Direct Marketing

INTRODUCTION

If a person is a Citibank, Visa or Master card holder, living in a

metro or Class one town, by now he would probably be accustomed to

receive some unexpected mail inviting him to a launch function of a new

product, a live demonstration of a gadget, an exhibition of designer

jewellery or a music concert sponsored by some business firm. He may

also get some promotional literature about an investment scheme or

some share application forms for public issue of companies, or be

offered a hefty discount on subscription of a magazine or an early bird

incentive in booking a residential flat.

Even in the class two and smaller towns, people are getting surprise

gifts and greetings cards on occasions like anniversaries, birthdays and

the New Year. This is an indication that direct marketing is catching up

in the post-liberalization era in India. Several firms, otherwise marketing

their products through conventional channels, are now also using the

direct approach to communicate with and retain their customers.

Different firms use different methods to zero in on the prospects

included in their ‘hit lists’.

Direct marketing as a concept has evolved to its present-day form

through various stages of transformation. Originally a form of marketing

in which goods moved from producer to consumers without involving

middleman, firms selling directly to the end users through their own

retail outlets and / or

Salesperson were said to be involved in direct marketing. With the

development of other form of personal communication, such as the

telephone, direct marketing was redefined.

1

Direct Marketing

According to the direct marketing association of the U.S.A (as

quoted in Kotler 1991 ), ‘Direct Marketing is a international

system of marketing which uses one or more advertising media

to effect a measurable response and/ or transaction at any

location’.

Direct marketing thus includes any activity whereby firms reach the

customer directly as an individual, who responds to them directly. It

differs from conventional marketing in sense that it talks directly to the

prospect on a one-to-one basis without involving any intermediary.

Direct marketing firms are usually designed to achieve a measurable

result in a relatively short duration of time. These differ from other

promotional activities, though they may use the same media or

sometimes the same techniques, such as coupons and samples.

In the absence of conceptual clarity, direct marketing is often defined

very narrowly as a synonym of some simple specific function such as

direct selling, mail order selling or distribution. In fact, it is much more

than all these. A complete system of integrated functions aimed at

satisfying customer needs more effectively, it is much more than all

these. A complete system of integrated functions aimed at satisfying

customer needs more effectively, it is by no means a short-term quick

buck affair.

In conventional marketing, firms wait for the customer to walk into their

stones, whereas in direct mode firms prefer to go out and get the

customer before he steps out of his home. It is a much focused activity

that follows a firm to concentrate on a chosen segment of customers

and interacts with them more effectively through different media. Being

2

Direct Marketing

a more precise and goal-oriented activity it is more suitable for firms

operating in specific niche markets.

According to the number one direct-selling firm in the word, Amway

Corporation of the U.S.A. (estimated sales for 1995 US$ 6.3billion0,

‘Direct Selling moves products from the manufacture/ supplier to the

seller and consumer without intermediaries. It differs from direct

marketing in a sense that direct marketing companies depend more on

mailing, catalogue sales, direct responses an coupon sales, telephone

and telemarketing and the like; and now they are also selling via

computer networks such as the Internet. In contrast, direct selling is

always performed through the sales person.’ (As quoted at the CII-

Amway seminar 1996).

In direct marketing goods move from

Manufacturer ----------------------------

Consumer

In direct selling goods move from

Manufacturer --------- Distributor -----------

Consumer

Some newer forms of direct selling such as multiplayer marketing (MLM)

may involve different layers of distributors and sales persons selling to

3

Direct Marketing

the customers directly. Amway’s definition not withstanding, direct

selling as a concept is nothing than a mode of direct distribution.

The early practitioners of direct marketing in India include Readers`

Digest magazine, bull worker exerciser and some regional language

publications that used mail coupons to increase circulation. Of late,

catalogue-shopping firm such as Burlington’s have also made forays into

the Indian market, but achieved only limited success. However, in the

late 1980`s it was the success of ‘Eureka Forbes’ vacuum cleaners and

Real Value Appliances’ Cease Fire brand of fire extinguishers (will you

call it direct marketing or direct selling?) that signaled the dawn of direct

marketing in India.

At the professional level, the credit of pioneering direct marketing in

India goes to the media person Ram Nathan Shridhar who founded O &

M Direct in 1987, exclusively to handle and promote direct marketing

activities in a professional manner. Since then, he has been selling the

idea of Direct Marketing to savvy marketers with missionary zeal and

spirit.

Today, all major advertising agencies in the country such as Hindustan

Thompson Associates (HTA), Lintas, Mudra, Trikaya Grey, Response,

Contract and many others have set up separate divisions to cope up

with the growing demand for direct marketing. Presently, direct

marketing accounts for only about 14 percent of the Rs.45,000 million

ad spend, but going by the current trend of 35 percent annual increment

in expenditure on direct marketing, it is going to be a big business in the

next couple of years.

4

Direct Marketing

The Direct Marketing Association (DMA) defines direct marketing as

follows:

Direct Marketing is an interactive marketing system that uses

one or more advertising media to affect a measurable response

and/or transaction at any location.

This definition emphasizes a measurable response; typically a customer

order. Thus direct marketing is sometimes called direct-order marketing.

Today, many direct marketers see direct marketing as playing a broader

role, that of building a long-term relationship with the customer (direct

relationship marketing). Direct marketers occasionally send birthday

cards, information materials, or small premiums to select members in

their customer base. Airlines, hotels, and other business build strong

customer relationships through frequency award programs and club

programs.

5

Direct Marketing

THE SCOPE OF DIRECT MARKETING

What Is Direct Marketing?

It is only within the past 10 or 15 years that direct marketing has

come of age. It has grown faster than almost every other marketing

activity for nearly two decades. Most companies that make up the

Fortune 500 use some form of it, as do the largest firms in the service

sector of our economy. It is extensively practiced by retailers, banks,

and other local businesses.

What is direct marketing? It is many things. The full answer to this

question is the theme of this book, which, it is hoped, will yield valuable

insights as to how business can profitably use direct marketing in its

operations.

Although direct marketing has come to prominence in recent

times, the activity is old and has been described in many ways. The

most common definitions include direct mail, mail order, and direct

response advertising. All three of these concepts are related to each

other.

Direct mail is a promotional medium whereby postal services

provide the means of communicating with would-be buyers. These

commercial messages come in different shapes and sizes-letters,

postcards, catalogs, leaflets, coupons. Hardly a mailbox in America has

6

Direct Marketing

escaped the vigorous assaults of these promotions. Advertisers in 1989

spent just short of $22 billion for direct mail, putting it behind only

newspapers and television in terms of expenditures in measured media.

Mail order is a device for advertising goods and services through

any medium: television, magazines, or newspapers. But orders are

fulfilled by mail. Today, mail order has been expanded to telephone to

telephone. The modern customer finds it easier to phone in an order

than to write it out on a standard form, stuff it into an often ill-fitting

envelope and remember to drop it into a mailbox on the way to work.

Whether the response is written or oral, the mail order technique is

basically a method of product distribution and accounts for a little less

than 10 percent of all retail sales.

Direct response advertising sends out sale s messages by any

medium, like mail order, but does not confine fulfillment to the narrow

post office boundaries. In that respect, direct response advertising

embraces the broadest range of activities

Direct marketing includes all three of these somewhat overlapping

concepts, and more. To put it into one succinct statement, direct

marketing is paid-for communication in media, expressly eliciting a

direct, measurable response, such as an order, an inquiry, or a visit to a

store or showroom. Direct Marketing magazine defines it as follows:

Direct Marketing is an interactive system of marketing that uses

one or more advertising media to affect a measurable response and/or

transaction at any location.

7

Direct Marketing

CHARACTERISTICS OF DIRECT MARKETING

A definition is like a reference file. It differentiates a thing from all

other things in one clear statement and makes it easier to look up

particular subjects. But it tells little about content, the inner workings of

what has been defined. For a better understanding of direct marketing,

we must cross the boundary of definition and go from outward to

inward, from lookup labels to functioning details, from superficial titles

to practical elements used in the day-to-day conduct of business.

Direct Marketing is an obvious tool of promotion. Like most

promotions, it tries to make things happen by affecting customer

behavior. Yet direct marketing also contains qualities that set it apart

from other forms of promotion. What are they? Three in particular come

to the fore: advertising –action unity, specificity, and feedback.

