Chapter 16Direct-Response Marketing

CHAPTER CONTENT

Chapter Key Points1. How does the direct-response marketing process work and who are the key players?2. What are the primary tools and media available to direct-response programs?3. How are databases used in direct marketing?4. What are the trends and challenges facing direct-response marketing?

Chapter Overview

Marketers use direct marketing in every consumer and business-to-business category. In this chapter well discuss the practice and process of direct-response marketing communication (DBC), the key players, the tools and media of direct response, and the principles of integrating direct marketing into the total brand communication effort.

Chapter Outline

WHAT IS DIRECT-RESPONSE MARKETING COMMUNICATION? As the Internet and mobile communication devices have become more pervasive and sophisticated, marketers are shifting bigger portions of their marcom budgets into direct-response brand communication (DBC). Because this type of messaging is specifically designed to motivate an immediate response, it is sometimes also called direct-response marketing.

Because DBC is designed to generate immediate responses, this means it is also easy to tell quickly if the messages are meeting their objectives. Unlike mass media advertising and public relations, the effects of DBC are more immediate and more measurable.

The Direct Marketing Association is the professional association for this category of marketing communication. Direct-response marketing is defined as a multichannel system of marketing that uses a variety of media to connect sellers and customers who deal with each other directly rather than through an intermediary, such as a wholesaler or retailer.

As noted in Figure 16.1, direct marketing includes a strong focus on market research to guide strategy and database development to better target customers and prospects and invite them to interact with a company. Using an interactive communication model, the contact is designed to elicit an immediate response.

The most important function of direct response marketing is that it opens up the door for interactivity. Interactivity, or two-way communication, is the heart of DBC since it drives the ability to create engaging, relationship-building contacts. If marketing is a conversation with consumers about a brand, then one of the most intimate marcom tools in the toolkit is DBC.

Some marketers see direct response as more limiting than brand or image advertising because it does not reach as many people or, if it does, the traditional cost of reaching each individual is higher per impression. Proponents justify the higher costs by noting that the objective is action rather than recall or attitude change. Action is the most desired and also the hardest impact to achieve. Today, the higher cost argument is weak, since the Internet and mobile media eliminate the cost of message delivery.

Principle: Direct marketing may have higher costs per impression than mass media, but it is less expensive in the long run because its messages are tightly targeted to reaching prime prospects.

Who Are the Key Players? The four main players in direct-response marketing communication are: (1) marketers who use direct response to sell products or services; (2) agencies that specialize in direct-response communication; (3) phone, mail, or Internet media that deliver messages; and (4) consumers who are the recipients of the information and sometimes the initiators of the contact.

Marketers Traditionally, the types of companies that have made the greatest use of direct marketing have been book and record clubs, publishers, insurance companies, sellers of collectibles, gardening firms, and e-marketers.

Direct marketing can contribute to the brand impression. If the contact is irritating, the message may be negative. But if the messages are well crafted and targeted to appropriate audiences, they may be appreciated, particularly if the recipient has opted in and is willing to be contacted.

Research findings indicate that the appearance of a direct-response message the character and personality communicated by the graphics can enhance or destroy not only the brand image, but also the credibility of the product information.

Agencies and Media CompaniesThe four types of firms in direct-response advertising are:

Advertising Agencies: Most major agencies whose main business is mass media advertising either have a department that specializes in direct response or own a separate direct-response company.

Direct-Marketing Agencies: Independent direct-marketing agencies specialize in creating the DBC messages, arrange for their delivery to a target audience, and evaluate the results.

Service Firms: Service firms specialize in supplying printing, mailing, list brokering, and data management.

Fulfillment Houses: This business is responsible for making sure consumers receive whatever they request in a timely manner, be it a catalog, additional information, or the product itself.

Customers and Prospects Although people might dislike the intrusiveness of direct-response advertising, many appreciate the convenience. It is a method of purchasing goods in a society that is finding itself with more disposable income but with less time to spend it. Although there is some risk in ordering a product you cannot see, touch, feel, or try out, more and more consumers are confident and willing to take a chance buying online.

