Transcript The Principles & Practice of Direct Marketing

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, directaction 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
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 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.
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Basic Reasons for the Growth of Direct Marketing
Changing 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 relationship
 To maximize sales
 To maximize customer loyalty
Changing 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- DM
 Technology has changed and enhanced the DM
activity.
Competencies of Direct Marketing
 Direct 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
 Average customer
 Customer anonymity
 Standard product
 Mass production
 Mass distribution
 Mass advertising
 Mass promotion
 One way communication
 Economies of scale
 Share of market
 All customers
 Customer attraction
ONE TO ONE MARKETING
Individual customer
Customer profile
Customized market offerings
Customized production
Individualized distribution
Individualized messages
Individualized incentives
Two way communication
Economies of scope
Share of customers
Profitable customers
Customer retention
Benefits of Direct marketing
 Home 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 Marketing
 For Direct Marketing, the following variables are
associated with making program decisions:
1. Offer 2. Creative 3. Media 4. Timing/sequencing
5. Customer service
 Offer: 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 riskreduction 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 Marketing
 Acquisition 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 be
 Which markets to target through the use of a list or a
marketing database
 What direct marketing strategies will be employed
 How 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 made
 How often are they made
 What 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 Marketing
 Sale of products/Services
 Lead Generation- People who respond to DM or are
interested.
 Lead Qualification- A prospect
 Establishing & Maintaining Customer Relations.
SUSPECTS
PROSPECTS
CUSTOMERS
CLIENTS
ADVOCATES
Direct 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 cardsmagazines), Specialty advertising in various mediacoupons, samples etc.
Principles of Direct Marketing
 There 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 Program
 Establish 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 analysiswho 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 business
Approaches to Direct Marketing
 Stand-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 Model
 Review of Marketing Plan- Objectives, role of
advertising & promotions, Competitive analysis, assess
environmental influences.
 Analysis of Promotional Program SituationInternal Analysis
External Analysis
Promotional dept. orgzn.
Consumer behavior
analysis
Firm’s ability to implement Market segmentation &
promotional program
target marketing
Agency evaluation &
Market positioning
selection
Review of previous program
results
 Analysis of Communication Process:
 Analyze receiver’s response process
 Analyze source, message, channel factors
 Establish communication goals & objectives
 Budget Determination
 Develop IMC Program- Set objectives, determine
budget, develop medium/media
 Integrate & Implement Marketing Communication
 Monitor, Evaluate & Control IMC Program
The Role of Direct Marketing in the IMC Program
 Advertising & 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 Marketing
 Internet Marketing/ Interactive Marketing
 Sales Promotion
 Publicity/ Public Relations
 Personal Selling
 Combining 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.