TYBMM - SEM VI

Prof. Hemant Kombrabail

DIRECT MARKETING
The seeds of direct marketing as we use it today were sown way back in the nineteenth century at the birth of the US mail order industry, which served so well the needs of remote farmers, ranchers, settlers and new townships. Today, this geographical justification for direct marketing has been replaced by our needs for much more cost-effective, measurable and reliable ways of managing customers. Technology has made it so much easier for us to communicate directly with our customers, while changes in tastes and media fragmentation have made conventional mass marketing techniques less effective in getting the response you want from your customers - though of course they are still very powerful in developing and sustaining branding. Direct marketing is a form of marketing that attempts to send its messages directly to consumers, without the use of intervening media. The key principle of direct marketing is that at least part of the communication you have with your customer is direct - to named customers. Direct marketing differs from regular advertising in that it does not place its messages on a third party medium such as a billboard or a radio commercial would. Instead, the marketing of the service or commodity is pitched directly at the consumer. Most direct marketing is done by companies whose only function is to manage and perform direct advertising, rather than by the advertised entity itself. Direct marketers have been long time customers of computer databases, and they often have very sophisticated criteria of inclusion and exclusion in their mailing lists. Today Direct Marketing plays a broader role, that of building a long-term relationship with the customer. Direct Marketers send birthday cards (e.g. Kesari Tours), information material (e.g. Tata Telecom), small premiums (e.g. Readers Digest) to selected members of their customer base. Airlines, Hotels, and a number of other businesses build strong customer relationships through frequency award programs and club programs. Direct marketing is now a key discipline within marketing. It is: Direct because its communications go directly between you and your customer, with no intermediary. Marketing, because it helps you meet your customers' needs and your profit, sales or other objectives A discipline, because by following a set of rules and procedures, you can achieve good results. The key principle of direct marketing is that at least part of the communication you have with your customer is direct - to named customers. Direct marketing can be summed up as essentially: Targeted - reaching the customer in a manner appropriate for them to be prompted to respond Direct - the communications go directly between yourself and the customer with no intermediary. Customers can generally feel, touch, see or hear your communication to them as individuals. Marketing - it helps meet your customers' needs and your profit, sales and other objectives. Direct marketing is very much part of mainstream marketing, but has three additional characteristics: 1 It is based on direct responses. Direct marketing communications invite customers to respond - by mail, telephone, Internet, redeemable retail vouchers, etc. The response may range from enquiry and giving information to ordering. This opportunity for monitoring feedback is critical to direct marketing. 2 Direct marketing is measurable. In any direct marketing campaign responses are measured,

TYBMM - SEM VI

Prof. Hemant Kombrabail

evaluated and analyzed. Responses can be through any medium - telephone, mail, Internet hits, etc. Measuring responses leads to accountability. All costs can be related to response. Return on investment can be calculated. Traditional advertising relies mainly on market research techniques based on samples to measure effectiveness, though for some campaigns sales results can be accurately measured (e.g. if run in test areas only). Direct marketers use transaction data to measure. This is one reason why direct marketing has been called scientific advertising - direct marketers conduct their tests in controlled environments. While environments do change, direct marketing is as near to a science as marketing achieves. 3 Direct marketing usually requires you to build and maintain a database of customers and prospects. This gives you better understanding of your market and can give you competitive advantage. DEFINITION 1. Direct marketing is an interactive marketing system that uses one or more advertising media to effect a measurable response & / or transaction at any location. 2. Direct marketing is the planned implementation, recording, analysis and tracking of customers' direct response behavior over time to derive future marketing strategies, for developing long-term customer loyalty and ensuring continued business growth. 3. Direct marketing is any activity that creates and exploits a direct relationship between a firm and its individual customer. 4. Direct Marketing is the interactive use of advertising media to stimulate an (immediate) behavior modification in such a way that this behavior can be tracked, recorded, analyzed and stored on a database for future retrieval and use. 5. Any Promotional activity that creates and exploits a direct relationship between an organization and its prospect and / or customer as an individual. 6. Selling via a promotion delivered individually to the prospective customer The definitions bring about 3 key elements: Interactive system: - There is a 2-way communication between the marketer and his/her target market. The response or non-response of the customer completes the communication loop in DM process, e.g. the customer will fill in the response coupon & mail it. Measurability of response: - The number of coupons indicates the response rate to marketers communication. Direct Marketing activities are not location specific: - It is not necessary for the marketer to interact physically with the customer. He / She can establish contact through mail, phone, fax, or Internet. PRINCIPLES OF DIRECT MARKETING There are eight key principles of direct marketing, as follows. 1. Planning your marketing activity: All direct marketing should form part of a controlled marketing strategy, which has been produced as a result of market and competitor analysis and in relation to achievable objectives. 2. Targeting your customer: Customer information should be stored and capable of manipulation and retrieval from your customer database, to contact your existing customers. Analysis of this also helps you to identify characteristics of potential future customers. 3. Measuring your marketing activity: The results of direct marketing should be measured to tell you what works and what doesn't. 4. Tracking This involves monitoring customers' responses over time, ideally for as long as your relationship with them lasts. This enables you to measure their value and understand how much of it is a result of how you marketed to them. 5. Customer behavior: Tracking the spending patterns and general behavior of your customer can help you establish which products are popular and which aren't. This can help you determine future products and strategy.