What Is Included in the DBC Process? As outlined in Figure 16.2, there are five basic steps in direct response marketing: (1) the establishment of objectives and strategic decisions, (2) the communication of an offer by the seller through the appropriate medium, (3) response, or customer orders, (4) fulfillment, or filling orders and handling exchanges and returns, and (5) relationship building through maintenance of the companys database and customer service.

Objectives and Strategies DBC planning begins by delineating the specific objectives. Direct marketing can be used to: (1) provide in-depth product information, (2) drive traffic to a store or website, (3) develop leads for follow-up sales contacts or other direct-response efforts ( lead generation, also called prospecting), (4) drive a response, (5) retain or strengthen customer relationships, and (6) test offers to predict their effectiveness.

The most typical DBC objective is to create sales or some other action by convincing customers to order products, make payments, or take some other action. Conversion rates are the percentage of contacts who actually take action, and this is the most important metric used in evaluating DBC programs. Relationship building is also important since, in most cases, profit comes from subsequent sales.

Principle: Relationship building is critical because direct marketers seldom make a profit on the first sale to a new customer. Profit comes from subsequent sales.

Nonprofits are also big users of direct-response marketing practices, using them to generate donations, memberships, and volunteers. An example is UNICEF, whose goal was to save child soldiers fighting in a war they did not understand and give them an opportunity to rejoin society.

Direct marketers make these basic objectives more specific by spelling out such factors as timing, amount of increase, and the acquisition of information about consumers specific behavior.

Targeting One of the most important decisions made in direct marketing is selecting those who are to receive the offer. For those DBC messages conveyed via catalog, phone calls, and mail, the CPM is high. Therefore, if the DBC effort is to have a positive return on investment (ROI), it is critical that the target prospects have a higher-than-average interest in the brand offer.

The best customer prospects of direct marketers are current customers. Current customers have already been sold on the brand, so it is much easier to motivate them to buy again.

Direct marketers have identified three criteria that help them predict who is most likely to repurchase: recency, frequency, and monetary (RFM). The more recently customers bought from a company, the more likely they are to buy again. Also, the more money customers have spent buying from a company, the more likely they are to buy again. Computer models are used to conduct ongoing analyses of customers buying behaviors and to produce lists using these criteria. Similar to media planning, this modeling is also called optimization.

Principle: The more recently customers have bought from a company, the more frequently they have bought, and more they have spent all increase the odds that they will buy again.

For acquiring new customers, a targeting strategy is to profile current customers and then look for potential customers who have similar profiles from databases of customer information.

The Offer and Response All direct-marketing messages contain an offer, typically consisting of a description of the product, terms of sale, and payment, delivery, and warranty information. In its offer, a successful DBC campaign must communicate benefits to buyers by answering the enduring question: Whats in it for me? Also, many DBC offers include an incentive for responding quickly.

All of the variables that are intended to satisfy the needs of the consumer are considered part of the offer. These variables include the price, the cost of shipping and handling, optional features, future obligations, availability of credit, extra incentives, time and quality limits, and guarantees or warranties. The offer is supported by a message strategy, a media strategy, and the database.

Because DBC messages are tightly targeted, they are often longer, personalized, containing sufficient information to help a consumer make a decision. They also try to reduce rick, usually with guarantees or warranties.

A DBC message should reflect whether the offer is a one-step offer or a two-step offer. Because a one-step offer asks for a direct sales response, it must include a mechanism for responding to the offer. A two-step offer is designed to gather leads, answer consumer questions, and drive customers to a website or retail store.

To maximize the response/order rate, the DBC message must make it as easy as possible for customers to respond. One way to do this is to offer a variety of ways in which to respondonline, mail, phone, and fax. To create urgency, the direct- marketing message may also include a promotional device such as a gift or limited-time-only price deal.

Fulfillment and Customer Maintenance The next step in the direct-marketing process is called fulfillment, which is responding to customers responses by getting the product to those who ordered it. Fulfillment includes all of the back-end activities of processing the transaction, including delivering the product, receiving payment, and providing customers with tracking numbers. The most critical aspect of successful direct marketing, however, is maintaining a customer relationship.

Relationship Building Direct marketers use a database to track customer interactions and transactions, the final step in Figure 16.2. Measuring and evaluating consumer behavior helps the direct marketer understand how the customers have responded to direct marketing messages, and it also helps to predict their future behavior.