Unity of Advertising and Action

In so far as direct marketing communicates through paid media, it

differs little from advertising. Messages in both direct marketing and

advertising are sponsored by an interested source, usually a firm selling

a good or service that identifies itself as such. Then how does one

distinguish direct marketing and general advertising?

8

Direct Marketing

The biggest difference lies in communication objectives. Direct

marketing unites advertising with action; it solicits an immediate

response. The typical national advertisement does not do that. Rather, it

is part of a campaign, a series of ads, aimed at creating some desired

image, favorable attitude, or buying predisposition.

Actually, general and direct-response advertising have the same

ultimate goal-making sales. But the former sees the road to sales as

indirect, a devious passageway winding through the confusing and little-

understood labyrinths of consumer minds. It presumes that the right

mental image must exist prior to purchase; attitudes precede purchases.

In accordance with this philosophy, advertising is often produced as an

obscure. After about a century of consistent effort, general advertisers

have yet to prove a strong connection between their messages and the

sales they are supposed to generate.

Direct marketing makes no claim that carefully built-up attitudes

are prerequisites to sales. They help, yes. Direct marketers do not deny

that. But they do not concern themselves much with gentle appeals to

consumer psyches and shun everything else. They forgo oblique

innuendoes and ask directly for orders. Every direct marketing message

focuses on performance. It pleads with customers to do something, to

act. Now!

Indeed, direct marketing has much in common with retailing,

whose advertising often exudes a keen sense of urgency. Headlines

scream at their audiences to buy now.

Oriental rug Sale. Fantastic Super values!

No limitations, not machine-made, no looks-alike…

Limited quantities!!!

9

Direct Marketing

Largest Sale Ever, Plus… No Interest & No Payments ‘til

July!

The marriage of advertising and selling goes a long way toward

explaining why direct marketing holds great attraction for retailers. Of

the 300 leading mail houses listed in the Scourge Directory, almost one

fourth run retail operations. The sales volume of these establishments is

proportionately greater than their numbers, for they include such giants

as Sears, J.C. Penney, Neiman-Marcus, Marshall Fields, Bloomingdale’s

and Saks Fifth Avenue. All these stores conduct extensive mail order

businesses. J.C. Penney reports more than 300 million catalogs

distributed each year. Sears does not release figures on the number of

annual mailings. But it issues more than 50 full-color catalogs per year,

in addition to brochures and newspaper inserts across the country.

Catalog supplements al9one total more than 300 million copies

annually, and in 1985 the firm’s catalog sales amounted close to $7

billion.

By combining advertising and selling, direct marketing eliminates

the need for personal selling or, for that matter, shopping at sellers’

premises. In many merchandise lines direct marketing thus acts as a

substitute for retailing. The two rivals-direct marketing and retailing-vie

for sales in ready-to-wear apparel, sporting goods, books, records,

tapes, and crafts.

At the same time, direct marketing complements retailing in many

ways. A symbiotic relationship exists in which both distribution systems

10

Direct Marketing

draw support and sustenance from each other. Dependence flows in two

directions, from retailing to direct marketing and vice versa.

In the first instance, retailers can extend their trading zones

without incurring large capital expenditures. J.C. Penney, for example,

sent catalogs into Texas and fulfilled orders from out-of-state

distribution centers before any stories were opened in the Lone Star

State. Brooks Brothers, long known for quality men’s clothing, tapped

new markets by an aggressive program of specialty catalogs in the

1980’s. Offerings such as “Brook gate,” geared to young male

executives, attracted customers living beyond easy traveling distance to

brooks Brothers stores. The group of new catalogs filled huge gaps

between the firm’s major trading zones and increased the number of

customers on a national scale.

Another way in which in-store operations breed mail order is when

retailers seek better returns from self-space. Large department stores

carry as many as 50,000 items or more but find space limited. All

possible variations in a line, or even just the profitable ones, cannot be

displayed in the store. Generally speaking, replacing low-turnover

production with better-selling ones produces more revenue per linear

foot of space. If that is the name of the game, a retailer has two choices:

drop the slow mover or sell the vacated merchandise by direct

marketing. The latter alternative gives the retailers the option of

maintaining full product lines without sacrificing economical use of

space. It also yields incremental revenue by adding products that would

ordinarily not be offered.

The other scenario is retailing that follows direct marketing.

Spiegel, one of the largest mail order companies in the United States,

opened more than a half dozen outlet store for overstocks. Here the

11

Direct Marketing

retail store is used as a device to move excess merchandise resulting

from direct marketing. Likewise, Lillian Vernon in 1985 opened a test

store in New Rochelle, New York, to see if its 3000 plus items sold by

catalog can form a base for a retail business.

Sharper image provides another example of retail following direct

marketing. The firm originally sold customer electronics, apparel, and

health-related products. In the early 1980s, it decided to use its mail

order facilities as a springboard into retailing. The first store opened in

San Francisco in 1983, and within five years some 15 outlets came into

existence.

No matter which comes first, direct marketing and retailing are

often inseparable. As so aptly phrased in a Royal Silk management

report, stores generate new customers for catalog mailings and, in turn,

catalogs serve as in-home advertisements for the stores.

The marriage of retailing and direct marketing does not always

have a fairy-tale ending. The Royal silk cohabitants did not live happily

ever after; in December of 1988 the company filed for bankruptcy under

chapter 11. Having leveraged itself to ride the swelling waves to growth,

the corporation foundered when unforeseen events hit. Royal Silk sold

off its 17 retail stores and, at this writing, is busy trimming off the

corporate fat that it added imprudently in the go-go days of the 1980s.

Royal Silk’s failure does not discredit the mutual benefits of direct

marketing and retailing that management described in an hour of

optimism. The majority of such ventures perform satisfactorily. All

business holds risk, but that is no reason to avoid business

undertakings.

12

Direct Marketing

Specificity

A second characteristic unique to direct marketing is the use of

media to transmit messages to specific, reselected individuals. For lack

of a better word, we call this feature specificity.

Some idea of the scope of direct marketing can be gotten by

examining advertising expenditures. These are given in table 1-1, which

shows advertising expenditures in measured media.

Except for direct mail, which forms the backbone of direct

marketing, and the yellow pages, all media in table 1-1 reflect general

advertising. Some prints and broadcast advertising solicits direct

response, but such ads make up insignificant proportion of the total.

Such means of general advertising, both national and local, are

”open systems.” Messages cannot be directed precisely to particular

individuals. Rating surveys give broadcasters estimates of audience, but

they cannot tell exactly who watches and who does not. People are

treated as a mass and are given probabilities, which apply to no

particular individuals.

The audience for magazines is a little more precise, especially

those that distribute a goodly portion of their copies by subscription. Yet

all subscribers do not read every issue, and for many magazines the

major part of their readership is composed of non-subscribers. At least

that is the conclusion of the syndicated audience studies, such as

Simmons and MRI. Unless delivered directly to homes, newspapers

similarly cannot direct advertising to particular homes or individuals,

and unless no circumstances can they control readership.

13

Direct Marketing

Medium Expenditu

re

Newspapers 32.368

Television 26,891

Direct mail 21,945

Yellow pages 8,330

Radio 8,323

Magazines 6,928

Business publications 2,763

Outdoor 1,111

Miscellaneous 15,271

Total 123,930

Outdoor advertisers also reckon circulation in terms of broad,

overall averages. They make counts of road traffic but cannot say

exactly who drives past a billboard, let alone who sees it and takes note.

Advertisements in these media take on the characteristics of their

carriers. Marshall Mc Luhan many years ago epitomized this tendency:

”the medium is the message.”

Media that convey general advertising reach out in unrestricted

fashion to find audiences, and the coupling is a chance encounter.

Advertisements thus are generalized messages, addressed “to whom it

may concern”.

In contrast, direct mail and telephone calls, the two pillars that

support the direct marketing edifice, go to specific homes. A mail out

must have an exact address to be delivered, even if sent to an unnamed

“occupant.” A phone call is made to a specific number and is answered

14

Direct Marketing

only by a person in that home- or sometimes by an answering machine.

But that automation is nevertheless an extension of a person. These

media, direct mail and telephone, account for some 85 percent of total

direct marketing expenditures.

These specifically directed media have obvious advantages over

their generalized cousins. Messages are not transmitted haphazardly.

They are finely focused. They communicate one to one. But control

extends only to transmission, not reception. People may throw mailings

into a thrash can without reading them. They may hang up on telephone

solicitors, not wanting to be disturbed at home. Marketers thus control

only one part of a communication system. The firm produces and sends

commercial messages, but cannot how these messages are received or

acted on.

