Chapter 9 – Direct Marketing

Estimated Reading Time: 17 minutes

What might seem commonplace today was actually revolutionary not too long ago.  In a famous speech delivered at the Hundred Million Club of New York in 1961, Lester Wunderman drew an important distinction between how most of Madison Avenue marketed and how he and a handful of other upstarts did it.  As he explained:

The din of advertising becomes louder and louder, and it costs more to make a consumer remember the advertising he saw, heard, or read when he makes a buying decision.  Isn’t it logical to sell him at the point of his greatest conviction, when he has just absorbed the sales message?

While most of Madison Avenue was using mass media to conduct mass marketing, Wunderman and a few others were using mass media to target individual buyers and elicit responses from them.  Wunderman defined this policy of focusing on individual buyers as direct marketing.  Over the ensuing 50+ years, direct marketing has evolved from a groundbreaking strategy to a critical tool in almost any marketer’s toolbox. Although direct marketing has undergone a number of major technological changes, it is as relevant today as it ever was.

In this chapter we will cover the basics of direct marketing – the tools and terminology – as well as how to measure its effectiveness. We begin by tracing the roots of direct marketing to the time-tested practice of direct mail.

Direct Mail: The Start of Direct Marketing

Before there was direct marketing, there was direct mail.  Richard Sears sent out his first printed mailer selling jewelry and watches in 1888, followed six years later by what would become the iconic Sears & Roebuck catalog[1].  However, despite its history and the success of the Sears & Roebuck catalog, many practitioners of direct mail, also known as mail-order marketing, felt like second class citizens, and they were treated as such by their advertising agency brethren.  As print advertising grew, and as radio and television advertising came on the scene in the middle of the 20^th Century, the contempt of ad men for mail-order marketing men grew.

Perhaps it was the medium.  Today the term “mail-order” conjures up cheap, even tawdry images.  But it was Wunderman who realized that it was not the medium, but the direct connection to buyers that was important.  A few years after addressing the Hundred Million Club, he was invited to explain the theory behind direct marketing.  As he argued in his landmark 1967 speech at MIT titled “Direct Marketing – The New Revolution in Selling”:

Mail-order and mail-order advertising are bigger, healthier, and more vital today than ever before – even though much of it is no longer done by mail…The very term itself has lost validity, and it will be less applicable in the future.  In a strict sense, mail-order means that the customer’s order is sent by mail and that his merchandise is, in turn, delivered to him by mail.  Already this is not true.  Phones are easier, faster, and more personal.   But it will not stop there.  More sophisticated and better methods of ordering and delivering will surely come, whether they be orders geared directly to computers, video phones, closed-circuit television, or some newer technology.

Thus, whereas direct mail was restricted to printed materials, direct marketing meant reaching the customer directly, no matter the medium.  With the proliferation of the telephone, for example, telemarketing became a standard practice in many operations. Years later, as the nation entered the digital age, computers and the Internet emerged as a foundational marketing and sales medium. (Significantly, Wunderman presciently predicted the impact the Web would have on commerce with his predictions that computers would play an important future role in ordering and delivering goods.)  

In sum, then, direct marketing involves selling via direct contact with the customer or prospective customer.   In contrast, advertising makes prospective customers broadly aware of a product, but the selling happens later and not directly.  Importantly, direct marketing seeks to elicit a behavioral response, or action, such as a call or click, to drive a business outcome, such as an appointment, visit, donation, subscription, or ultimately, a purchase.  As we’ll discuss next, direct marketing utilizes an array of delivery mechanisms ranging from traditional mail to the Internet.

Direct Marketing Methods

Today, marketers have a number of direct marketing methods at their disposal. The six primary methods are:

Catalogs  — Catalogs still fill mailboxes of consumers and businesses around the world, decades after critics predicted the Web would kill themoff.  One of the oldest forms of direct marketing is alive and well – and thriving.  Almost 90 million Americans bought products from catalogs in 2011[2]. The reason?  For consumer catalogs, the number of women working outside the home, with less time to shop, combined with increased comfort with telephone and Web ordering have combined to drive revenues to all time highs.  In the case of B2B catalogs, the increased cost of salespeople compared to catalog mailing, combined with the same telephone and Web ordering, are the drivers.  Catalogs can be expensive to produce and mail, but the results are worthwhile for the right type of business.   According to the Direct Marketing Association 2010 Annual Response Rate Report, catalogs had the lowest cost per lead/order of $47.61, just ahead of inserts at $47.69, email at $53.85, and postcards $75.32[3].