TYBMM - SEM VI

Prof. Hemant Kombrabail

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

7. Developing long-term loyalty: By targeting the right customers, offering them what they want and encouraging them to take more of your products, you will protect your customer database. Your customers will be more likely to stay with you for longer. 8. Encouraging profitable business growth. Increasing the number of loyal and valuable customers you have and limiting the number of customers with low value and/or high risk achieve this. This increases turnover and profit, which can be reinvested to ensure that service and product standards are maintained and that your customers stay happy.
These principles view direct marketing as a continuing process of acquiring new customers, continuing to satisfy existing customers, and developing all customers so as to achieve greater loyalty and increased purchasing. This process is illustrated below

e.g. Many of the world's major airlines now work to these principles, particularly in the business market, where frequent flyer programs are common. These identify best customers on the database, reward them for their loyalty, and learn from the data generated. They use profiles of high value customers to acquire new customers with similar characteristics

DIRECT MARKETING DRIVERS 3

TYBMM - SEM VI

Prof. Hemant Kombrabail

Environment has become very complex Bargaining power of the consumer has increased Market has become very competitive Costs of marketing a product have phenomenally increased Advertising costs are very high There is very little customer loyalty Direct marketing helps companies focus on their marketing efforts Market de-massification has resulted in a large number of market niches Higher cost of driving, traffic congestion, parking problems, lack of time, queues at counters are some of the reasons that encourage home shopping Toll free phones, willingness to accept orders at night & commitment to customer service have made consumers respond favorably to direct marketing Consumer life-styles have changed. Today consumers look out for convenience in shopping, tele shopping, home shopping & on-line shopping. Globalization has further promoted direct marketing

MAIN TYPES OF DIRECT MARKETING Direct marketing can be applied to all three key business sectors: business to consumers; business to intermediaries; business to business. APPROACHES TO DIRECT MARKETING 1. Stand-Alone Direct Marketing This could be regarded as the ultimate" Direct marketing approach. Organizations that employ this type of approach employ no other means to manage the relationship with their customers. Companies such as First Direct, Direct Life insurance or Bazee.com fall under this category. Here the customers are directly recruited via direct response press advertising, direct mail or the internet. There after, the relationship is managed using a combination of telephone, mail, e-mail etc. 2. Integrated Direct Marketing In this approach Direct Marketing is viewed as a part of an integrated marketing mix. Organizations such as 'Save the child', 'Readers Digest', Pizza-Hut are seen to adopt this approach. Peripheral Direct Marketing In this type of approach, Direct Marketing is employed as only an occasional, tactical marketing tool. Here direct marketing could be initiated as a short-term response to decreasing sales or competitive pressures. Hindustan Lever and many other FMCG companies adopt this form. MASS MARKETING AND ONE-TO-ONE MARKETING MASS MARKETING Average customer Customer anonymity Standard product Mass production Mass distribution Mass advertising Mass promotion One way communication Economies of scale Share of market All customers Customer attraction ONE TO ONE MARKETING Individual customer Customer profile Customized market offerings Customized production Individualized distribution Individualized messages Individualized incentives Two way communication Economies of scope Share of customers Profitable customers Customer retention

BENEFITS OF DIRECT MARKETING 1. Home shopping is fun, convenient & hassle free. 4