However, although marketers cannot mandate customer response,

they can influence it. This is done in two main ways. The first way is to

segment the marketplace so as to appeal to those sectors of the general

population that are most likely to buy. Putting this notion into practice

calls for market analysis, product design, and media selection. The idea

is to offer the most appropriate products to the “right” audiences.

Specificity gives direct marketing the ability to fulfill individual

tastes and demands, to tailor products to particular customers. The one-

on-one approach is perhaps best exemplified by GM’s Saturn model.

Customers can choose from many alternative features, and cars are

manufactured to order by programmable robots. The “have it your way”

concept has come full circle from simple hamburgers to complex

products such as automobiles.

The second way of influencing response is by presenting the offer

in an attractive and interesting manner. This job entails creativity and

15

Direct Marketing

skill of copywriters, layout specialists, art directors, and production

people and goes under the name of copy development.

Feedback

Direct marketing gives its practitioners the ability to measure

response objectively. An order for goods or a request for information is a

hard, indisputable fact. By keying advertisements, these actions can be

traced directly to a particular communication source. When carrying

direct response advertising, even such generalized media as print and

broadcast identify buyers by name and address and specify the source

of such response.

Tracking individual transactions is often referred to as feedback.

This term came from cybernetics, the science of control, and applies

strictly to mechanical systems. Whether ideas of the physical sciences

can be carried over to marketing is debatable. For one thing, marketing

lacks the high degree of regulation that is inherent in a mechanical

system. Unlike engineers, marketers cannot control every part of the

communication system with which they are involved. Governance of

output is especially weak, although that is the most vital part of a

marketing system. The vast majority of consumers who receive a

telephone call or a mailing piece do not respond in a positive way. After

all, isn’t all marketing geared toward accomplishing some

predetermined result?

Yet direct marketing, more than any other branch of selling or

advertising can rightly claim the advantages of feedback. Direct

marketers don’t have to fall back on John Wane maker’s oft-quoted

remark to evaluate their effort: “I know that half my advertising works,

16

Direct Marketing

but I don’t know which half.” They know what worked, what didn’t, and

how much response came from each ad.

Direct marketing measures advertising results specifically and

objectively. There are no inferences drawn from sets of disputable

assumptions. Advertising thus becomes more accountable. A firm can

judge the value of its advertising by comparing expenditures with

returns.

Feedback is enhanced by the ever-decreasing costs of data

processing. Computerized databases have enormously expanded

capacities to record and store information. Companies can track

individual transactions as never before, and many experts think that this

development forms the essence of direct marketing.

Products and Markets

Many practitioners insist that almost any product can be sold by direct

marketing. The goods and services sold by this method, however, are

not random. Some items rely heavily on direct marketing and others not

at all. When would a business lean toward direct marketing, and others

when would it move away from it? The answer depends on the nature of

the products and the markets the firm enters.

17

Direct Marketing

On the whole, specialties and general merchandise make up a

substantial portion of the goods category. Insurance and credit cards

hold prominent positions in the service area. Exact figures are hard to

come by, but a number of consumer surveys provide estimates. Table 1-

2 presents a select list of items ordered by mail or phone, as reported by

Simmons Market Research Bureau. These figures are based on a

national probability sample of some 38,000 interviews conducted over a

two-year period.

The percentages are small, but when they are projected to the

entire adult population, the numbers become imposing. For example,

the 4.2 percent who bought audio cassette tapes translates into more

than 7 million customers 18 years of age or older. According to Simmons

Market Research Bureau, roughly 45 percent of adults bought something

by mail or phone during a 12-month span.

The products listed in Table 1-2, excluding insurance, were

the most commonly mentioned in the Simmons survey.

Insurance is bought less frequently than magazines, books, or

records, but prices of insurance policies are much higher.

Consequently, insurance vaults to the top of direct marketing

sales in terms of dollar volume. This conclusion is buttressed by

examining the companies-12 in all- whose mail order sales in

1998 amounted to $1 billion or more. Of the 12 leading mail

order operators, five offer insurance. General merchandise,

18

Direct Marketing

publishing materials, apparel, and entertainment rank among

the top sellers.

TABLE 1.2 Products Ordered by Mail or Phone in Last 12

Months

Product Percent of Adults Ordering

Magazines 13.3

Clothing 11.6

Books from book clubs 5.3

Other books 4.1

Travel information 4.2

Audio cassette tapes 4.2

Records 3.6

Credit cards 3.5

Toys 3.4

Plants, trees, seeds 3.3

Insurance 1.9

What do these leading products have in common? What

generalizations apply to items that lend themselves to direct

marketing?

PRODUCTS WITH GAPS IN DISTRIBUTION

The most popular items said by direct marketing lack wide,

extensive coverage in distribution. Products available everywhere are

more conveniently purchased at local stores- drug outlets,

supermarkets, variety stores. Packaged goods are a prime example.

19

Direct Marketing

Why wait for such merchandise to arrive by mail or private carrier when

it can be obtained with so little effort, and cheaper?

PRODUCTS WHOSE CUSTOMERS ARE WIDELY DISPERSED

Low customer density makes retailing uneconomical, especially for

low-priced goods and services. Consumers order in small quantities, and

store traffic is a major contributor to profitability. When demand is low,

nonstore selling becomes a viable alternative.

The same holds for industrial goods. Firms cannot support

personal selling when customers are scattered and unit prices are low-

unless order size is large. In the absence of quantity orders. Direct

marketing offers an attractive way of overcoming spatial gaps in

demand.

FAMILIAR PRODUCTS WITH STANDARD SPECIFICATIONS.

By the very nature of direct marketing, customers buy sight

unseen. A picture in print or on television is not the same as the actual

product, and people have a natural reluctance to order things when they

are not sure exactly what they are getting.

Buyers want dependability and freedom from risk. “I usually buy

from companies I have heard of before.” That refrain was sounded most

often in a recent Gallup purchase survey of more than 1,550 consumers.

A good reputation is a valuable corporate asset, not only in direct

marketing nut in all fields of business. But reputation does not come

about overnight; it matures over a lengthy period of time.

To reduce risks of sight-unseen buying, unconditional guarantees

have become an almost permanent feature of direct marketing. Ads

20

Direct Marketing

frequently assure buyers of satisfaction or money back. This has been a

long-standing policy of Sears, Penney, and many other resellers.

Another way of lessening buyer risk is to offer products for

examination, on a trial basis. Many books and records, the contents of

which are not precisely known, are sold in this manner. Such items can

be returned within a specific period free of charge if a buyer isn’t

satisfied.

Nevertheless, steps to assure consumers that their expectations

will be met encounter various obstacles. Many consumers regard

nonstore buying as a hassle. Most companies issuing unconditional

guarantees stand behind their products but do not pay for returned

merchandise.

Product familiarity is closely related to questions of

standardization. If a size 10 shoe varies from one manufacturer to

another, there is no telling whether the footwear will fit. Similarly,

purchasing agents are not prone to order goods for their companies if

product specifications are not standardized.

Company familiarity is not the only quality that breeds orders.

Product awareness is also a prominent factor. Items must have common

meanings among consumers with respect to product features and

specifications.

DELIVERY TIME

Delivery time looms important in business-to-business

transactions, especially with the growing trend toward just-in-time

inventories. The most popular items sold to industry through direct

21

Direct Marketing

marketing are standardized, off-the-shelf supplies. When they are

produced for future demand, they can be shipped in minimum time.

Likewise, consumer markets may make stringent demands on

delivery time. Almost 50 percent of consumers surveyed by the Gallop

Organization agreed with the statement: “I find it difficult to order

products through the mail because of the time it takes to get them.” The

telephone has shortened the time from order placement to receipt of

goods, and the toll-free 800 numbers encourage consumers to call from

a distance. Yet time of delivery has remained a major concern.

Consumer complaints about delays in shipments have occasioned a host

of federal and state regulations.

TASKS OF DIRECT MARKETING

Like other businesses, direct marketing is a performance system.

It is called on to perform certain tasks, which are quite diverse. From a

marketing perspective, we can group tasks into two broad categories:

those that are product related and those that are not. Each of these

categories, in turn, can be subdivided into two parts.