Direct marketing (DM) is not a shot-in-the-dark approach. DM professionals continually evaluate and accurately measure the effectiveness of various offers in a single campaign. Because of this constant evaluation, there is an emphasis in DM on learning what is most effective and employing that information in succeeding efforts. Such accurate measurements and adjustments are largely responsible for DBCs success.

Principle: Because direct-marketing messages are constantly being measured, it is good practice to learn what works and to modify succeeding campaigns based on results.

what are The primary tools and media of DBC?

In this section, we will review a number of the tools and media used in direct-response communication, starting with personal sales.

Personal Sales Personal selling is the original and most effective, but also most expensive form of direct marketing. Companies that have used personal selling very successfully include Mary Kay, Tupperware, Fuller Brush, Avon, and Amway.

Beyond personal sales, direct marketing employs five primary tools to achieve its objectives: (1) direct-response advertising, (2) direct mail, (3) catalogs, (4) telemarketing, and (5) online-based e-marketing. Professor Karen Mallia observes that direct marketers have known for years that people considering expensive or complex products want information, and people will be persuaded when that information is delivered in copy that sells while it tells.

Direct Response Advertising MediaIn addition to direct mail, catalogs, and telemarketing, direct marketers use a variety of traditional and nontraditional media, which is discussed below.

Print Media Ads in the mass media are less directly targeted than are direct mail and catalogs, but they can still provide the opportunity for a direct response. Ads in newspapers and magazines can carry a coupon, an order form, an address, or a toll-free number. A classic example of the power of direct-response advertising is the 97-Pound Weakling ads for the Charles Atlas body building mail-order courses.

Broadcast Media A direct-response commercial on radio or TV can provide the necessary information for the consumer to request information or even make a purchase. Radios big advantage is its highly targeted audience. In contrast, television is a good medium for direct marketers who are advertising to a broadly targeted product. As more national marketers move into the medium, the direct-response commercial is becoming more general in appeal.

Direct-response TV also makes good use of the infomercial format that blurs the lines between retail and direct response. They have been around since the emergence of the cable industry and have become a multibillion dollar industry.

Today the infomercial is viewed as a viable medium because: (1) consumers now have confidence in infomercials and the products they sell, (2) with the involvement of upscale advertisers, the quality of infomercial production and supportive research has improved, (3) consumers can be better segmented and infomercials are coordinated with respect to these audiences, and (4) infomercials can easily be introduced into foreign markets. Marketers are more likely to use the infomercial format if their product needs to be demonstrated, is not readily available through retail outlets, and has a relatively high profit margin.

Cable television lends itself to direct response because the medium is more tightly targeted to particular interests. QVC and HSN reach more than 70 million households and service their calls with huge phone banks.

Direct Mail Of those organizations that use direct marketing, direct mail is the most popular method. Advertising mail represented more than 63 percent of all mail received to households, according to the U.S. Postal Services Household Diary Study.

A direct-mail piece is a print advertising message for a product or service that is delivered by mail. With advances in digital printing, it is now possible to personalize not only the address and salutation on the letter, but also other parts of the information as well as the offer. Called variable data campaigns, these marketing messages can be highly targeted, even unique to the recipient.

The following guidelines can be helpful for putting together direct-mail pieces:

Get the attention of the targeted prospect as the envelope comes from the mailbox. Create a need for the product, show what it looks like, and demonstrate how it is used. Answer questions, as a good salesperson does, and reassure the buyer. Provide critical information about product use. Inspire confidence, minimize risk, and establish that the company is reputable. Make the sale by explaining how to buy, how to order, where to call, and how to pay for the purchase. Use an incentive to encourage a fast response.

Most direct mail is sent using a third-class bulk mail permit, which requires 200 identical pieces. This is cheaper than first class, but it also takes longer for delivery. Estimates of non-delivery of third-class mail run as high as 8 percent. The response rate for direct mail can vary from .01 to 50 percent, but its typically in the 2 to 3 percent range. The primary variables are the offer and target audience. Offers mailed to current customers generally have a higher response rate than those sent to noncustomers.