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2. Saves time 3. Introduces customer to a large variety of products at a time. 4. Comparative shopping is possible by browsing through mail catalogues & on line shopping. 5. Customers can order goods for themselves & for others also. 6. Sellers also benefit, as they can personalize & customize messages. 7. Direct marketers can build a continuous relationship with each customer e.g. Parents of newborn babies may receive a periodic mailings describing new clothes, toys & other goods as the child grows. For e.g. Nestles baby food division continuously builds a database of new mothers & sends personalized packages of gifts & advice at the key stages in the baby's life. 8. Direct marketing strategies can be timed to reach prospects at the right time & moments & therefore it receives a higher readership because it is sent to more interested prospects. 9. Direct marketing also makes the direct marketers offer & strategy less visible to competitors. 10. Direct Marketers can measure the responses to their campaigns to decide which of them have been more profitable. 11. Tracking performance allows direct marketing to analyze relationship between customer characteristics & buyer behavior in their database 12. DM activities have an advantage over general marketing activities in the area of performance tracking. Campaigns can be monitored to determine if they are successful, knowing precisely what worked & what did not. This allows selling goods effectively and leads to a more efficient allocation of resources. 13. DM attempts to elicit response. In the process, the communication performs both, advertising & selling function without an intermediary 14. Because no intermediaries are needed, they reduce the intermediary mark ups & increase profits 15. Precision Targeting Direct marketing activities are aimed at individuals. This reduces the waste inherent in many other types of communications. 16. The prospect is encouraged to place an order or trust information more as he is calling a number or sending a card LIMITATIONS OF DIRECT MARKETING (A) Acquisition of data of individual customers may be difficult Direct marketing is effective only when all information about the individual customer is available. It may be difficult to acquire this data, as people would be reluctant to part with personal information. (B) The customers could be exposed to information overload In todays rich business and personal environment everyone is bombarded with all types of data. Daily people receive letters, voice mails, catalogues etc. Welcome and unwelcome information accosts the senses through the radio, television, telephone, books etc. Direct marketers are perceived to be contributing to this overload. (C) Requires highly skilled staff to analyze each customer profile In Direct marketing communications, individual customers should be addressed by name & title. Also information from database is used to produce specific appeal based on consumers personal characters &/or past purchase behavior. It is therefore important that the profile of each individual customer is accurately maintained. This would be possible only if the staff employed is highly competent to carry out this accurately. (D) marketing Customer Service rather than customer loyalty is more important in direct

PLANNING PROCESS OF DIRECT MARKETING There are three key stages in direct marketing:

TYBMM - SEM VI

Prof. Hemant Kombrabail

Acquisition (recruiting new customers). It involves: Deciding what kinds of customers you want. . Finding out who they are, how many of them there are and where they are Understanding what motivates them. . Determining which media to use to talk to them. . Developing communications and executing campaigns. . Converting prospects to customers - the sale. Often, the most likely prospects are targeted first as this represents the lowest cost per sale in acquisition terms Database (storing and manipulating customer information). Database marketing involves: Obtaining relevant customer information. . Storing the information in a usable, retrievable format Enhancing this information over time. . Analysis of the information. . Selection of key target segments of customers for campaigns. . Recording sales and response. . Evaluating and measurement and future business planning 2. Retention (customer care/loyalty programmers to keep existing customers). Retention involves: Giving your customers service and product quality that meets or exceeds their expectations. . Building loyalty over time. . Maximizing the length and value of the relationship with customers. . Communicating regularly to your customers, at the right time (right for them). . Deepening the relationship with your customers by encouraging them to buy different types of products, to upgrade and renew. . Monitoring profitability LIFE TIME VALUE OF CUSTOMERS Bitran & Mondschcin have defined LTV as 'the total net contribution that a customer generate during his or her life time on a house list. The lifetime value (LTC/LTV/CLV) of a new customer can also be defined as 'the net present value of all future contributions to overhead and profits. It is a measure of the total worth to an organization of its relationship with a particular customer. To calculate it, one has to estimate the costs & revenues that will be associated with managing the communication with that customer during each year of his / her relationship. For example, if the expected relationship of a customer is four years then the cost of servicing the relationship with that customer (mail, newsletter, catalog, telephone etc) should is subtracted from the revenue so generated. There is some amount of crystal ball grazing involved since it becomes increasingly more & more difficult to predict future costs & revenues the further one looks into the future. The 4 most important factors contributing to a customers lifetime value are Future Forecast Revenue Expenses Profits Cost of Capital Calculating the LTV of individual customers The formula for calculating LTV in the case of an individual customer is as follows:

n LTV=Ci (1+d)-i i=0

6

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Where: Ci = net contribution from each year's marketing activities d = discount rate i = the expected duration of the relationship (in years). This somewhat complex looking equation merely indicates that it is necessary to calculate the likely future contribution by a customer to each year's marketing activities, discount these future contributions and then add them all together. The grand total is the LTV of a given customer. Table below shows a case where the lifetime value of a customer subscribing to a fishing magazine for an estimated five-year period has been calculated. The subscription currently costs $25.00 per annum and there are no plans to increase this in the foreseeable future. The first row of the table therefore indicates that the company can expect to generate 25 a year from this customer in direct income. However, there are also plans to cross-sell the consumer with other items relating to their interest. An analysis of historic data suggests that this consumer would be likely to spend the amounts shown in the second row of the table on other items during each year of the relationship. In the next two rows the likely costs of providing the magazine have been plotted (direct costs), together with the costs associated with generating the indirect income referred to earlier (indirect costs). In the next row the net contribution made by this subscriber each year has been calculated. Acquisition Direct income 25.00 Indirect income 3.00 Direct cost 10.00 Indirect costs 1.00 Net contribution 17.00 NPV per annum* 17.00 Life Time Value = 101.24 * NPV = Net Income for the year
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Year 1 25.00 15.00 10.00 2.00 28.00 24.35

Year 2 25.00 20.00 10.00 3.00 32.00 24.20

Year 3 25.00 30.00 10.00 4.00 41.00 26.96

Year4 25.00 35.00 10.00 5.00 45.00 25.73

(1+d)i
and LTV =

C i i (1+d)

i=0

The example in Table above is peppered with assumptions; assumptions that the customer will remain loyal for five years and assumptions about future revenues and costs. To take account of this variation and the fact that the future revenue streams are not going to be worth as much as they would be today, the value of these future contributions has been discounted. In this case, a discount rate of 15 per cent has been applied. The resultant NPVs can then be summed to arrive at a 'lifetime value' of 101.24 for this particular customer. The benefits of LTV analysis At this stage, it may not be immediately obvious why we might want to perform a calculation such as the one alluded to above. In fact, lifetime value can be used to drive five key management decisions: Assigning acquisition allowances Refining the targeting for customer acquisition campaigns Setting selection criteria for customer marketing Investing in the reactivation of lapsed customers Assigning an asset value to the marketing database Each of these will now be considered in turn. (a) Assigning acquisition allowances 7

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An understanding of the lifetime value of an organization's customers can guide the determination of how much a particular organization may be willing to spend to recruit each new customer. Many organizations strive conscientiously to achieve a break-even position at the end of each of their recruitment campaigns. Whilst commendable, this is not at all necessary, so long as the future income stream from the customers being recruited is a healthy one. Organizations employing the lifetime value concept would therefore tend to assign somewhat higher acquisition allowances than those who do not. To take an example, Domino Pizzas calculated originally the amount they could afford to spend on customer acquisition on the basis of the expected $ 6-7 sale. They soon realized that over the duration of a 'lifetime' of business a typical customer would actually be worth of the order of $5,000. This had a dramatic impact on thinking within the organization and it became much more relaxed about customer acquisition costs. It knew that provided it could keep customers loyal, a more than satisfactory return on their recruitment investment would accrue over time (b) Refining the targeting for customer acquisition campaigns Marketers engaged in the perennial problem of customer recruitment are well versed in the necessity of asking questions such as: 'Which media should I be using for my recruitment activity?' 'What balance should I adopt between the media options that are available?' 'On what basis should I select potential customers for target?' The traditional approach to answering these questions would have been to calculate the immediate ROI for each media and consider the response rates typically received from each media in the past. Some marketers may have gone further and calculated the cost per new customer attracted (i.e. cost of campaign - number of customers attracted), the level of the average purchase, etc. Such analyses suggest sub-optimal allocations of marketing resource, because they ignore certain known customer behaviors. Customers recruited from one medium may never buy again, whilst customers recruited by another medium might exhibit much greater degrees of loyalty. For example, a company marketing jeweler items might find that it generates a better immediate return on acquisition expenditure by using DRTV in preference to Direct Mail. By looking only at this immediate return it might therefore decide to invest heavily in DRTV. Looking at the lifetime value of customers recruited by each medium might, however, paint a different picture. Suppose only 10 per cent of customers recruited by DRTV ever buy again and the organization loses about 30 per cent of those that remain each year thereafter. Further suppose that 40 per cent of customers recruited by direct mail will buy again and only a 20 per cent attrition rate will be experienced each year thereafter. In this case, a consideration of lifetime value assuming average purchase levels were similar might lead the organization to favor direct mail over DRTV. (c) Setting selection criteria for customer marketing Lifetime value calculations can prove instructive, for more than just recruitment planning. The information can also be utilized to guide contact strategies for ongoing customer development. For example, organizations could calculate the projected LTV for all the individuals on the database and assign them to one of, say, ten segments of value as a result.