 Direct mail — As we’ve already discussed, direct mail is a marketing effort that uses a mail service to deliver a promotional printed piece to your target audience.  Typical direct mail pieces include postcards, letters, brochures, and catalogs.   In addition, some marketers send packages or specially designed three-dimensional mailers – commonly known as “dimensional pieces” –to increase both customer interest and open rates.  Because all forms of direct mail involve both printing and mailing costs, this delivery mechanism can be expensive. 

Direct email — As the name suggests, direct email, or electronic direct mail (eDM), delivers a promotion to your target audience via email.  An eDM can be plain text email, or it can use HTML to make it more appealing and to identify it more explicitly with your brand.  Compared with traditional direct mail, eDM is less expensive, and it allows customers to respond directly via reply or hyperlink. One major disadvantage is that eDM is subject to  anti-spam regulations (and anti-spam filters on email servers that reduce delivery rates).

Direct response advertising — Another widely used mechanism is direct response advertising. In this strategy the marketer urges a viewer to respond to an offer using a direct response mechanism, such as a coupon, a business reply card, a toll-free number, or a Web link.  We’ll consider these mechanisms in more detail below.   Direct response advertising differs from advertising designed for awareness in that it requires the audience to do something.  There is some debate in the case of ads that do not contain a strong offer or CTA, but list a toll-free number or a company website URL, as to whether this is truly direct response advertising.

Online advertising — Depending on its format, online advertising can be a form of direct response advertising.   Some online ads are geared toward awareness or brand building and do not seek to elicit an immediate action.  The appeal of online advertising is that the marketer can target a buyer more accurately than with print advertising (We will cover this in more detail in Chapter 13 on advertising). In addition, it is simple to put a CTA in an online ad, such as “Click Here.”   Not all online ads have explicit or strong offers, which is critical to the success of direct marketing.  We’ll talk more about when to use online ads below, and we’ll explore this topic in greater detail in a later chapter.

Telemarketing — Telemarketing involves the use of the telephone to market goods or services directly to prospective customers.  Compared with direct mail and direct response advertising, telemarketing is a more active form of marketing. It addition, it provides a major benefit: a real human being to present your message and respond to customers’ questions.

In addition to targeting prospective customers much more carefully, direct marketing offers another advantage over traditional general marketing or advertising efforts; namely, the results of a direct marketing promotion can be measured — often very precisely — in terms of customer responses. 

Direct Marketing Terminology

Whatever method, practitioners boil down direct marketing to four key elements: the list, the copy, and the offer, and the call to action.  Each element has to be right for a direct marketing campaign to be effective.  The list, or the database, is the set of customers that will be contacted.  In the case of direct-response advertising, demographics are substituted for a list of explicit names.   How the offer is written – the copy – is critical to grabbing the readers’, the listeners’, or the viewers’ attention and convincing them that the product addresses a need or fulfills a wish.  

The offer is the hook.  What are you offering prospective customers in return for their response? The offer can be a discount, a free gift (an unfortunate marketing redundancy that has stuck), a white paper or study, or whatever you think will motivate the buyer.  The call to action, sometimes abbreviated CTA, are words that urge the reader, listener, or viewer to take an immediate action, such as “Write Now,” “Call Now,” or (on the Internet) “Click Here.”  Be careful not to mix up offer and CTA, as some marketers do.   Both are critical.  Asking someone to “Call Now” will not work without an effective offer.  But wait, there’s more. (Just kidding.)

As was mentioned above, measurement is a key advantage of direct marketing over advertising.  Direct marketing has a discrete set of actions.  Each can be thought of as moving the prospective customer, subscriber or donor closer to the desired outcome.  Below are the most common measurements of actions:

Open Rate –  the measurement of how often letters, packages, or electronic mail direct marketing are opened or viewed.  You want to know if they at least looked at the copy, as opposed to throwing the mailer in the trash or deleting the email unread because it can give you clues about the effectiveness of the envelope, package or subject line of an email, for example.  In the case of physical mail, the open rate is measured by surveys conducted by direct marketing organizations.  Online, with email, the rate can be measured automatically.