Because of the high level of non-response, direct mail is also a fairly costly tool in terms of CPM. It can be cost efficient, however, because it can be designed to reach a highly targeted audience with an offer of interest. It is also much easier to calculate the actual payout rate, which is why it is considered so much more accountable than other forms of marketing communication. A table in this chapter summarizes the advantages and limitations of direct mail.

Direct-Mail Message Design How the direct-mail piece looks is as important as what it says. The most critical decision made by the target is whether to read the mailing or throw it away, and that decision is based on the attractiveness and attention-getting power of the outer envelope. The envelope should spark curiosity through a creative idea. Ideas about using direct mail creatively are offered in this chapters Inside Story feature.

The functions of a direct-mail message are similar to the steps in the sales process. The message must move the reader through the entire process, from generating interest to creating conviction and inducing sales. It is all done with a complex package of printed pieces.

Most direct-mail pieces follow a fairly conventional format. They usually consist of an outer envelope, a letter, a brochure, supplemental flyers or folders, and a reply card with a return envelope. These can be one-page flyers, multipanel folders, multipage brochures, or spectacular broadsheets that fold out like maps big enough to cover the top of a table.

Historically, the letter has been the most difficult element in a direct-mail package and therefore the focus of much research. Over the years, many techniques have proven effective in getting consumers to read a direct-mail letter, flyer, or brochure. Here are some hints for writing an effective direct-response letter: 1. Get Attention. To grab attention or generate curiosity, use pictures and headlines that tout the products benefits.

2. Be Relevant. Send the right message to the right person.

3. Personalize. Use a personalized salutation. If the individuals name is not available, the salutation should at least be personalized to the topic, such as Dear Cat Lover.

4. Use a Strong Lead-in. Begin the letter with a brief yet compelling or surprising statementDear Friend: I could really kick myself!

5. The Offer. Make the offer as early in the body of the letter as possible.

6. The Letter. Explain the details of the offer and use testimonials or other particulars that clearly describe benefits to the customer.

7. Drive to Website. Use short pieces and drive interested prospects to the website for details.

8. The Closing. End by repeating the offer and stating additional incentives or guarantees and a clear call to action.

9. Test, Test, Test. Check every single element small changes can boost conversion rates dramatically.

One advantage of direct mail is that it has a tactile quality that is missing in most other forms of marketing communication.

Test, Test, Test The secret behind effective direct mail is scale. In other words, enough pieces are sent using various strategies to determine what increases the response and what does not.

Issue: Trees, Water, and Waste Critics of direct mail cite its environmental impact. Production of direct mail is estimated to use 100 million trees and 28 billion gallons of water annually. And untold millions of dollars are spent for disposal and recycling.

Is there a need for an aggressive ban on direct mail? Does the waste and irritation factor of junk mail justify a ban on this form of marketing communication? On the other side of the debate, might banning direct mail infringe on the right to commercial free speech? Whats fair, whats right, and what is the responsible thing for marketers to do?

Catalogs Catalogs have been effective direct-response marketers for as long as there has been mail. A catalog is a multipage direct-mail publication that shows a variety of merchandise. Following the explosion of digital media, however, catalogs also evolved into easy-to-use online publications.

The growth in the 21st century is in specialty catalogs, which are aimed at niche markets. There are catalogs for every hobby and more general interests. The traditional catalogs contain a variety of brands and products, but there are also brand catalogs whose merchandise is all from the sponsoring brand, such as J. Crew and the Marriott Hotel.

Another factor in the effectiveness of catalogs is the nature of the interactions between customers and the company, whether over the phone or the Internet. Lands End has been a model of customer care that leads to not only brand loyalty, but brand love.

Some catalog retailers have their own stores, such as Williams-Sonoma and Tiffanys. Banana Republic, which began as a catalog marketer and then moved into retailing, is now launching its first catalog since 1988.

Many large retailers are now multichannel, using catalogs, websites, and stores. A number of marketers are using video or CD catalogs because these provide more information about their products.

Telemarketing Before telemarketing calls were greatly limited by government-supported do-not-call lists, more direct-marketing dollars were spent on telemarketing phone calls than on any other DBC medium. Thats because telemarketing is a form of personal sales, but a lot less expensive.