profitable customers

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unprofitable customers

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It is not at all unusual for a company to be doing business with a percentage of customers who will never be profitable. In some cases this figure can be as high as 30 per cent of the total customer base. Clearly, this is an unsatisfactory state of affairs and, in practice there are alternative strategies for handling this group of customers: Attempts could be made to upgrade the lifetime value of the individuals concerned, perhaps by employing up selling or cross selling techniques. The individuals could be offered a new channel of distributionperhaps instead of including them in the standard mailing program or contacting them by using a sales-force, they could be managed more cost effectively through the Internet. The individuals could simply be deleted from the database and ongoing business contact could be refused. Investing in the reactivation of lapsed customers Without exception, all organizations now recognize the value of their database Few would question the established wisdom that existing customers will always be the most cost-effective source of additional business Few would also disagree with the notion that reactivating lapsed customers can be profitable Having been sufficiently motivated to make a purchase at least once in the past, with the proper encouragement it is eminently possible that some lapsed customers will do so again, The problem, however, for many organizations lies in deciding which lapsed customers should be selected for contact Whilst one could do this easily on the basis of the total amount they spent in the past, the average purchase level, or the length of time since the last purchase, it can be instructive to use projected lifetime value to inform the decision With the right persuasion to respond, targeting those with a higher forecast LTV is likely to prove a most efficient use of resources A 'reactivation allowance' can be built into the budget A knowledge of how much an organization is prepared to commit to reactivating one customer, would inform the nature and quality of the contact strategy employed (d) Assigning an asset value to the marketing database There are many competing demands upon the income of a typical organization Quite reasonably, expenditure on marketing is often perceived as a cost to be minimized Whilst it is certainly true that marketing can be regarded as a cost, it could also be seen as an investment Using LTV analyses, organizations can explore the future behavior of their database, this information can be used to place an overall value on customers as intangible assets This can have a remarkably sobering impact on those responsible for the organization's financial management The justification for customer recruitment activity suddenly becomes clearer, and the rationale for doing more for customers than simply writing to them with 'sales offers' is suddenly illuminated The organization could follow a strategy of 'benign neglect' and terminate all outgoing communication with the individuals concerned. This differs from (c) in that incoming requests for purchase would continue to be processed, but repeat business would not actively be encouraged. The analysis depicted in Figure above could also be used to assign individuals who do have satisfactory LTVs to particular standards of care. It makes good sense for the airlines, for example, to develop frequent flier programs to reflect the value of individuals who fly frequently. In essence, the airlines are recognizing that the balance of their marketing effort should follow the balance of their revenue. Losing a customer who flies only once every five years might be sad, but ultimately it is of little significance. Losing a customer who flies transatlantic three times a month is quite another matter. The balance of organizational effort should reflect the value of different categories of customers and hence LTV analysis can help guide an organization's retention expenditure to the customers who warrant it. MEDIA USED IN DIRECT MARKETING The major media used in direct marketing are: The broadcast and published media - press, television and radio. The distributed media - eg leaflets, inserts, take-ones and free newspapers (also a published medium). The direct response media - eg mail, telephone, fax etc. The new electronic media - Internet, electronic mail, interactive cable 1V (also a broadcast medium). Press is still the most important medium. It includes national and regional dailies and Sundays, weekend supplements and the TV guides. Inserts are a distinct medium, which use press as a carrier 9