Clickthrough Rate – the measurement of how often customers click on links or CTA buttons after they open an eDM message.

Callback Rate – the measurement of how many customers call a toll-free number.   For television or radio advertising, measuring during the period just after the ad is broadcast is best.  Marketers can also use multiple toll-free numbers to track by media type and/or ad variant.

Conversion Rate – the measurement of conversions; that is, the number of prospective customers who reach the desired outcome.. The conversion rate is typically expressed as a percentage.  

Response Mechanisms

Not only does direct marketing allow marketers to utilize several delivery methods, it also provides prospective customers with a number of options for responding to the marketing messages, i.e., ways to take action.  In fact, as technology has evolved over time, marketers have invented new and innovative ways for their targeted customers to heed their call to action.  Each strategy is designed to make it as convenient as possible for the consumer to act, to convert.  Interestingly, all of these strategies are still in use today.  In this section we consider the following response mechanisms:

• Business reply cards
• Business reply envelopes
• Toll-free numbers
• Email
• Links
• Promotional codes
• Quick response codes
• Text messaging

A business reply card (BRC ) is a pre-addressed postcard that is bound, glued, or inserted into a magazine, or included in a direct mail envelope.  These cards often fall in your lap when you open or read a magazine.  They are specially designed so that prospective customers can fill them out quickly and return them.  To make this practice more affordable, the Post Office charges marketers a lower business reply mail (BRM) postage rate.

Similar to the BRC, the business reply envelope (BRE) is a pre-addressed envelope that is included in a direct mail envelope. Customers can easily return BREs at the reduced BRM postage rate. Another benefit of BREs is that customers can pay by check. In addition, if they choose to pay by credit card, they can keep their credit card number or other personal information private.

The 1-800 toll-free number was introduced in 1967 by AT&T to reduce the number of operators needed to handle collect calls to businesses.   Direct marketers quickly seized on this innovation. Lester Wunderman is often credited with fueling the use of toll-free numbers by direct marketers.

Although email is not as widely used as other, more efficient digital response mechanisms such as links, a number of companies allow customers to respond via email, typically via a custom email address that is tailored to a specific advertising campaign or product line.  You might, for example, create a special email address donations@foundation.org for a fundraising campaign.

Links are a major form of online direct marketing. – Shortly after the Web became popular in the mid-1990s, some companies began to include their company URL in print advertising.  This strategy was particularly popular with companies that appealed to younger, tech-savvy demographics.  It has evolved into so-called “vanity URLs” that are tied to specific print or television advertising campaigns, such as company.com/vacation.  These URLs usually point to a Web landing page – sometimes called a microsite –  that is tailored to capture information from the user and turn it into a lead; for example, www.companyname.com/offername.

A promotional code is a short alphanumeric code used to track an offer.  The code typically appears in a direct mail, eDM or an advertisement. A customer enters the promo code into a Web form to receive the offer, typically a discount on a purchase.  Strictly speaking, promo codes are not response mechanisms in the same way links or toll-free numbers are, but they do compel a prospective customer to take action, because promo codes typically offer a discount.  They also allow the marketer to track the effectiveness of a particular direct marketing program, since a unique promo code can be used for each one. 

Originally created by a Toyota subsidiary for tracking cars on the assembly line, the quick response (QR) code really gained popularity with the adoption of camera-enabled smart phones.  Readers of ads, in-store product displays, and transit shelter signs can take a picture of the code with the camera on their phone and then be directed to a website that allows them to move to the conversion step. 

Figure 1 below shows the first QR code used by Coca-Cola in 2011, printed on cups at convenience store 7-Eleven.  The code was part of a clever, interactive cause marketing campaign to help the World Wildlife Fund protect polar bears – an animal Coca-Cola used widely in its advertising at the time.  Scanning the QR code downloaded a fun smartphone game called Snowball Effect that encouraged users to donate $1 to the World Wildlife Fund efforts, which Coca-Cola would match[4].

