Oranges shoved in your face.
When you pull up to a stop light and someone shoves a bag of oranges in your face, is it direct marketing? The guy at the light certainly has bypassed traditional channels of distribution, so it must be direct marketing, right? Maybe not. Let's take a closer look. How do you feel when you see the guy walking up to your car? Do you feel angry? Uncomfortable? You do have some choices in the situation. You could give in, fall for this manipulation of the heart and buy the oranges because the guy looks sad, poor and in need. You could look the other way and pretend you don't see the guy. You could glare at the guy, stare him down with that "don't you dare say a word to me" look. If you don't buy, you'll likely feel guilty, uncomfortable, or like the "bad guy". What if you drive away with a big bag of oranges on the passenger seat? If you do, you bought on impulse, you bought oranges that you never planned on buying in the first place. This is manipulative confrontational marketing (if you could even call it marketing). Look around you at what people call direct marketing and you'll see tactics born out of early behaviorist theories, tactics and methodology which attempt to evoke emotional responses out of us, responses built primarily around guilt, fear, sex, or death. It's not what we'll be learning how to do in this book.
When the Girl Scouts knock on your door selling cookies, is it direct marketing? Certainly they have bypassed the traditional retail channel of distribution. Surely, this must be direct marketing? They're so cute, so harmless. How could anyone resist those smiles as they say, "please sir, oh won't you please support us". Sure, we all buy a box, or several boxes, but is it direct marketing? Did you plan on buying cookies that day? Did you know the Girl Scouts were coming? Were you expecting them when the door bell rang? You didn't say no, you couldn't say no without being labeled "mean old person". You've been compromised, victimized, put in a "no way out" situation. You were baited into buying those cookies and it is nothing short of confrontational marketing. Direct marketing? Not in this book.
When someone mails you something that looks like a jury notice, just so you'll open it, is this direct marketing? Maybe it's one of those "you've already won" letters. Could this be direct marketing? It's addressed to you personally, so it must be direct marketing, right? Direct mail is direct marketing, right? Direct mail does not equal direct marketing. You haven't "already won", in fact, you have been sold, sold out by a broker for a buck a name.
What if it's a plain white envelope with your name handwritten on it? What if when you open the letter, it's a page of the Wall Street Journal torn out, with a yellow sticky note posted on it that says, "hey Nick, thought you'd be interested in this". You read on, and then suddenly it happens, the light bulb goes on over your head, this did not come from a friend, this came from a junk mailer who is now doing back flips because you opened the letter and it didn't go straight into the "round file". Tell me something, the moment you realize that you've been "duped", does it make you want to buy something from these guys? What are they thinking! Can you believe this stuff is being taught in colleges and universities around the country and is being called direct marketing?
When someone pays you fifty bucks to refer your friends to them, is this direct marketing? Is it the positive multiplier effect? Could selling your friends for the claiming of a bounty ever be considered direct marketing? Not in my book.
When I first went into business, my original D.B.A. (doing business as) was "No Pressure Direct Marketing". After a couple of years, I changed it to "No Pressure Integrated Marketing Communications" because people thought I was either a list broker or a multilevel marketing rep. When I facilitate a course in direct marketing, it always fascinates me to see so many people on the first night in dread, just hating the idea of enduring a course in direct marketing over the next several weeks. Why the dread? Because they think I'm going to teach them how to trick people into opening junk mail. They think I'm going to teach them how manipulate people into staying on the phone for five more seconds. They think I'm going to teach them sweat shop telemarketing. They think I'm going to teach them list brokering. Direct marketing is certainly not mass direct mailing, it's not a home party or a multilevel marketing venture, it's not "dialing for dollars".