An in-person sales call may cost anywhere from $50 to $1,000, after factoring in time and transportation. In comparison, a telephone call ranges from $2 to $15 per call. That is still expensive if you compare it to the CPM of an advertisement placed in any one of the mass media. However, the returns are much higher than those generated by mass advertising because they are intrusive, personalized, and interactive. The caller also can respond to buyers objections and make a persuasive sales argument.

A typical telemarketing campaign usually involves hiring a telemarketing company to make a certain number of calls using a prepared script. Callers work in call centers, which are rooms with large banks of phones and computers. Most calls are made from databases that contain prospects that were previously qualified on some factor, such as an interest in a related product or a particular profile. Occasionally cold calling is used, which means the call center staff are calling random numbers. This practice has a much lower response rate.

There are two types of telemarketing: inbound and outbound. An inbound or incoming telemarketing call is initiated with a customer. The consumer can be responding to an ad, catalog, e-mail, or fax. Calls originating from the firm are outgoing or outbound. Outbound calls generate the most consumer resistance because they are uninvited, intrusive, and unexpected.

Telemarketing Message Design The key point to remember about telemarketing messages is that they need to be simple enough to be delivered over the telephone. If the product requires a visual demonstration or a complicated explanation, then the message might be better delivered by direct mail. The message must also be short.

Issues: Intrusion and Fraud Telemarketing has its drawbacks. Perhaps the most universally despised telemarketing tool is predictive dialing. Predictive dialing technology makes it possible for telemarketing companies to call anyone, even those with unlisted numbers. Special computerized dialing programs use random dialing.

Telemarketings reputation has also been tarnished by fraudulent behavior. In response to abuses in telemarketing, the Federal Trade Commission (FTC) enacted the Telemarketing Sales Rule (TSR) in 1995 to protect consumers. Recently, FTC regulations have required telemarketing firms to identify themselves on caller ID.

The most serious restriction on telemarketing was implemented by state and national do-not-call lists. Telemarketing companies responded by challenging the legality of these lists in court, based on what they believed to be an illegal restriction on commercial free speech. In 2004, however, the U.S. Supreme Court let stand a lower court ruling that the industrys free speech rights were not violated.

The do-not-call lists do not restrict companies from calling their own customers. They do allow nonprofits to continue calling and also allow market research firms to continue conducting phone surveys. Telemarketers subscribe to the database and check the list at least monthly for numbers they need to delete from their call lists.

The Internet and New Forms of Direct Response

Much Internet advertising is simply direct marketing in electronic form. Direct marketers saw the Internets potential early. Because of its interactive dimension, the Web is moving direct marketers much closer to one-to-one marketing, and social media are accelerating that trend.

Online catalogs cross the line between e-commerce and direct marketing. Consider Amazon.com. The website operates like a direct-mail catalog but its interactivity makes it much more useful than a print version could be.

The technology of the Internet has also produced dramatic changes in the direct-mail industry. At the most basic level, the Internet has facilitated the ease of producing and distributing traditional direct mail by e-mail. Assistance is available from companies such as Constant Contact, which offers a streamlined process that allows customers to point-and-click their way to creation of mailers.

Another feature of Internet direct marketing is greater sampling opportunities. Online music stores now have hundreds of thousands of music clips for shoppers to listen to before making a purchase. It also sends them e-mail messages offering special prices on items based on their past purchasing patterns.

Today, the use of extensive database information and innovative e-mail technology, combined with creative marketing strategies, has brought the benefits of highly personalized, inexpensive messages to far-reaching mass campaigns. Three basic types of e-mail campaigns are used in marketing communication: (1) addressable to current customers, (2) addressable to prospects, and (3) unsolicited and often unwanted, or spam.

An option in the addressable category that is still evolving is the idea of sending automated direct-marketing messages via GPS-enabled mobile devices, such as iPhones.

The most exciting advances in Internet direct response, however, are found in the areas of mobile marketing and social media. With mobile phones, marketers are able to meet people where they are. Social selling, also known as network marketing, utilizes the reach and persuasiveness of social media and its endless and continuous conversations. Businesses are finding opportunities in this human need to connect and share.