22

Direct Marketing

Product- related ads can do the entire selling job or play a supportive

role. Advertisements that do not feature products can have commercial

transactions as their goals, or they can be devised with no commercial

transaction in mind. These tasks are related as below -

1. Product - Related Tasks ---- 1. Does entire selling job

2. Supports the selling effort

2. Tasks Not Product-Related ---- 1. Related to transactions

2. Unrelated to transactions

Product – Related Tasks

Most direct marketing efforts are geared toward sales in the short

run. No matter what the long-term strategy may be, the operational

focus is on the present.

Results can come in one of two ways. First, a direct response as

can do the entire selling job. For example, direct mail pieces have

merchandise order forms. Telephone solicitors frequently try to close

sales. Printed ads with coupons and TV commercials with 800 numbers

urge people to buy goods and services directly.

On the other hand, a number of direct marketing techniques are

designed as supportive devices. That is, they work with other elements

of the marketing mix in a somewhat subordinate role. Business-to-

business marketing, for example, often confines direct marketing to lead

generation, leaving closing to sales personnel. Service industries such as

airlines employ direct marketing in much the same way. Advertisements

for special tours and flights direct interested prospects to get in touch

23

Direct Marketing

with their nearest travel agent or airline representative. Auto

manufacturers and real estate operators may run sweepstakes,

contests, and incentive offers to increase traffic at sellers’ premises.

Here, direct marketing functions like lead – generation programs, relying

on personal selling to bring about the transaction.

Non product Tasks

Some direct marketing solicitations, probably about 10 percent, feature

neither goods nor services. Then what sort of response do they seek?

One kind promotes an organization. Such advertising aims at

inducing requests for company brochures, annual reports, and

information about corporate projects and related company concerns.

These activities have two prime objectives. One involves

transactions of some sort, but the route is indirect. For example, utilities

may offer free literature on energy conservation. Whether such

promotions eventually result in less electric or gas usage, additional

insulation, or installation of storm windows, they effect transactions.

Another objective of transaction-related activity is to enhance the

value of a corporation, usually the value of its stock. This job must be

done circumspectly, for it is illegal to tout company stock by advertising

or promotion.

Regardless of whether objectives encompass products or financial

assets, products are not featured. Rather, the focus rests on the

corporation. Results ensue indirectly; they are not measurable. In

that respect, the approach is not much different from that of general

advertising. The response is an intermediate one and not traceable to

eventual action.

24

Direct Marketing

A second sort of solicitation involves no commercial transaction

whatsoever. These direct marketing messages concern themselves with

social or political issues, such as fund raising for charities, political, and

social causes, and candidates running for office. Although direct

marketing techniques are commonly used in these endeavors, there are

serious questions as to whether they can really be called marketing.

These actions, which have the same outward form as product

advertising, do not give rise to exchange in a marketplace.

THE FLOW OF INFLUENCE

Tasks are duties that people set for themselves or for others. They arise

from a set of objectives, which can be laid our formally, as in a

marketing plan, or simply kept in an individual’s head. It matters little

25

Direct Marketing

whether these objects are formal or private. In either case, they depend

heavily on products and markets. These relationships suggest a flow of

influence illustrated by a familiar planning model, portrayed in figure 1-

5.

The general planning model shown in figure 1-5 depicts objectives

as dependent on analyses of a firm’s products and markets. This view

accords with a management science philosophy of decision making, in

which procedures follow a rational, problem-solving approach.

Every “problem” in the context of decision theory must specify a

goal or objective, something management wants to attain. In keeping

with rationalism, goal setting takes place after in-depth analysis of the

marketing context. For example, a goal to generate a certain number of

leads for an industrial product assumes that personal selling is the best

instrument for closing sales. This is based on an intimate knowledge of

an industry, of both its products and its markets. An objective to renew a

certain proportion of magazine subscriptions has some realistic basis-

either past experience, new knowledge about renewals trends, a market

test, or any combination of these information sources.

MARKETS

I

I --- OBJECTIVES --- STRATEGY TACTICS ---

RESPONSE

I

PRODUCTS

26

Direct Marketing

Strategies and tactics are ways of accomplishing objectives. Strategies

are long-term plans. Tactics are means of implementing a strategy.

Consider the following:

1. Objective: to increase sales of our product by x amount

2. Strategy: to generate more leads so as to give our sales force more

opportunities to make sales.

3. Tactics : a saturation campaign in the business press, offering free

brochures and literature through reader service cards.

Installation of an 800 number to handle requests for information

A follow-up program whereby outgoing phone calls are used to

qualify these leads

Integration of this program with personal selling, so that qualified

prospects can be contacted by our sales personnel in y days at the

latest.

The type of response is largely a consequence of the tactics

employed. A mailing of cents-off coupons results only in redemptions at

the store. An offer of a prospectus by a mutual fund yields only requests

for the financial literature. What ensues depends on the actions that are

called for.

The level of response is another matter. Several factors have a

bearing on results: what is offered, to whom the offer is made, and how

it is presented.

27

Direct Marketing

An offer is what a seller proposes in an exchange. The more

attractive its items, the higher the level of response. A free catalog will

bring a greater response than one for which consumers must pay.

Determining who gets the offer involves media selection-the

choice between mailing lists, magazines, and TV shows, for example.

The better an offer is matched with markets, the higher the response.

An ad read by interested prospects will get a more favorable reception

than one seen by the general public.

A bigger response, however, is not necessarily a more profitable

response. The free catalog offer, for instance, may produce more

requests for the publication, but it may lead to fewer orders than a

catalog for which consumers pay. The marketer must consider the trade-

off between a larger market potential with lower purchase probabilities

and a more selective market with more likely buyers.

Finally, the way an offer is presented influences the level of

response. In advertising parlance, this refers to copy quality, a unique

combination of verbal and visual elements that make up a message.

Response is not uniform. It varies markedly across products and

markets. A coupon for 50 cents off will bring in more redemptions than a

$1,000 rebate on an automobile. In part, this is because the market

potentials of the two products are very unequal. Second, 50 cents may

represent a higher proportion of the respective product’s price than the

$1,000 rebate. Each product market has its own range of effective

response, and planning for direct marketing requires an understanding

of the limitations.

28

Direct Marketing

The flow-of-influence model implies that response is a mix of

various activities, including both planning and implementation. The job

of coordinating these widely diverse activities falls to marketing

management.

29

Direct Marketing

DIRECT MARKETING IS DYNAMIC

So far, direct marketing has been portrayed in accordance with its

mainstream features. Yet direct marketing is not a body of unchanging

practices. Although its growth slowed toward the end of 1989, direct

response is still expanding at a faster rate than majority phases of

marketing. After adjustment for inflation, direct marketing advanced

more than 5 percent per annum during the entire decade of the 1980s

that rate of increase is about double the real growth of the total

economy.

Growth usually breeds change. For one thing, the more an idea is

used, the more it is altered. Although mail and telephone are still

mainstays of the industry, direct marketing is slowly changing its face.

Among the emerging agents of change is technology. The computer

has introduced completely new ways of doing business. It has allowed

database to be used in new and profitable ways, such as identifying

prospective customers through a wider range of demographic and

purchasing criteria. The following are just a few concrete examples of

how the computer has impacted the industry.

Supermarkets have begun “frequent shopping” programs. With the

use of cards that are electronically scanned with purchases at

checkout counters, retailers can get a more accurate picture of

individual or household buying habits.

More firms are adopting computer-aided telemarketing systems.

These handle towering amounts of information, including customer

profiles, past contracts and purchases, daily call reports, progress

30

Direct Marketing

reports on leads and statistical summaries of activities, campaigns,

and results.

More than 300 billion coupons, or some 3,600 per home, are

disturbed each year. Advances in computer technology have made

this gigantic volume easily manageable.

Although the industry is littered with past failures, home electronic

information services keep appearing. The most notable is that of

Trintex, a joint venture of Sears and IBM, whose development costs

are estimated at better than $250 million. The service, called Prodigy,

made its market entry in the latter part of 1988. It offers computer

owners access to news from USA Today and The Associated Press,

stock quotations from Dow Jones, and merchandise orders conducted

electronically.

Other changes have come from technological developments and

innovations in business practice. Cable TV systems sport “alphanumeric”

formed on special events and promotions. More relevant to direct

marketing are shopping programs that allow viewers to order by dialing

an 800 number.

Some marketers have begun to exploit videocassettes as a selling

tool. Real estate developers send out videos to brokers, who can show

different properties to clients. Some have marketed these videos

directly to individuals, who can inspect homes of various styles prices in

the comfort of their living rooms. Cadillac in 1987 demonstrated its new

ultra-luxury model, Allente, in videotapes mailed to upscale homes.