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Direct response TV advertising has not enjoyed the spectacular success. Given the limited supply of TV time, direct response advertisers have to compete with the high spending, above the line advertisers. However, this is changing as satellite and cable TV increase their penetration of households Radio is fast improving as a direct response advertising medium. In particular, local radio serves local, highly targetable audiences. However, as a single-sense (hearing) medium, its ability to produce response is limited The medium most readily associated with direct marketing is mail. This medium gave birth to direct marketing and it still dominates direct marketing expenditure In the US, telemarketing is the most important direct marketing medium. In the UK, telemarketing expenditure is much lower per capita, but rising fast as new technologies, new suppliers and a new breed of telephone-oriented consumers come into the market. OBJECTIVES OF DIRECT MARKETING Although we've looked at many ways in which direct marketing can be applied, you can break down all the activities into four simple categories. You can ask people to: 1. Buy (or make charity donations) through the post, over the phone, or off the TV set, either for cash or by quoting a credit card or account number. 2. Ask for catalogues, or literature, or information, which may come through the post, on the telephone or in the hands of salesmen (with or without the consumer's prior knowledge). 3. Request a demonstration either in the home, at work, or even at the seller's premises. 4. Visit a retail establishment, a film show or exhibition - or even a political or community event. To reach your chosen objective, you can choose from a variety of routes. The possibilities and permutations are bewildering, but it is essential that you are aware of them all. A sale you could never attain in one step, for example, could be wildly successful if the product is broken down and sold in stages as a continuity product, or if the sale is made by asking for an enquiry and then following up repeatedly. Equally, a product you could not sell easily for cash might do very well if you offered it on free trial. So let's look through the possibilities.

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Ways of Achieving the Objectives 1. One stage selling When people use the words "mail order' they usually think either of the bargain spaces in the weekend papers, glossy color advertisements in the Sunday magazines, or those hard sell advertisements that promise to change your life - or shape, or looks - overnight. This kind of selling does not, in fact, represent the largest segment of the direct marketing industry. Indeed, as you've already gathered (if you didn't already know) any company that depends on this activity alone to make money is unlikely to prosper long. But the one-stage sell is a way you can establish the initial relationship with a customer (or, in the case of a political party or charity, a sympathizer). Some one-stage selling - the least sophisticated form of direct marketing - is as simple as offering a product for sale in exchange for the full cash price, to be sent in advance of the goods being delivered. However, as you can appreciate, any way in which you can soften or delay the awful moment when the customer actually has to part with money tends to pay off. Nobody likes paying for anything; even less do they like sending money off to someone they have never met for something they have never actually experienced or held in their hands. Thus one may offer: The Free Trial, where goods or services may be enjoyed on approval for a period before the buyer is committed. Response leaps when you use this offer. You must, however, have a very efficient credit-checking system since in some cases as many as 50 per cent of replies can be bad debt risks. The Sale on Credit where only a down-payment is demanded. This is a method worth using if you have the necessary facilities. However, with the growth of charge and credit card usage it is becoming increasingly restricted to less wealthy markets. The Sale on Credit where no down-payment is demanded. This is, of course, the easiest payment option of all for the customer and thus the method, which will generate your greatest response. Once again, if you have the credit-checking facilities and the financial resources to be able to afford to wait for your money, this can be the most profitable method of selling in the long run. Significantly, many of the most successful Direct Marketers often use this method The conditional free trial where you may have to send all or part of the money before getting the goods, but you are not committed to buy until a certain period has elapsed. The sale by credit or charge card where any of the above four options may also be offered. This is the easiest sale of all, because it's the least painful way for your customer to pay. 2. The continuity relationship Since all direct marketing businesses succeed best where there is a continuing relationship between the buyer and the seller, many marketers establish a contract with the respondent, which has a continuing arrangement built in from the start. Typical are:

Insurance offers, where the initial application may lead to a ten or even twenty year contract. Loan offers, where people may be repaying for five years or longer. Mortgage offers, which also end up in a relationship over a number of years. Charity appeals or political appeals, where the group may solicit a covenant (and in the case of many charities, this relationship may last so long that the final payment will be after death, in a bequest). Credit Card applications, where the relationship may endure for decades. Membership' offers - such as those made by the Consumers' Association, or the Automobile Association which may endure until death brings a merciful release. Club offers, where the respondent may be offered a very low price for a selection of books or records or even a free gift to start a collection of cookery cards, for example, and have to make a positive effort to extricate himself from the relationship. 11

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Collector's offers, where one starts with the first of a series of collectible items, and carries on through to the end, unless one wishes to cease.