Issue: Spam Although e-mail marketing has enjoyed increased success, the practice has received intense criticism for generating too much unwanted e-mail, otherwise known as spam. The FTC has determined that 90 percent of all spam involving business and investment opportunities contains false or misleading information.

Retailers can be seen as spammers. The Wall Street Journal reported that in 2011, the nations top 100 e-commerce retailers sent customers an average of 177 e-mails each.

Twitter has filed complaints in federal court against companies and individuals who it claims violate the antispam provisions in its user agreement. Amazon has filed lawsuits in U.S. and Canadian courts to stop a practice known as spoofing. To combat the problem of spam, Facebook began offering its users a complimentary six month subscription to McAfees Internet Security Suite.

Critics would like to see the government close down the bulk of e-mail operations. There are technological problems in controlling these practices, however, and spammers have proven creative in finding ways to get through filters. It has become a global problem as spammers from outside of the United States have helped to double the volume of unwanted e-mail.

Is spam cost effective? It can be, considering that the cost of getting into the business is simply a computer and an Internet connection. A list of ways that consumers can reduce the amount of unwanted direct mail or spam can be found in this chapter.

Permission Marketing Because spam is a huge problem for legitimate e-mail marketers, they are now using an approach called permission marketing. This approach attempts to address the spam problem by asking potential customers for permission to send them e-mail. Opt in means that all bulk mailers have to get your permission before sending a promotion. Opt out means that e-mailers can send the first e-mail but must give recipients the means to refuse any further e-mails from that business. The concept at the heart of permission marketing is that every customer who opts in to a campaign is a qualified lead.

Principle: Opt-in and opt-out strategies make e-mail campaigns more acceptable because customers give permission to marketers to contact them. At the heart of permission marketing is the idea that every customer who opts into a campaign is a qualified lead.

Databases: the foundation of DBC

Direct marketers use databases to keep track of customers and identify prospective customers. They are also a segmentation tool to communicate relevant offers to customers and prospects. Another benefit for companies that keep track of their customers online behavior is that they are better able to personalize their DBC messages.

Big data, a term that became popular in 2013, refers to use huge computer data storage capabilities combined with analytic software to do highly strategic targeting.

A database is at the heart of direct marketing and of the practice of behavioral marketing, which means that individuals are targeted based on what they have done in the past products theyve bought, shows they have watched, sites they have visited, etc.

Data driven communication has been defined as a strategy that delivers customer focused objectives by treating different customers differently. Through the use of databases, a learning relationships evolves that stems from customer dialogue. Carnival Cruise Lines is an example of a company that uses databases to manage customer relationship, and Carlson Marketing is an example of a company that uses a database to segment its customers and develop a different marketing strategy for each segment.

Databases Create a Circular Process A database is important at both the beginning of the direct-marketing process where it where it captures and updates information for the next interaction. Its a circular process. If an important objective is to build relationship programs, then the information gathered through customer interaction feeds back into the process and becomes an input for the next round of communication efforts.

Principle: DBC is a continuous process beginning and ending with a database of prospect and customer information.

DBC is possible because of innovations in computer technology that have helped companies keep up with their customers. The purpose of the database is to produce up-to-date information on customers and prospects as well as their interactions with the company. According to the DMA, a marketing database has these primary objectives:

Record names of customers, expires (names no longer valid), and prospects. Store and analyze responses. Store and analyze purchasing performance. Continue direct communication with customers.

These objectives also set up categories of data that need to be collected, stored, and manipulated in order to develop direct-response strategies. According to Forrester Research, there are four categories of data being collected by marketers. They are:

1) Individual identity data that includes name, social security number, drivers license number, and IP address that identifies the users computer.2) Behavioral data that includes transaction data, Internet browsing history, and location information from mobile devices.3) Derived data such as credit scores and personas are computed or compiled by modeling and profiling.4) Self identified data that consists of information provided by the user, such as purchase intent, likes, product opinions, and personal profiles from professional and social media.

The goal is for a marketer to know its customers better in order to direct relevant messages and offers to them. Messages targeted on behavior are more than twice as effective as more general advertising in convert in website visitors to buyers.