Several large retailers have developed videocassette catalogs to expand

marketing alternatives. Video stores are even renting tapes with

coupons and direct response offers inside video boxes.

31

Direct Marketing

Many of these changes were occasioned by large national advertisers

embracing direct marketing in major ways. Indeed, these large

companies have acted as a powerful force in propelling the rapid growth

of direct response. When large companies adopt direct marketing, they

seldom substitute it completely for other selling techniques. Rather, they

add direct marketing to their already-bulging bag of tools, incorporating

it into their

Marketing mix, For example, the Allente videotape promotion ran

side with a heavy schedule of television spots and printed

advertisements that extolled the graceful lines created by the famous

Italian designer Sergio Pininfarina. Ina similar vein, Visa, Master Card,

and American Express spent millions on television advertising at the

same time American consumers were being deluged by various mail

offers of credit cards.

When direct marketing is part of an integrated advertising program,

its results are difficult, if not impossible, to measure. What proportion of

Allente’s sales resulted from videotapes as opposed to the TV ads? How

many cardholders were brought in by direct mail when ad campaigns

were saturating other media, such as television and top-selling

magazines? Like the mythical Gordian knot, the combination of direct

marketing with other types of promotion cannot be disentangled to

measure results by source of expenditure. Feedback acquires murky

boundaries.

Fifteen years ago, direct mail usage would have approached 100

percent in virtually every case. Direct mail still reigns as the top direct

response medium, but its eminence is weakening.

32

Direct Marketing

HOW DIRECT MARKETING WORKS

Direct marketing, as practiced by professionally managed firms is a four-

step process:

Identifying prospects

Establishing contact

Booking the order

Maintaining contacts to develop a mutually beneficial,

long-term business relationship

Identifying prospects and segmenting them into various categories

based on certain specific criteria is critical to the success of direct

marketing. This is done in different phases. In the first phase, a

preliminary list of potential or ‘may be’ customers is made through

random mailing, house calls, or mass media advertisements using

coupons or some other contact device. In marketing parlance is termed

‘cold listing’.

This cold list is thoroughly scrutinized and attempts are made to

identify those who are not likely to use the proposed product or service

due to those who are not likely to use the proposed product or service

due to incompatibility of need, income, age, sex, occupation or any

other reason. All such people who don’t qualify as prospects are dropped

from the list. The residual list is then known as the ‘hot list’. Firms may

sometimes seek to gather additional information about those included in

the initial list by contacting them on telephone or through other

convenient media.

33

Direct Marketing

The next step is to draw a detailed profile of the prospect. This

may include information on consumption habits, purchase behavior,

personality and lifestyle, social class, exposure to media; and

demographic particulars such as age, income, education, profession,

family size, domicile, and complete postal address. Technically this step

is known as ‘profiling the respondent’ or ‘response graphic’.

The list is further split into separate cluster of identical groups,

using some demographic, psychographic, or behavioral parameters. This

exercise is termed segmentation. Firm now adopt many innovative ways

of clustering, using novel parameters such as traveling habits, food

preferences, ownership of automobiles, possession of assets and

durables, and taste for music and art.

Finally, each cluster is researched using some predetermined

criteria, to identify the specific segment or segments to be targeted for

the marketing the product. This exercise is known as targeting. If the

product is a high-value item such as jewellery, a computer or an

expensive gadget direct marketing goes into further details and makes

an elaborate study of each individual included in the target segment.

This is known as individualization. Now the firm may focus on the

specific needs of the individual customer. Let us now see how it works in

actual practice.

Having identified the customer and prepared a database of

individual profiles, the next step is to call at the residence of individual

prospects for live demonstration or to offer a free sample of the product.

Since the individualistic approach ensures better chances of being

heard, it is far less difficult to get an order for the product. In the afore-

said example, the firm was successful not only in selling its gadget to a

majority of the host-listed respondents, but in the future too, this

34

Direct Marketing

database may be of immense help in identifying and targeting

customers if it introduces some related product such as a blood sugar or

body weight monitor, or a self testing kit for diabetic patients.

Finally, having been able to sell the product or service to a

customer, it i9s essential to keep in touch with him / her through mail,

telephone or any other means of communication, to retain him / her as a

customer. To create a lasting relationship, firms must maintain regular

contact and update their data according to the changing needs and

tastes of the customers.

35

Direct Marketing

THE BENEFITS OF DIRECT MARKETING

Direct marketing benefits customers in many ways. Home shopping

is fun, convenient, and hassle-free. It saves time and introduces

consumers to a larger selection of merchandise. They can do

comparative shopping by browsing through mail catalogs and on-line

shopping services. They can order for goods for themselves or others.

Business customer also benefits by learning about available products

and services without trying up time in meeting sales people.

Sellers also benefit. Direct marketers can buy a mailing list

containing the names of almost any group: left-handed people,

overweight people, and millionaires. They can personalize and

customize their messages. According to Pierre Passavant: “We will store

hundreds…of messages in memory. We will select ten thousand families

with twelve or twenty or fifty specific characteristics and send them very

individualized laser-printed letters.” Direct marketers can build a

continuous relationship with each customer. The parents of the newborn

baby will receive periodic mailings describing new clothes, toys, and

other goods as the child grows. Nestle’s baby food division continuously

builds a database of new mothers and mails six personalized packages

of gifts and advice at key stages in the baby’s life.

Direct marketing can be timed to reach prospects at the right

moment, and direct marketing material receives higher readership

because it is sent to more interested prospects. Direct marketing

permits the testing of alternative media and messages in search of the

most cost- effective approach. Direct marketing also makes the direct

marketers offer strategy less visible to competitors; finally, direct

marketers can measure responses to their campaigns to decide which

have been the most profitable.

36

Direct Marketing

FACTORS CONRIBUTING TO GROWTH OF DIRECT

MARKETING IN INDIA

In the international market direct marketing has evolved through the

catalogue route. It was the catalogue marketer of the 1930s who set the

pace, but it took direct marketing several decades to reach its present-

day multimedia, interactive modes status. In India, direct marketing was

launched on the mail-order platform in the 1950s but the growth in the

earlier days was sluggish and the practice was confined to only a

product categories. Most major developments in this area took place

only after the consumer boom in the mid 1980s.

Direct marketing in India has since grown by leaps and bounds. With

the advent of competition in the 1990s, several firms such as Philips,

Telco, Titan and BPL who were earlier marketing their product through

conventional channels only are now turning to direct marketing to

strengthen their marketing efforts and increase their consumer base.

They are integrating direct marketing with conventional distribution to

get closer to their customer.

The following major factors have contributed to the quick growth of

direct marketing in India:

Successful replication of overseas products and marketing

practices in India.

Eureka Forbes made history of sorts in India by successfully

marketing vacuum cleaners through door-to-door selling. The firm had,

in fact not done anything new. It had only been replicating here the

37

Direct Marketing

strategy, which was earlier used in the European markets quite

successfully. Nevertheless, its success in India provided a role model for

other firms to emulate.

Change in the Indian business environment due to

liberalization

Some major changes in the Indian business environment, especially

after 1991, made the domestic markets for many consumer and

industrial products more competitive. For the first time, several business

firms that were well entrenched in their markets felt the heat of

competition. It was now essential for them to get closer to the

customers to protect their markets. Many of them, such as ONIDA, HMV,

BPL and Titan who were selling their products only through agents and

middlemen, switched to a parallel channel of direct marketing by

opening several exclusive retail shops. The aim was to keep in direct

touch with the customers and provide certain services that were not

being provided by the middlemen.

Another objective of opening exclusive showrooms was to build an

up-market image of the company by demonstrating the full range of

products. The ambience and décor of the exclusive showrooms also

helped these firms in adding value to their brands. LML Vespa, Liberty

shoes, Bausch & Lomb eye care products and several others ventured

into direct retailing probably due to this reason alone. Service firms such

as ITC Hotels and ANZ Grindlays Bank found direct marketing very

effective in retailing customers and weathering competition.

Middlemen getting stronger.

Several firms such as those in the publishing business are now

increasingly opting for direct marketing to reduce their costs of

38

Direct Marketing

distribution. Over the years, middlemen in India have become very

strong and demanding. In pharmaceuticals, IMFL (Indian made foreign

liquor), packaged food and several other industries, the market is in fact

controlled by middlemen, who dictate terms to manufacturers. In the

FMCG category any new firm wanting to enter the market is virtually at

the mercy of middleman. Because of the higher mark-ups the cost of

distribution for products like soft drinks, confectionery, ice-cream and

frozen goods has gone up to the extent that in some cases it is even

higher than the cost of production. If the trend continues, it may prompt

many more firms to check the direct marketing alternative.