 

Figure 1: Coca-Cola’s first use of a QR code on convenience store 7-Eleven’s cups in their “Arctic Home” campaign

Finally, text messaging, more commonly known as “texting,” enables users to send short messages via their mobile phones.  Advertisers have taken advantage of texting, allowing users who view a television program, a television advertisement, a print ad, or an out-of-home advertisement to respond using their phones by sending a short message to a special shortened phone number.  Texting has the advantage of enabling prospective customers to instantly download applications and add-ons for mobile phones as well as coupons. Texting also enables marketers to conduct quick surveys or polls.  One major limitation of text messaging is that it doesn’t allow marketers to capture additional information about the user, in contrast to Web links, email, and postal mail response mechanisms.

Selecting the Right Direct Marketing Method

Figure 2 below lays out the complete direct marketing taxonomy, including methods, outcomes, response mechanisms and measurements.

 

 

You are the best judge of which methods and response mechanisms will work for your prospects.   If you have a mass market product and a small budget, for example, then direct mail might be too expensive to even consider.  In contrast, sending an eDM and having your inside salespeople follow-up is would be cheaper and generate the desired outcome.

Knowing your prospective customers and their behaviors is critical to an effective direct marketing effort, and marketers who study and know their buyers are worth their weight in gold.  Some sets of buyers get so many offers via email they don’t even look at them anymore, so while eDM would be cheaper overall, it would not be effective.

A good way to approach a direct marketing effort is to think about how many outcomes (whether leads or actual purchases) you need and how much you are willing to pay for each.  Cost per acquisition, or CPA, is how much it costs per customer to get them to convert to the desired outcome.  CPA is your total cost for a particular direct marketing effort – including any costs associated with the offer –  divided by the number of conversions.  The math is part of what makes direct marketing fun – learning to tweak tactics and lists to get the best possible return at a cost that makes sense.  Not surprisingly, it also makes direct marketing more palatable than other types of marketing to CEOs, CFOs and other numbers-driven executives.

Importantly, many experts believe that the best way to send an offer to a prospect with whom your company has already made contact is by using the same delivery mechanism that worked the first time[5].   So, keeping track of the offer and response medium in your database is critical for retargeting prospects or customers in your database.

Always make sure you have a good offer.  Even if you can afford to reach a sufficient number of your prospective buyers to justify the costs of the marketing effort, a bad or uninteresting offer will decrease your conversion rates, thus driving up your CPA. 

Finally, understand what a reasonable return looks like.  Conversion rates are usually very low, Table 1 provides an example of the average response to eDM.  Two lessons to learn from these numbers.  First, percentages are low, and you need to get used to single digits.    Second, use house lists (which we will cover in the next chapter) whenever possible, as they almost always perform better.  As Table 1 below shows, marketers get several times more conversions from house lists for eDM.

 

Action	House List	Third Party List
Open Rate	22.05%	11.43%
Conversion Rate	1.5%	0.4%

Source: Direct Marketing Association 2012 Annual Response Rate Report[6]

Table1: Average eDM response rates for house and third-party lists.

Testing and Measurement

Two hallmarks of direct marketing are testing and measuring the results of the direct marketing campaign. 

As we would expect, direct marketers spend a lot of time testing their copy, their delivery mechanisms, their response mechanisms, and their offer.  They tweak each of these elements until the conversion rate meets the objective.  Direct marketers usually have a target conversion rate and CPA in mind when they are developing a direct mail piece. 

Very often, direct marketers will send out two variants of a direct marketing piece simultaneously.   These pieces might contain two different offers, different copy, or a different layout.  Alternatively, they might send the same copy to two different lists – perhaps different age groups or cities – using a tracking mechanism to ascertain which copy is generates more responses.  This strategy is commonly referred to as split testing, bucket testing, or A/B testing.  The marketer then adopts the “winner” of the A/B test as the preferred direct mail piece. 

Going further, many direct marketers do not send out, publish, or broadcast their entire message all at once.  Instead, they send out smaller batches. This approach enables them to refine their campaign along the way.  For online campaigns, marketers will often change the subject line of an email or the placement of the call to action on the HTML email, and then send out revised versions to try and gain incrementally better results.

Measuring success is all about conversions.  You can measure the open rate, but that will really only help you refine your delivery mechanism.  What you really want to know is (1) what percentage of people responded to your offer and (2) how much each response costs per customer – your CPA.  A marketer can decide that they are willing to pay up to a certain amount for a new prospect or customer, and they measure success based on whether they were able to come in at or under that amount.   Costs include all variable expenses – list acquisition, production, and delivery. 