The six stages of the database management process is illustrated in Figure 16.3 in the text. Lists Customer and prospect lists that contain contact information are used by all areas of direct marketing. Direct-mail lists that match market segments identified in the marketing communication plan can be purchased or rented from list brokers who maintain and sell thousands of lists tied to demographic, psychographic, and geographic breakdowns. Lists are further classified on such characteristics as hobbies, affiliations, and personal influence.

Marketers either own lists or rent them. There are three types of lists:

A house list is made up of the marketers own customers or members, its most important target market. This is its most valuable list.

A response list is made up of people or households who have responded to some type of direct-response offer. The more similar the product to which they responded is to the marketers product, the more valuable this list.

A compiled list is of some specific category, such as sports car owners, new homebuyers, graduating seniors, new mothers, association members, or subscribers to a magazine, book club, or record club.

New lists can be created by merging and purging. A company can hire database management firms whose sole purpose is to collect, analyze, categorize, and market an enormous variety of detail about customers. Relational databases, that is, databases that contain information useful in profiling and segmenting as well as contact information, can be purchased from a variety of companies.

Data Mining The practice of sifting through and sorting information captured in a companys database in order to target customers and maintain a relationship with them is called data mining. Such information includes comprehensive profiles based on demographics, lifestyle, and behavior, as well as basic contact information.

How is data mining used? Marketers collect information about their customers in order to better target customers who might really be interested in their offers. This is called behavioral targeting. Data mining is also used to spot trends and patterns and profile prospects based on key characteristics of current customers.

Issue: PrivacyOne of the unexpected facts about life with social media is that your friends and associates can share information about you on all of their online social networks. Its a new life in the nothings private anymore universe.

Marketing and Privacy Privacy is a huge concern for all direct marketers, not just those engaged in e-commerce and it has generated fierce debate among consumer privacy advocates, marketing and advertising associations and federal regulators. Companies are increasing the amount of data they collect on their customers to do better behavioral marketing sometimes with their permission and knowledge, but often without customers even being aware of the practice.

The lack of privacy on social media is an issue, particularly when it is combined with gathering of marketing information. Larry Ellison, president of Oracle points out that when a company launches a product, it is easy to look at a Facebook or Twitter feed and find out what you and other users are saying about that product. That may sound like good research being used to collect useful insights, but privacy activists see huge problems with these practices.

The unknown tracking is the problem with cookies, little files installed on users web browsers without users knowledge, to track their online behavior. The use of cookies is increasing as the number of data trackers collecting information on consumers has increased. Research shows that 100 of the most popular websites had 6,485 cookies. Most were installed by third party users, not the websites themselves.

David Rittenhouse, an expert in digital marketing, observed that a huge ad tech industry is dependent on consumers and lawmakers not getting too excited about data collection and privacy. He continues, At this moment, in my opinion, consumers have no idea how much data is being collected on them from their web browsing.

And what about marketing to kids? The original 1998 Childrens Online Privacy Protection Act has not kept up with technology. The old rules required parents to give permission on how data were collected from children, but its possible with some iPhone games for kids to join social networks that collect data without parental permission.

From its beginning, Facebook has promised users that their personal data would be kept private. However, its trillion member user base is its most valuable asset, so the company has been in a quandary trying to figure out how to make information available to marketers without violating its covenant with its users.

Many browsers come with a do not track option. Google got in trouble with the FTC in 2012 when it was demonstrated that Google bypassed these privacy settings for Apples Safari users and presented personalized web pages through its DoubleClick web network. The company was fined $22.5 million.

To be fair, many customers appreciate the relevance of the brand messages they receive through these practices. And while many customers are willing to give permission to marketers to collect personal data, concerns arise if there is any thought that a company is spying on them or collecting personal information without permission. Research has found that 90% worry about their online privacy.

Privacy is particularly an issue with data mining. At what point is efficiency of targeting compromised by privacy concerns? What is the impact of privacy concerns on consumers purchasing behavior? This issue is discussed in the A Principled Practice feature located in this chapter.

Regulation These concerns translate to regulation or perhaps self regulation. Although the FTC does not have the authority to write new privacy rules, it hopes to spur the industry to regulate itself. Action items include:

Do Not Track: Control data collection as well as data use Mobile Tracking: Ask the mobile industry to improve privacy protections and use disclosures. Data Brokers: Creating legislation to make these business and their practices more transparent. Self Regulation Codes: The FTC will work with the Department of Commerce to create specific codes of conduct for different business sectors.