Another reason for the spurt in direct marketing activities is that

dealers usually push brands selectively, depending upon their equation

with the manufacturers. Therefore to protect their brands from

discrimination and to get direct aces to the market, more and more

firms are now opening their exclusive showrooms, especially in large

cities and towns.

Advent cable television.

Proliferation of satellite television channels and the resultant rise in

cable TV connections in urban and semi-urban India has offered an

excellent opportunity for marketing firms to exploit this new high-tech

medium for direct communication. Teleshopping firms such as Dee’s

Teleshopping, Teleshopping Networks (TSN) and Asian Sky Shop (ASS)

are now marketing jewellery, toys, cosmetics, watches, leisure products,

domestic gadgets, car finance and many more products and services

through their small screen.

The UPS of Teleshopping is the convenience of shopping from home

and getting the goods delivered at one’s doorstep. The selection of

39

Direct Marketing

products to be marketed through teleshopping, therefore, depends

largely on the target audience and the timing of the programme. As this

medium of retailing is relatively new to Indian firms, companies are

mostly concentrating on unique household items and targeting up-

market housewives.

PRODUCT SUITABLE FOR DIRECT MARKETING

Industrial goods are traditionally sold through the company’s own

sales force. In case of high-value industrial products, such as machines,

equipments, high-tech engineering goods, and projects where long-term

standing in the marketing and one-to-one relationship with the

customers are both important, direct marketing may produce better

results as compared to other approach. Madras based medium sized

engineering firm, RKKR Steels has demonstrated that even construction

grade steel products (such as bars, angles and frames) can be marketed

directly to builders, contractors and individual buyers.

Services come next in the list of favorites for direct marketing. In

service oriented business, retaining the customers and getting repeat

business is critical for the success of any venture. Perhaps because of

this an ever-increasing number of foreign and private sector banks,

hotels, airlines, corporate hospitals, health clubs and couriers firms are

now banking more on direct marketing.

Individual approach, as used in direct marketing helps in creating

customer loyalty, the backbone of service organization. In India, firms

like ANZ Grindlays bank, DHL Worldwide, ITC Hotels, NEPC Airlines and

many more have benefited immensely by direct marketing during the

last couple of years.

40

Direct Marketing

Direct approach is also being used extensively in the marketing of

financial products such as new issues of shares, fixed deposits schemes

and mutual funds. Real estates and plantation firm like Anasal’s

properties, sterling Holiday resorts, Anubhav Plantation, teak Equity and

many more have been making the most direct marketing. Nevertheless,

direct marketing is Viable only if the margins in the business are high

enough to absorb the cost of maintaining regular contract with

customers; otherwise it may turn out to be a losing proposition.

The next category of products suitable for direct marketing is

high value, high involvement consumer products such as expensive

cars, jewellery, designer watches and furniture, some specialty products

that have a small customer base, such as medical equipment, health

care products and special application gadgets may also be marketed by

making direct contracts with prospects.

High-value, low volume niche marketing items such as Single malt

whisky, ray-ban sunglasses, Bausch & Lomb eye care products and

premium blends of tea (e.g., editor’s choice) are ideally suited for direct

marketing. Many such products like exercisers, executive diaries, new

compact music disks, car accessories, new kitchen appliances and

expensive perfumes are normally not available at retail stores. Because

of their novelty value, these may evoke better response if marketed

directly to the consumers.

Amway Corporations lists of items more suitable for direct selling

includes cosmetics, vitamins, books, cutlery, domestic electronic goods,

air and water filters, clothing, food and wine, Kitchen appliances,

Kitchenware, cleaning products, toys and crafts, hobby items, hand

41

Direct Marketing

tools, automobile accessories, as well as an endless variety of catalogue

items either unique to the company or sourced from third parties.

Direct marketing is also effective where the firm has a family of

products to offer to the same person or household. It is far more

economical and makes better business sense to sell to the known

customers rather than finding a new customer every time. Some

publication groups such as Living media and Spectrum Communication,

who offers a variety of publications for different tastes, have taken this

route successfully. Eureka Forbes benefited immensely from their

database about the vacuum cleaner buyers, when they introduced

another novelty product (water purifier) in the market.

With the advent of multinational brands in the Indian market, direct

marketing may also penetrate into lifestyle product categories such as

fashion garments, perfumes, shoes, wristwatches and toiletries. ITC has

already shown the way by opening exclusive showroom in a few select

metros for its Classic brand premium cigarettes and golf accessories.

42

Direct Marketing

STRATEGIES FOR DIRECT MARKETING

Strategies for direct marketing a product or service to the target

customer would normally encompass the following equally importance

elements:

Planning the product offer

Pricing policy

Media strategy

Distributing

Evolving the basic strategy for direct marketing requires a careful study

of the market and the product, and logical planning.

Planning the product offer

A product offered through direct marketing may be one of the three

types.

A product specifically developed for direct marketing

A product designed and priced exclusively for direct marketing is

not available in retail shops or through any other outlet. It’s

designing, packaging, pricing and positioning is normally done in a

way that it may be offered with or without some add-on attachments

43

Direct Marketing

for free trail, and distributed directly through post or courier. Bull

work exerciser, cease fire extinguisher, editor’s choice tea and many

other were developed (or blended) especially for direct marketing.

Several electrical gadgets, kitchen appliances, hand tools and fashion

items marketed exclusively but tele shopping organizations are still

not available through any other outlet.

A retail product adapted for direct marketing

Retail may be adapted with minor changes for use in direct

marketing. There are several ways of making such changes.

Changing the packaging, accessories, attachments and even the

brand name are some of the common techniques of adoption. A

multi-part product such as different volumes of an encyclopedia may

be marketed as separate units. Dramatization of some features of

product to make it look like different offer is another way of adapting

a retail product for direct marketing. For instance it is a no-frills, basic

products, the firm may stress on simplicity, user-friendliness and

responsible price. On the contrary, if the product is complicated and

difficult to operate, you may stress on advance technology. Nash

(1986) termed this strategy as ‘turning lemons into lemonade.’

Another method of adaptation involves repositioning the product

on some different attributes or usage patterns so that it looks like a

different product. Nash (1986) calls it ‘changing the product without

changing it.’ Anyone who doesn’t believe this may have a hard look

at some of the products currently being offered through mail order

and telescoping.

44

Direct Marketing

A retail product marketed without any modification

through both conventional as well as direct channels.

It is always possible for a firm to use direct marketing as an

additional channel to market its products, without making any

change or modification in the retail version of the products. Most

magazines, music CDs, encyclopedia, premium whiskeys, exercising

equipment, computers, etc., are usually marketed through direct as

well as conventional channels in identical forms and formats.

In the US markets, many computer firms are hawking their

hardware with identical configurations by using the conventional as

well as direct route. Let us examine the following case.

Pricing strategy

In direct marketing, price is often used to spearhead the overall

marketing strategy of the firm. Not only the price but the way it is

expressed is also very important. It may be quoted in several ways: as

net price excluding all accessories, freight and forwarding costs and

taxes or as a package-deal price including all of these; or with some

additional offers such as free gifts, guarantee or credit offers. The Tele

Shopping Network (TSN), for example, offered BPL microwave oven to

buyers in Mumbai and Madras at the same price as ion the market, with

free Borosil bowls.

A new product may be launched with a special introductory offer,

or at a low invitation price or special subscription price, or with an

opportunity to participate in some contest or sweepstake. Pricing

strategy for direct marketing thus has to be flexible and adaptable to

different situations.

45

Direct Marketing

Media strategy

Media strategy for direct marketing may incorporate a logical

testing plan with some calculated risk, to exploit a productive campaign

as quickly as possible. The media commonly available to direct

marketers are direct mail, press coupons, telephone, cable TV, and

television and computer networks. Each of these has its own merits and

demerits. Press Coupon is gaining popularity because it is economical

and gives quick feedback. The advantage of direct mail lies in its highly

individualized communication. The activity of the firm therefore remains

unnoticed by the competitors for a long time. Due to this unique benefit,

many new products in the West are launched through direct mail.