Of course, exactly the same sort of financial offers you make to encourage a one-stage sale apply to a continuity sale. Equally, you can offer your prospect a free trial-period of three months. Generally, I have found that offering the opportunity to fill in a post-dated direct debit form in the advertisement or the order form pays off. By the time it comes to cancel the mandate, the customer doesn't bother. This is really a sophisticated variation of the technique I mentioned previously, used by Joe Karbo to sell his book. It is really a free trial offer with a hidden pitfall. From your point of view a continuity relationship gives you a much greater margin with which to finance the original sale. Obviously, if you are making a single sale, then the margin to pay for the promotion has to be built into that one item. But when you know that over a period of time you may sell as many as 40 or 50 items, or receive payments over a period of years, you can afford to finance the initial sale to a greater degree. 3. Multi-stage selling Flexibility of a different sort governs the third category we are going to consider - multi-stage selling. When you make a one-stage sale, then once the prospect has either responded or not responded, that's it. Either you've made money, or you've lost your chance to make money until the next time that reader sees your ad or mailing. If you are merely going for an inquiry, then once that prospect has responded and you have his or her name on your database, you have an infinite number of opportunities to turn that inquiry into a sale. In fact, even if you don't sell the product or service you originally offered, you can try and sell an alternative. Moreover, a one-stage sale predetermines the way in which the respondent buys: either they react in the way you suggest at the price you quoted or they don't. But multi-stage selling is much more flexible and in one form or another is probably the area with the greatest potential for most businesses. Suppose you generated an inquiry and followed it up with a letter and brochure. If those don't produce a sale, there's nothing to stop you following up with a phone call or a salesman. For that matter, if you followed up the inquiry with a salesman who did not succeed, there is no reason to believe that a letter later on may not achieve the desired effect. It's worth remembering that to get that sale you can vary terms, reduce the price, or make a free trial offer and further follow-ups. Indeed, you can keep contacting that prospect for as long as it is economically worthwhile for you. And like so many other simple examples in the consumer market this principle applies to the business-to-business market. If you are trying to sell an expensive piece of office equipment with a great deal of margin built in, once you have that original inquiry put onto your database, you can keep on exploiting it many times, in many different ways. Let us therefore look at some simple multi-stage operations: Sales follow-ups, where information about a product is advertised, information is sent out and a salesman follows up. Common examples in the consumer field are double-glazing and other home improvements, in business-to-business, computers, copying machines or typewriters would apply. Retail combination, where a product may be advertised in the press (or in a catalogue sent out by the store) and the respondent may go into the store rather than buy direct. Catalogue offers, which may be divided into those where: the prospect sends for a catalogue to buy things from; the prospect sends for a catalogue for which he or she may become an argent, deriving commission (savings); the prospect buys and is later offered the chance of becoming an agent. Agent's offers, other than the ones outlined above, where the agent will represent a given line of products and may or may not have to buy the merchandise in advance, with or without a guarantee of money back if the goods are not sold successfully. Recruitment, where the respondent replies to an ad, gets information and then goes for an interview (as with the armed services) or may go directly to an interview. 12