If you come across a marketing tactic, see if it passes the "relationship" test. If it doesn't pass the "relationship" test, it's not direct marketing. If it's direct marketing, it's designed to build relationships, gather information, disseminate information, create dialogue, to give customers or prospective customers a voice. If a tactic is an attempt to "bait" or "hook" you (words that true relationship marketers would never use), then it's not direct marketing. If the tactic is designed to create an impulse buy, it's not direct marketing. If it creates post purchase dissonance (buyers remorse), it's not direct marketing. If it locks you into a "prison sentence", it's not direct marketing. What's a prison sentence? At the time of this writing, anyone could get themselves a free cell phone, or even a free computer. How? Just sign a two year contract with the local cellular service provider, or sign a three year deal with the local ISP (internet service provider). What happens when you get the first cellular phone bill and it's three times as much as you expected? What happens when the ISP is unreliable and there's no one answering the customer support hot line? What happens when you want to get out of the deal? You can't, you're locked in, you're in a prison sentence. It cannot be considered direct or relationship marketing.
Here are a few simple things to remember about what direct marketing is not. Direct marketing is not manipulative. Direct marketing is not confrontational. Direct marketing does not create impulse purchases. Direct marketing does not create post purchase dissonance. Direct marketing does not create prison sentences.
Here are a few simple things to remember about what direct marketing really is. Direct marketing is the business of meeting finely targeted and individualized, customer needs. Direct marketing is customization of the delivery of value added services. Direct marketing is not just meeting customer expectations, but exceeding customers expectations and creating "delighted" customers. Direct marketing is about understanding pre-existing needs not about trying to create a need. Direct marketing is about meeting needs better than your competition with your unique strengths, (firm specific advantages). Direct marketing is about dialoging with your customers and learning from every interaction. Direct marketing is ultimately about remembering everything you've learned through interactions with customers and through the use of your database, being able to anticipate your best customer's future needs.
Direct marketing is also about differentiating away from price sensitivity. Our mission as direct marketers is to separate ourselves from price sensitivity. Direct marketing is not about mass producing standardized products so that you can gain scale economies. Direct marketing is a lower volume, (at least initially), yet higher profit margin business. We do not want every "fish" in the sea, we only want partners who are willing to pay a premium to have their time, convenience, fear reduction or risk reduction needs met.
Blowing up old paradigm thinking, a new view of direct marketing.
Direct marketing is likely the most misused and misunderstood of all integrated marketing communications tools. When people hear the term "direct marketing", they are certain what's being referred to is either intrusive "cold call" telemarketing, or "junk mail" list brokering. This chapter has been designed to expose the myths surrounding direct marketing and replace them with methods of creating insulated and profitable customer relationships.
Before we can begin to truly understand what direct marketing is and what it isn't, we'll have to blow up some old paradigm thinking. So, before you can embrace what's ahead for you in this text, you'll have to be prepared to challenge everything you thought you knew about direct marketing, be prepared to cancel your contract with your local list broker, be prepared to cancel that long running yellow page ad, and be prepared to discontinue your long running direct mail programs.
One of the biggest challenges I face as a direct marketing consultant is trying to get firms to cancel those long running yellow page ads. "Why cancel?", they say, "after all, the ad more than pays for itself". "Why close up the outbound telemarketing operation?", they ask. They say, "if we make enough calls, we can cover costs and make a profit. Sure, it takes more and more calls, sure, it's getting harder and harder, but it still is worth it". Just because something covers costs does not mean it's the most effective use of your precious few marketing dollars. Those telemarketing operations that "pay for themselves" deliver sales from less than 1% of the people who are called. Do you suppose that investing those marketing dollars into strengthening relationships with your best existing customers could yield greater results? Absolutely.
Direct marketing is dialogue with our customers and prospects, it's database building and effective utilization of what exists within our database. Direct marketing is the tool that will eventually allow us to anticipate our customer's individualized needs and meet those needs better than our competition with our firm specific advantages and tightly focused customization. Direct marketing will allow us to meet customer needs better than our competition, it will also enable us to do it profitably. Direct marketing will eventually lead our customers to become intensely loyal and therefore, less sensitive to price. When the hot spot light is on price, there's no such thing as loyalty and there's no such thing as a mutually beneficial relationship. When price is the central focus, there's only one winner, the customer who has many choices and will buy from whoever has the lowest price. If price is the only thing your firm can use to compete, your firm will die. Your firm will die a slow death of declining profit margins.