Direct markets may use different media depending on the nature

of the product and the target audience. Mumbai-based Burlingtons, for

instance are currently using mail order catalogue; Music Today is using

direct mail; Shie perfume and Dollop ice-cream use the telephone. O &

M direct had earlier used television to enroll volunteers for the national

Literacy Mission Campaign.

In India, teleshopping is an emerging mode of direct marketing. The

shape it will acquire in the future will depend more on how the current

players perform. In order to increase the visual appeal and make the

communication more authentic and believable, the display of products is

important; equally important is how and by whom. TSN has therefore

hosts which images go well with the products they present. So, Priya

Tendulkar (of Rajani fame) with her ‘quality conscious housewife’ image

demonstrated kitchen appliances, Mandira Bedi with all her charm hosts

jewellery shows, and health products are hawked by sports star Mickey

46

Direct Marketing

Mehta. These carefully selected hosts add the much-needed zing to

mundane selling and buying.

MAJOR DECISIONS IN DIRECT MARKETING

In preparing a direct-marketing campaign, marketers must decide

on their objectives, targets, offer, strategy, various tests, and measures

of campaign success. Here we will receive these decisions.

Objectives:

The direct marketer normally aims to secure immediate purchases

from prospects. The campaign success is judged by the response rate. A

response rate of 2% is normally considered good in direct marketing

sales campaign. Yet this rate also implies that 98% of the campaign

effort was wasted.

That is not necessarily the case. The direct marketing presumably

had some effect on awareness and intension to buy at a later date.

Furthermore, not all direct marketing aims to produce an immediate

sale. One major use of direct marketing is to produce prospects leads for

the sales force. Direct marketers also send communication to strengthen

brand image and company preference; examples include banks that

47

Direct Marketing

send birthday greetings to their best customers. Some direct marketers

run campaign to inform and educate their customer to prepare them for

later purchases; thus Ford send out booklets on ‘how to take good care

of your Car’. Given the variety of direct marketing objectives, the direct

marketer needs to carefully spell out the campaign objectives.

Target customers:

Direct marketer needs to figure out the characteristics of customers and

prospects that would be most able, willing, and ready to buy. Bob Stone

recommends applying the R-M-F formulae (recency, frequency,

monetary amount) for rating and selecting customers from a list. The

best customers target who bought most recently, who buy frequently

and who spend most. Points are established for varying R-M-F levels,

and each customer is scored; the higher the score, the more attractive is

the customer.

Direct marketers can use segmentation criteria in targeting prospects.

Good prospects can be identified on the basis of such variables as age,

sex, income, education, previous mail-order purchases, and so forth.

Occasions also provide a good segmentation departure points. New

mothers will be in the market for baby’s clothes and baby toys; college

freshman will buy computers and clothing and newly married will be

looking for housing furniture, appliances and bank loans. Another good

segmentation departure points are consumer lifestyles. There are

consumers who are marketers have targeted these groups and won their

ears and minds. Companies and industries 24-1 provides the survey

findings of Japanese consumer who tended to purchase through direct

mail.

48

Direct Marketing

Once the target market is defined, the direct marketer needs to

obtain names of good prospects in the target market. Here is where list

acquisition and management skills come into play. The direct marketer’s

best list is typically the house list of past customers who have bought

the company’s products. The direct marketers can buy additional lists

from list brokers. Manes on these lists are priced at so much a name.

But external lists have problems, including name duplication, incomplete

data, obsolete address, and so on. The better list include over lays of

demographic and psychographic information, in addition to simple

addresses. The main point is that the direct marketer needs to test in

advance to know their worth.

Offer strategy:

Direct marketers have to figure out an effective offer strategy to

meet the target’s needs. Nash sees the offer strategy as consisting of

five elements-the product, the offer, the medium, the distribution

method, and the creative strategy. Fortunately all of these elements can

be tested.

Each medium has its own rule for effective use. Consider direct

mail. In developing a package mailing, the direct marketer has to decide

of five components. Each component can help or hurt the overall

response rate. The outside envelope will be more effective if it contains

an illustration, preferably in colors and / or a catch reason to open then

envelope, such as the announcement of the contest, premium, or

benefit to the recipient. Envelops are more effective—but more costly—

when they contain a colorful commemorative stamp, when the address

49

Direct Marketing

is hand typed or hand written, and when the envelope differs in size or

shape from standard envelops.

The sales letter should use a personal salutation and start with a

headline in bold type in the form of news lead, a how / what / why

statement, a narrative, or a question to gain attention. The letter should

be printed on good quality paper and run for as many pages as are

necessary to make the sale, with some indented paragraphs and

underlining of pertinent phrases and sentences. A computer-typed letter

usually out pulls a printed letter and the presence of a pithy P.S. at the

letters end increases the response rate, as does the signature of

someone whose title is appropriate and impressive. A colorful circular

accompanying the letter will also increase the response rate in most

cases by more than its costs. The reply should feature a toll-free number

and contain a perforated receipt stub and guarantee of satisfaction. The

inclusion of postage-free reply envelope will dramatically increase the

response rate.

Consider on the other hand, a telemarketing campaign. Effective

telemarketing depends on choosing the right telemarketers, training

them well, and incentivizing them. Telemarketers should have pleasant

voices and project enthusiasm. Women are a script an eventually move

towards more improvisation. The opening lines are critical. They should

be brief and lead with a good question that catches the listener’s

interest.

The telemarketers need to know how to end the conversation if

the prospect seems to be poor one. The call should be made at the right

times, which are late morning / afternoon to reach business prospects

and the evening hours between 7 to 9 to reach households. The

telemarketing supervisor can build up telemarketer enthusiasm by

50

Direct Marketing

offering prices to the first one who gets an order to the top performer.

Given the higher cost per contact telemarketing and privacy issues

precise list selection and targeting is critical. Clearly, other media, such

as catalogue mail order, TV home shopping, and so on, have their own

rules for effective use.

TESTING DIRECT MARKETING ELEMENTS

One of the great advantages of direct marketing is the ability to

test under real marketplace conditions the efficiency of different

components of the offer strategy. Direct marketers can test product

features, copy, prices, media, mailing lists, and the like. Although direct-

marketing response rates are at the single-digit level, testing these

components can add substantially to the overall response rate and

profitability.

The response rate to direct marketing campaign typically

understates the long-term impact of the campaign. Suppose only 2% of

recipients of a direct-mail piece advertising Samsonite luggage place an

order. A much larger percentage became aware (direct mail has high

51

Direct Marketing

leadership), and some percentage form an intension to buy at a later

date (the purchase will occur at a retail outlet). Furthermore some

percentage of the audience may mention Samsonite luggage to others

as a result of seeing the promotion. Some companies are now

measuring the impact of direct marketing on awareness, intension to

buy, and word-of-mouth to derive a large estimate of the promotion’s

impact than is measured by the response rate alone.

Measuring the campaign’s success:

By adding up the campaign costs, the direct marketer can figure

out in advance the needed break-even response rate. This rate must be

net of returned merchandise and bad debts. Returned merchandise can

kill an otherwise effective campaign. The direct marketers needs to

analyze the main causes of return merchandise, such as late arrival,

defective merchandise, and damage in transit, not as advertised and

incorrect order fulfillment.

By carefully analyzing past campaigns, direct marketers can

steadily improve their performance. Even when a specific campaign fails

to break even, it might still be profitable.

Suppose a membership organization spends $10,000 on a new-

member campaign and attracts hundred new members each paying

$70. it appears that the campaign has lost $3,000 ( =$10,000 - $7,000 ).

But if 80% of new members renew their membership in the second year

the origination gets another $5,600 without any effort. It has now

received $12,600 (=$7,000 + $5,600) for its investment of $10,000. To

figure out the long-term break-even rate one needs to figure out not

only the initial response rate but the percentage that renew each year

and for how many year they renew.

52

Direct Marketing

This example introduces the concept of customer lifetime value.

The ultimate value of the customer is not reveled by the customer’s

purchase during a particular mailing. Rather the customer’s ultimate

value is the profit made on all the customer’s purchase overtime less

the customer acquisition and maintenance costs. For an average

customer, one would calculate the average customer longevity, average

customer’s annual expenditure, and average gross margin, properly

discounted for the opportunity cost of money, less the average

customers whose expected life time value the company wants to assess.

After assessing customer lifetime values, the company can focus its

communication efforts on the more attractive customers. These efforts

include sending communications that may not even sell the customer

anything-but maintain the customer’s interest in the company and its

products. Such communications include free news letters, tips and

birthday greetings, all serving to build a customer relationship.