A caution: As we mentioned, great response rates can often be very low numbers, in some cases less than 1%.  Make certain to educate management on what success looks like before showing them the results, or they might misinterpret a successful campaign to have been a disaster.

Below is a simple example that illustrates the costs and return on a direct marketing effort.  Let’s assume Sales has asked for ten leads for next quarter.  We will use eDM, and assume our only variable costs are renting a list and paying a creative agency to design our email and landing page.  We will further assume that anyone who downloads the technical white paper on our freeze ray gun is diabolical enough to become a lead.  We will use numbers close to the typical response rates in Table 1, rounded to make the math a little easier to follow.

In the example below, 1000 emails were sent and 10%, or 100, were opened.  Again, since this is a third-party list, we should expect an open rate in this range.  Of the 100 people who opened, ten clicked on the link and then filled out the form (our desired outcome) to receive the brochure.  So Sales will be happy with their ten leads, and the eDM achieved a 1% conversion rate.   If our total cost for the eDM effort is $500 we paid the creative agency and $500 (50 cents a name) to rent the list,  then our CPA is $1000 ÷ 10, or $100.

 

Action	Rate (%)	Total
eDMs Sent	—	1,000
Opens	10%	100
Conversions	1%	10

Table 2: Opens and Conversions for a simple eDM program.

Case Study

It seems fitting to use an example from Wunderman’s career in a chapter on direct marketing.   To demonstrate the broader meaning of direct marketing, we have chosen one of his more successful campaigns that did not use direct mail.  Back in the days before music was bought and sold online as digital files, “record clubs” were big business.   These clubs advertised in newspapers and magazines, and their ads encouraged readers to sign up for the club, which would typically send them one record every month.

Wunderman had worked with a number of mail order clubs in his career, from rose bushes (yes, rose bushes) to books to art to records.  His biggest opportunity came when he landed the Columbia Record Club direct marketing business in 1955 for his agency Wunderman, Ricotta & Kline.  Fast forward almost 20 years, and the Columbia Record Club had over three million members and was a substantial business..  However, it also had an annual attrition rate of 50%.  Clearly, the club needed to develop strategies to acquire new customers.  In his book Being Direct: Making Advertising Pay, Wunderman describes how around that time he conceived of an idea to help drive the business, which he presented at a client meeting in Aspen .  It was the “Gold Box of Colorado” – an idea so simple, it was brilliant.

Wunderman instructed his creative team to put a small gold box on the bottom of the ad, underneath the registration coupon on newspaper ads and on the business reply card for mailings.  Significantly, the ad contained no explanation of what the box was for.  Wunderman called this the “buried treasure” in the ad.   Wuderman then created television ads for the record club that explained what the gold box was for – letting them in on the secret that they could get an extra record for free.  People who had not seen the ad would have no idea what it was for.  Those who did would fill it in, and Columbia House would count the number of coupons with gold boxes filled in to determine how many people had responded to the offer. 

 

Figure 3: The “buried treasure” gold box in an advertisement for the Columbia Record Club.

It took Wunderman two years to convince Columbia Records to run with the concept.  Part of the delay was due to Columbia’s internal conflict between Wunderman’s direct marketing agency and its incumbent ad agency, McCann Erickson.  Wunderman finally convinced Columbia to allow him to test his ads against McCann’s, which had no direct response mechanism.  He ran the ads in 13 test markets around the country.  Rather than purchasing television advertising during prime time, as McCann did, he bought cheaper ads in “fringe time.”  The results?  Wunderman’s television support ads increased print ad response rates by 80%.  He also drove down the cost per new customer acquisition from $18.60 to $4.00.  In contrast, the McCann ads actually added to the cost of customer acquisition.   Not surprisingly, Wunderman got all of the direct marketing business after that.

Wunderman called the television support advertising “the fuse that could ignite the ads in all media.”    The little yellow box made the viewer, in his words, part of “an interactive marketing system.”    Wunderman proved that even with all of the modern technology and mainstream ideas that might tempt a marketer, thinking creatively and measuring relentlessly are far more important.

Learning More

• Being Direct: Making Advertising Pay, Lester Wunderman, Random House, 1996