Of all integrated marketing communications tools available to marketers, there's only one tool which can turn the spot light away from price, only one tool which can decrease or even eliminate price sensitivity and that tool is direct marketing. What you will see if you look closely, is that most "direct marketing" campaigns out there are really sales promotions. They are totally focused on price, designed to generate immediate revenue streams. Direct marketing will not always generate short term revenue, if it does, it's likely sales promotion, not direct marketing.
As we learn more about lifetime value or long term value, we'll see that direct marketing is the only tool which will facilitate survival of the firm. Am I saying that unless you understand a distinctly different brand of direct marketing, that your firm will die? Yes, that's exactly what I'm saying. I'm also cautioning that direct marketing is an investment. If you are ever to transform your firm into a direct marketing organization, you'll have to have complete commitment from the highest levels of the firm, commitment to invest in database technology, commitment to giving your best customers preferred status. Preferred status does not mean lowest prices. Remember that the tool of direct marketing is a tool that will have your best customers paying premium prices for your specific attention to their individualized needs.
Alarming news about the quest for new customers.
What do you suppose costs more, trying to churn in new customers, or speaking with your best existing customers to gain more business from them? Most of us would agree, it's probably more costly to try to churn in new customers, but why? Because when we go "fishing" for new customers, we do it with very expensive broadcast media, or with direct mail advertising. Look at the landscape, you'll see ninety five percent of our marketing dollars are spent on mass media which is designed to "churn" in new customers. Nobody seems to be thinking about existing customers. The game it seems, is to churn in as many new customers as possible. We'll see over and over throughout this book, that most all direct marketing models are highly focused on the acquisition of new customers, an old economistic view of only investing marketing dollars when they generate an immediate return, a sale. Sales people earn bonuses and higher commission rates in most direct marketing models for churning in new customers. Direct marketing isn't a tool for acquiring new customers, it's a tool for existing customers and the strengthening of relationships.
One of the first important things to know about direct marketing is that it is never used to create a need, it is only used to identify and meet pre-existing needs. Identifying and meeting pre-existing needs entails personalized interaction and dialogue, something that can never be accomplished through mass media or a single exposure. O.K., so, the important lesson here is that direct marketing is not a mass media tool and it's not a sales promotion tool.
Why isn't it a good idea to spend marketing dollars on mass media, mass direct mail, or outbound telemarketing? Because it's only 1/2 of 1% effective (translation, it's 99 and 1/2% ineffective). Go ahead, call a list broker, ask them what response rates you'll get from their so called pre-qualified and highly targeted list. If they're honest, the answer will be 1/2 of 1%. But why such a small response rate? Because the mass marketing tools used are not timely, not relevant , not highly personalized, and not pre-qualified by an existing relationship with the prospect.
So, one in two hundred "exposures" turns into a sale. Why did one in two hundred buy from you? Maybe they bought on impulse. This is what happens most of the time, people will buy on impulse because of a dramatic sales promotion. But what are the implications of a sales promotion? When a sale is a result of a sales promotion, the driving factor is price. Let me just quickly tell you how dangerous invoking the tool of price is. Price is the destroyer of sound strategic planning. Price is the destroyer of brand equity. Price is the destroyer of customer relationships. Price is a nail in the coffin. Once your firm gets involved in a downward spiraling price war, there's no way out.
I know what some of you are thinking, a loss leader promotion is o.k., it's o.k. because it's designed to get you into the store where you'll buy more than you planned. I'll spend quite a lot of time in this text speaking of post purchase dissonance (the direct marketers worst enemy), a phenomenon that occurs when we buy something on impulse that we didn't plan on buying. A loss leader promotion is designed to do just that, get you into the store so you will spend more than you planned. Indeed it does put short term revenue in the firm's pocket, but it also likely leaves the customer in a state of dissonance, a dissonance that will always occur when we spend money we weren't originally planning on spending. Post purchase dissonance doesn't pass the relationship test I spoke of earlier, it doesn't build relationships, it breaks them down.