TYBMM - SEM VI

Prof. Hemant Kombrabail

As in so many other areas of business, some of these categories merge into each other, for instance, Avon recruits ladies who become spare time agents. The company also has a permanent sales force that 'runs' the sales in given areas. In December 1984, Avon's business in Germany was not doing very well. How could direct marketing revitalize it? Among the major problems were insufficient new Avon ladies; lack of motivation amongst the new recruits; and not enough time and effort from the area sales, force devoted to handling and motivating these ladies. The reason was that the area salespeople were so worried about trying to find new Ladies. Each year, for every twelve they hired they would lose two. The solution, quite simply, was to motivate the new ladies. They were written letters when they joined and welcomed to the organization. They were congratulated on their individual achievements, all of which could be monitored through the database. But how could new ladies be recruited? The answer was to run advertisements in the form of questionnaires. These were based upon what was discovered about the psychological structure of the perfect Avon lady. Depending on the answers to the questionnaires, the respondents were handled in two different ways. Those who did not fit in with the profile of a good Avon lady were simply given a free gift and thanked for their interest, together with news of what had emerged from the quiz they had replied to. Those who did sound like perfect Avon ladies were written to and told that they would do extremely well with the company, and that they should go to their local area representative and collect a free gift. At the same time, a computer profile of the lady was sent to the local area representative who was then able to deal more effectively with her new recruit. This project was particularly interesting. It used original thinking to create and utilize a database containing details of both the potential new recruit and the existing sales representative, leading to an intelligent personalized approach. A few years ago it would have been difficult to have accomplished anything like this. Technology has made the difference. Finally, two more multi-stage operations: Franchise offers, where the respondent sends for details, meets the company or its representative, and may end up going into business with them. Sequence selling. There are many cases where you can afford to be quite patient in getting a sale. You can afford to try and mould people's opinions about your product or service before actually going in for the kill. Earlier I gave an example where Ford in America send out a long series of mailings of which the earlier ones are not looking for a sale, but designed to build an opinion which will lead to one. This is similar in thinking to the concept of general advertising. You are building a preference over a period of time. If, for example, you know it takes two years on average from the time when somebody buys a new car to the time when they buy another one, then you can stage a series of communications to keep them loyal to your brand. The simplest form of sequence probably would be where you send out an advance mailing or make a telephone call to say you are going to make a very generous offer to someone; you then make the offer; and then you may follow up with another call or mailing to remind people to take advantage of the opportunity before it lapses. In some cases you may find it worthwhile to send out a series of newsletters or regular mailings, which are intended to inform, educate and persuade people of the virtues of your product or service or, for that matter, your company. This sort of approach is particularly appropriate for a profession like accountancy, the law or advertising. People do not wake up every morning and decide they need a new advertising agency or lawyer. You are simply trying to make sure that when they do have to make such a decision, they will choose in your favor. 4. Sales promotion linked opportunities. Many companies - perhaps most companies that are reasonably sophisticated - make offers of one kind or another, which can with a little ingenuity be turned into direct marketing opportunities. 13

TYBMM - SEM VI

Prof. Hemant Kombrabail

What they all have in common is that a list of names can be generated. Names can be very valuable. So if your company is engaged in any of the following activities, you have a direct marketing opportunity: Competitions, where the respondent may or may not have to offer proof of purchase. Discounts and free offers, where a coupon may have to be redeemed at the store, or by post. These may be offered in advertisements; in the package, as with a cigarette pack, or on the back of the pack as with sugar cartons. Self-liquidating offers, where a product may be offered cheaply as long as you prove you have purchased the brand. Direct offers of merchandise bearing the brand name, as with offers of Guinness sweaters, or Coca Cola beachwear, or London Transport T-shirts. In all these cases, either direct contact is involved, or it can be introduced. Thus, for instance, if you are running an advertisement, which bears a redeemable coupon, then if you require that people give the name and address when redeeming that coupon you are able to capture a name and address. In fact, one of the most powerful weapons at the direct marketer's disposal has come about as a result of this sort of activity. This is the building of large files of consumers with details about their brand preferences, household characteristics and purchasing patterns incorporated RELATIONSHIP TO THE TOTAL MARKETING MIX The direct marketing plan begins with the development of master marketing plan. The master marketing plan coordinates the four Ps of the marketing mix - Price, Promotion. Product, and Place. MARKETING MIX

PRODUCT

PRICE

PROMOTION

PLACE

PROMOTION MIX

DIRECT MARKETING

SALES PROMOTIONS

PERSONAL SELLING

ADVERTISING

PUBLIC RELATIONS

INTEGRATED MARKETING MIX D. M. programs afford the company the opportunity to make one-to-one contacts with current customers and potential customers. These contact points are times to spell out, reinforce, and promote the firms image and theme. Therefore, beyond simply selling goods and services, DM programs can utilize the information developed in various databases to make sound connections with customers of all types. DM is especially valuable to the marketing team looking for ways to complement and supplement the IMC efforts such as advertising, personal selling and consumer or trade promotions. 14

TYBMM - SEM VI

Prof. Hemant Kombrabail

Another DM program is permission marketing, a program in which customers give consent to be targeted with DM mailings and others contact. Permission marketing programs help generate even more detailed information for the companys database. Also many companies create frequency programs. These programs give rewards to customers who make continuing purchases from the same company or uses their services regularly.

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