Direct marketing has spawned a growing body of theory,

measurement, and competent practice. It adds a number of

communication concepts and capabilities to the marketer’s toolbox.

When tied to a carefully developed customer database, it can increase

sales and profit yields and strengthens customer relationship. It can

provide more accurate prospect leads and trigger new sales at a lower

cost. Ultimately, marketers will make direct marketing and database

marketing an integral part of their marketing strategy and planning. Yet

they must do this responsibility.

Channels of distribution:

Direct marketing use several channels of products to the target

customers. Pioneers of direct marketing in India have successfully tried

53

Direct Marketing

door-to-door selling. This versatile mode of distribution can be used with

equal effectiveness for high-value gadgets such as water purifiers,

specialty items such as health care product, life style products like

perfume and cigarettes, as also for items of mass consumption such as

detergent, toilet soaps and eatables. The only problem is its high costs.

Mail order delivery has its limitations. It is more suitable for books,

magazines, audio and video cassettes, small gifts and specialty items

such as fashion garments. Distribution through firms’ exclusive shops is

more suitable for up-market consumer product that requires selective

distribution and / or efficient after- sales services.

PUBLIC AND ETHICAL ISSUES IN DIRECT MARKETING

Direct marketers and their customer usually enjoy mutually rewarding

relationships. Occasionally, however, a darker side emerges:

Irritation:

Many people find the increasing number of hard-sale direct-

marketing solicitations to be a nuisance. They dislike direct-response TV

commercials that are too loud, too long and too insistent. Especially,

bothersome are dinner time or late-night phone calls, poorly trained

callers and computerized calls placed by an auto-dial recorded-message

player.

Unfairness:

54

Direct Marketing

Some direct marketers take advantage of impulsive or less

sophisticated buyers. TV shopping shows and infomercials may be the

worst culprits. They feature smooth-talking hosts, elaborately staged

demonstrations, claims of drastic price reductions, “while they last” time

limitations, and unexcelled ease of purchase to capture buyers who

have low sales resistance.

Deception and fraud:

Some direct marketers’ design mailers and write copy intended to

mislead buyers. They may exaggerate product size, performance claims,

or the “retail price.” Political fundraisers sometimes use gimmicks such

as “look-alike” envelopes that resemble official documents, simulated

newspaper clippings, and fake honors and awards. Some nonprofit

organizations pretend to be conducting research surveys when they are

actually asking leading questions to identify donors. The Federal Trade

Commission receives thousands of complaints each year about

fraudulent investment scams or phony charities. By the time the buyers

realize they have been hiked and alert the authorities, the thieves have

fled to another location.

Invasion of privacy:

It seems that almost every time consumers order products by mail

or telephone, enter a sweepstakes, apply for a credit card, or take out a

magazine subscription, their names, addresses, and purchasing

behavior may be added to several company databases. Critics worry

that marketers may know too much about consumer’s lives, and that

they may use this knowledge to take unfair advantage. Should AT&T be

allowed to sell marketers the names of consumers who frequently call

55

Direct Marketing

catalog companies 800 numbers? Is it right for credit bureaus to compile

and sell lists of people who have recently applied for credit cards? Is it

right for states to sell the names and addresses of driver’s license

holders, along with height, weight, and gender information, allowing

apparel retailers to target people with special clothing offers?

People in the direct-marketing industry are attempting to address

these issues. They know that, left untended, such problems will lead to

increasingly negative consumer attitudes, lower response rates, and

calls for greater state and federal regulation. In the final analysis, most

direct marketers want the same thing that consumers want: honest and

well-designed marketing offers targeted only to those consumers who

appreciate hearing about the offer.

NEWER DIMENSIONS OF DIRECT MARKETING

Some emerging trends in direct marketing are telemarketing

(marketing through telephone) and electronic shopping. In India,

suppliers of industrial components and materials catering firms and

service organization (such as hotels and transporters) have being

booking orders on telephone since long. But telemarketing in an

organized for emerged only in 1990s new-concept products such as

perfect ice and brands of established firms such as lakme (shie),

Cadbury (dollops) and Shaw Wallace (single malt whisky) were the

earlier practitioners of tele marketing. With the expansion of

communication network this phenomena is catching up fast. Citibank

has come out with tele banking in the metros.

56

Direct Marketing

Television marketing is a visual of telemarketing. The marketers buy a

time-slot on television to demonstrate and describe the product, and

customers can call toll free number and order the product. Private Cable

TV network are also being used for television marketing.

Electronic shopping has two firms the videotext system permits a

customer having interactive cable TV connection to order products

displayed on TV screen by operating a small terminal. Alternatively, he

can computer network to receive information about different products

and their prices, compare various offers, choose the product and key in

his product. Many firms have also started hawking their ware on the

worldwide computer web Internet.

Another significant development in the Indian context is the

emergence of syndicated distribution network services like the

Bangalore –based “fresh force” the organization has created a pool of

about 15,000 educated and trained sales persons ready for hire by any

direct marketing firm. In the beginning, only a few publishing firms have

shown interest, but if the experiment is successful several, consumer

goods companies may follow suit. More so because this is not only cost

effective but also promises quicker cash inflow. More recently, another

distribution trend to hit the Indian market is multi-layered marketing

(MLM), detailed as part of distribution. But this may not exactly fit the

definition of marketing. In the changing business environment, direct

marketing is an important alternative mode of approaching the

customers. It makes sense for the companies to integrate direct

marketing with conventional marketing, to keep track of the customers

and maintain regular contract with him. Not only will it promise a more

customer-friendly and caring image of the company; it will also facilitate

creation of a long-term customer relationship. Firms such as Telco

Philips, titan and nestle, who otherwise their market through

57

Direct Marketing

conventional channels have already developed large database on their

customers and maintain regular contract with them through direct

communication. With more and more firms realizing the value of

retaining a customer, an integrated approach towards marketing will

gain more currency.

CASE EXAMPLE

Direct marketing of a blood pressure instrument.

An electronic gadgets manufacturing firm wanted to market

in India a small, hand-held electronic instrument for measuring blood

pressure at home. The price of the instrument was fixed around

Rs.3,000 a piece. Being a specialty product, it was perceived to have

only a limited clientele. As the firm had no establishment channel of

distribution, it decided to take the direct-marketing route. The product

was unique in the sense that it offered the convenience of constant

monitoring of blood pressure at home, in the office, or anywhere,

58

Direct Marketing

without having to visit the doctor. It could save a lot of time and

inconvenience, especially for busy professional, executives,

businessmen and all those who had a hectic work schedule. Since it was

relatively expensive product, senior executive, professional and

businessman over 45 years of age, having an income of more than

Rs.15,000 per month were expected to be the perspective buyers. The

firm adopted the following procedure for identifying and enlisting

prospects.

In order to prepare a cold list, an advertisement of the product, along

with a coupon, was released in two leading newspapers in Mumbai.

Interested individuals were asked to fill up the printed coupon, and send

it to the firm within 10 days to get a free booklet on management of

blood pressure. Personal particulars relevant to identifying the

‘qualifying prospects’ such as income, age, profession, residential

address and details of any health-related problem were to be filled in the

coupon.

A majority of people who responded were found to be suffering from

blood pressure, obesity or heart-related problems. A cold list of about

5000 individuals was generated on the basis of filled-in coupons. This list

was further scrutinized and names of apparently non-serious responding

who might have sent the coupons more out of curiosity. The residual list

of about 3500 respondents was treated as the hot list.

Another alternative to this newspaper ad approach, as suggested by the

research agency was to obtain a list of credit card holders from reputed

banks such as ANZ Grindlays, Citibank, Canara bank, State Bank of India

and Bank of Baroda. The firm could then have sort out the names of

cardholders who were above the age of 40 and occupied senior

executive positions in private or public organizations. This would have

59

Direct Marketing

formed the cold list. Next the firms could have sent a brochure and a

personal letter to them offering to arrange a free demonstration would

have formed the hot lists. However this approach was not taken due to

some logistic problem.

The respondents were then clustered into different segments on the

basis of their health status: those who had only mild blood pressure but

no other problem; those suffering from obesity and blood pressure both;

those suffering from blood pressure and some cardiac problems; those

who had blood pressure and diabetes with or without some cardiac

problem; and so on. This database of all the listed people with their

detailed profiles helped the firm in identifying specific needs of the

respondents.

60