So, to summarize, if I use mass mailings or telemarketing lists, one in two hundred will buy from me (likely on impulse because of a sales promotion). Since the "P" of price was invoked, no relationship will be formed and the customer will quietly go away, never buying from you again, loyal only to whoever has the lowest prices at the moment. There must be a better way to spend our marketing dollars.
Let's continue on with the alarming statistics. Where does all our revenue come from? We've all heard of the 80/20 rule, the "ice berg" principle. Very few of our customers account for almost all of our revenue. I've consulted for many firms of all sizes, and in business to business marketing situations, the 80/20 rule is more like 90/10. 90% of a firm's business comes from 10% of it's customers. In an average twenty to fifty million dollar firm, how many customer companies do you think account for 90% of the firm's revenue? 1,000? 500? 100? 50? In almost every case, it's less than 20 customers that account for the lion's share of the firm's revenue. Go ahead, look at your own firms' statistics, look at where the revenue is coming from. After you confirm the statistics, ask yourself how well your firm communicates with these few best customers. Ask yourself if you've ever communicated preferred status to these customers. Ask yourself if you treat them differently. Ask yourself if they are lumped in the database with all those other customers that haven't bought from you in years.
Sadly, we don't invest in the very few customers that account for almost all of our revenue, we don't spend marketing dollars on them, we don't tell them how important they are to us. Since we don't communicate preferred status to them, they have no idea how important they are to us, and so they take most of their business elsewhere. What an opportunity there is for us when we shift our attention toward our best existing customers.
Alarming news continued. These twenty or so customers that account for almost all of our revenue, how much of their business do we get? What's our "share" of the customers business? It's about 25%. Our best customers give 75% of their business to our competitors. Why? Because we've done nothing to insulate the relationship, we've done nothing to separate ourselves from competitive offerings. If you have a hard time believing these alarming statistics, run the numbers on your own firm. Believe me, I run the numbers in every marketing class I facilitate (about 350 courses to date), and also in every consulting agreement I engage in. The numbers come out the same.
If you have some portion of the customer's business, then you have the unique opportunity to learn from every interaction with them. If you're wise, you'll give them a voice, you'll create dialogue opportunities, you'll understand their unique customized needs and you'll categorize them differently in your database. Soon, you'll know them so well that you'll be able to anticipate their needs. Could a competitor without such interaction information possibly meet their needs better than you? No.
Just think of the dramatic impact we could make if we spent our marketing dollars on our best existing customers instead of fishing in the ocean for prospects. Direct marketing is not the tool you use to churn in new customers. Direct marketing is all about increasing the share of your best existing customer's business. Direct marketing must be all four; timely, relevant, highly personalized and pre-qualified.
Broad demographic characteristics are never deep enough for direct marketing
We'd all like to think of ourselves as targeting a market, a specific niche. Most companies that I consult for tell me that they practice niche marketing and that all of their tactics are highly targeted. The first thing that comes to my mind is, if it were true, why do they need me? When I ask them to tell me about their highly targeted niche marketing, the first thing I usually hear about is the "list", the list they bought from somebody. If I own a chocolate company and I buy a list of a people who have purchased chocolate in the past, and I contact them, is it direct marketing? If I mail something to them, are they waiting for it? Expecting my call? Have they ever heard of me before? No. My contact is not timely, not relevant, not highly personalized, not pre-qualified. There is no existing relationship. How could anyone call it targeting a pre-qualified niche? What do you get when you buy a list? You get broad demographic characteristics such as age, income, ethnicity, gender, etc. You get one order for every two hundred mailings. Does everyone between ages thirty five and fifty want the same thing? Do they have the same needs? Of course not.
If I'm a Baby Boomer, does it mean that I'm exactly the same as millions of other Baby Boomers? Do all Baby Boomers want the same things? Nothing could be further from the truth. I'm unique. I have very specific needs and knowing how old I am, or how much money I make doesn't say anything specific about me, doesn't give any information about how to meet my needs in a differentiated fashion. Simply put, if you only know my broad demographic characteristics, you cannot practice direct marketing on me. You must get deeper, you must forge a relationship, you must create trust.