In terms of self regulation, the Digital Advertising Alliance, a consortium of organizations in the advertising and marketing industries, has created the AdChoices program, which includes a code of conduct, as well as training and certification programs that encourage companies to commit to the code of conduct.

In an attempt to avert regulation, the direct-marketing industry has developed an icon to use on ads and other online messages that use behavioral marketing.

The TRUSTe organization also authorizes companies to use its privacy seal when they are certified as following FTC guidelines and the Digital Advertising Alliance code of conduct.

DBC trends and challenges Direct marketing offers a great opportunity to convey the essence and personality of a brand in a one-on-one conversation with a customer or prospect. So what needs to be done to develop and protect this brand voice? Planning an integrated approach is critical, and keeping the message consistent across international borders is also important.

An important principle to remember is: Direct marketing conveys the essence and personality of a brand in a one-on-one conversation with a customer or prospect.

Integrated Direct Marketing Historically, direct marketing was the first area of marketing communication that adopted an integrated marketing approach. In fact, some people refer to DBC as integrated direct marketing (IDM).

Two reasons integration plays so well in the direct-response market is because of its emphasis on the customer and its measurability. The coordination problem is a challenge due to the deluge of data bombarding customers from many different channels. The only way to manage the information is to focus it around customer needs and interests. By using databases, companies can become more sensitive to customer wants and needs and less likely to bother them with unwanted commercial messages.

Linking the Channels Instead of treating each medium separately, as some advertising agencies tend to do, DBC companies seek to achieve precise, synchronized use of the right media at the right time, with a measurable return on dollars spent. The principle behind integration is that not all people respond the same way to direct-response messages. One person may fill out an order form while another may immediately call an 800 number. Most people, if a DBC message grabs them, tend to put it in the pending file that often goes in the garbage at the end of the month. But if a phone call or e-mail follows the direct-mail piece, the marketer may get the wavering consumer off the fence.

A common problem with IDM is that direct-marketing messages and advertising messages often do not reinforce each other as well as they should. This is because the two functions, advertising and direct marketing, which are often handled by different agencies, dont talk to one another. This will change, however, as clients demand more coordination of their marketing communication programs.

Creating Loyalty One of the best practices is the development of solid customer-brand relationships. When one-on-one communication leads to a customer retention strategy that ultimately increases brand loyalty, the customer relationship is strengthened. Direct response is a highly targeted form of marketing communication that lets planners focus on their best customers and inform, encourage, or reward them for their brand loyalty.

Perhaps the most ambitious attempt to create consumer loyalty is through a concept called lifetime customer value (LCV). LCV is an estimate of how much purchase volume companies can expect to get over time from various target markets. LCV is the financial contribution through sales volume of an individual customer or customer segment during a length of time. The calculation is based on known consumption habits plus future consumption expectations.

Consumer resistance to direct marketing must be considered in efforts to build loyalty. Changing consumers attitudes about direct marketing has not been easy because consumers resent companies that know too much about them. If a company can demonstrate that it is acting in the customers best interest rather than just trolling for dollars, it might gain consumers loyalty.

The most important goal, however, is supporting brand building, and some marketers have been concerned that DBCs emphasis on accountability and on driving sales has made it less focused on the brand presence.

Global Considerations in DBC The direct marketing industry is growing fast in many Far Eastern and European countries, in some places, even faster than in the United States. The global trend is fueled by the same technological forces driving the growth in the United States: the increasing use of computer databases, credit cards, toll-free phone numbers, and the Internet, along with the search for more convenient ways to shop.

Direct marketing is particularly important in countries that have tight restrictions on advertising and other forms of marketing communication. Privacy issues are even more intense in some other countries than they are in the United States. In some countries, lists are not available or they may be of poor quality.

Some countries have instituted outright bans on direct marketing, although these restrictions seem to be loosening up. Governmental regulation of the U.S. Postal Service may also place limitations on the use of direct mail. For example, language and characters can be a problem. Computers and typesetting systems have to accommodate these differences. Presorted mail in a wrong format may result in charges to the end user that significantly raises the cost of mailing.