketing approach. Organizations that employ this type of approach employ no other means to manage the relationship with their customers. Companies such as ‘First Direct’, ‘Direct Life insurance’ or Bazee.com

fall under this category. Here the customers are directly recruited via direct response press advertising, direct mail or the internet. There after, the relationship is managed using a combination of telephone, mail, e-mail etc.

Integrated Direct Marketing In this approach Direct Marketing is viewed as a

part of an integrated marketing mix. Organizations such as 'Save the child', 'Readers Digest', ‘Pizza-Hut’ are seen to adopt this approach.

Peripheral Direct Marketing In this type of approach, Direct Marketing is

employed as only an occasional, tactical marketing tool. Here direct marketing could be initiated as a short-term response to decreasing sales or competitive pressures. Hindustan Lever and many other FMCG companies adopt this form.

IMC ModelReview of Marketing Plan- Objectives, role of

advertising & promotions, Competitive analysis, assess environmental influences.

Analysis of Promotional Program Situation- Internal Analysis External AnalysisPromotional dept. orgzn. Consumer behavior analysisFirm’s ability to implement Market

segmentation &promotional program target marketingAgency evaluation & Market positioningselectionReview of previous programresults

Analysis of Communication Process: Analyze receiver’s response processAnalyze source, message, channel factorsEstablish communication goals & objectivesBudget DeterminationDevelop IMC Program- Set objectives,

determine budget, develop medium/mediaIntegrate & Implement Marketing

CommunicationMonitor, Evaluate & Control IMC Program

The Role of Direct Marketing in the IMC ProgramAdvertising & Marketing IMC considers all sources of brand or company

contact that a customer/prospect has with a product/service. It is a way to coordinate and manage the marketing communications program to ensure that they give customers a consistent message about the company and/or its brands.

Consumers’ perceptions- a synthesis of the bundle of messages they receive- media advertisements, price, package design, direct marketing efforts, publicity, sales promotion, websites, POP displays & the store itself.

IMC is a centralized messaging function.

The Promotional Mix consists of :Advertising Direct MarketingInternet Marketing/ Interactive MarketingSales PromotionPublicity/ Public RelationsPersonal SellingCombining Direct marketing with

Advertising: Direct Marketing is a form of advertising

through mail, print or TV- Direct response ad.Combining Direct Marketing with

Internet/Interactive: Direct marketing makes use of online promotions

through websites, interactive CDs/DVDs/kiosks to

seek a response or complete a sale. Online catalogues promote the product/service to elicit a response.

Combining Direct Marketing with Public Relations/ Publicity:

Public relations activities and Publicity oriented activities employ direct marketing & direct response techniques.

Combining Direct Marketing with Personal Selling:

Telemarketing & direct selling is an aspect of Personal selling. In multi-stage selling, direct mailers are used to invite prospects or after direct selling efforts, direct mailers are sent as a follow-up & reminder.

Combining Direct Marketing with Sales Promotion:

Direct mailers inform a prospect of sales promotion events/activities or invites a prospect by way of contests & prizes & gifts as incentives. In sales promotion implementation, direct marketing tools are employed to inform customers.