Certainly, we are all a bit jaded when it comes to sharing information. Ever put your name, address, phone number, age and income on an entry form at the mall because you want to win the new car on display? Soon after you've entered the drawing, you'll start getting calls at dinner time and mail from the companies that bought your name. You were sold out, it doesn't pass the relationship test.
We've all heard of "Big Brother" and we all have a fear of giving out personal information. But think about it, if I protect your information, don't trade it, don't sell it, and only use it to better meet your needs, wouldn't you be willing to share it?
Every season, I get a new catalogue from J.C. Penny, just like everyone else in the neighborhood. It's addressed to "resident. Let's suppose, I read it, see something I like in it and actually go to the store and buy it. Do they know who I am? Can they trace a sale back to the catalogue mailed to my house? Nope. Not direct marketing. If I don't know you, if I'm not expecting your call, if the tactic is not measurable, you aren't practicing direct marketing.
I received a Bachelor of Arts in Business Administration with a concentration in Marketing from Cal State Fullerton in 1982. Ever since that time, I've received direct mail from them asking me if I'd be interested in taking a course in their extended education certificate programs. Funny thing is, I actually teach the courses they're asking me to take. I'm a forever non-prospect, yet the catalogues and direct mail pieces keep coming. After twenty years, you'd think I'd be flagged as a non-prospect and they'd stop mailing to me. Not direct marketing.
Road Runner Sports is a San Diego, California based runners specialty company that sends me catalogues. Do I get them with every new season? No, I get them when I need them, when there's five hundred miles on my shoes. Road Runner knows how old I am, but they know so much more. They know how much I weigh, they know how many miles per week I run, they know how fast I run each mile, they know that I had an Achilles tendon surgery in 1990. Road Runner knows much about me as a runner, and with each interaction, they are learning more about me. So, when do I get a catalogue? Exactly when I need one. About a day before my ankle starts to feel sore, I'll get a catalogue and it will say; "Nick, you've got five hundred miles on those Saucony Street Classics, it's time for a new pair, turn to page thirty four". They know I need a new pair just days before I realize I need a new pair. Could I buy those shoes at the local sporting goods store for less? Absolutely I could, but I don't. I don't because price is not the issue. I'm loyal to Road Runner because they look out for me, they keep me from injury. Is everyone that buys running shoes like me? Hardly. Many just want low price and guess what, Road Runner doesn't want those folks.
Let me tell you a story about my relationship with Road Runner Sports. I had been buying those Saucony Street Classics regularly and running very consistently in my home town of La Mirada California. Well, I landed a consulting gig in Pennsylvania, went there for two weeks, two weeks turned into three months, three months turned into two years. After three months had gone by and things were looking like they were going to continue, I moved my whole family to Northeast Pennsylvania, to the Pocono Mountains, where everyday was like a vacation in a four season resort community. We didn't sell our house, we just let my brother live there for a while. We didn't have our mail forwarded either because we didn't know exactly how long we'd remain in PA. Well, right on time, Road Runner mailed a catalogue to my home in La Mirada. I never received it. The fascinating thing is that Road Runner quickly knew something was wrong, they knew that our relationship had changed and they moved me into a different category in their database.
After being re-categorized in the database, Road Runner mailed a catalogue to my house which read; "Dear Nick, we've noticed that you didn't order a new pair of Saucony's, you're likely way over 500 miles by now and we're concerned about those Achilles tendons. Please let us know if we can help, or please inform us if anything has changed in your training regime so that we can update our records".
They weren't trying to scare me or manipulate me into buying a new pair of shoes, they were reacting to a red flag in their database, a flag that said to them something was different in our relationship. Well, I didn't receive that mailing either (still in Pennsylvania) and so another mailing came quickly on its heels. Do you know what it said? This is amazing. It said "Dear Nick, we value our relationship with you, you've been our partner and we have always thought of ourselves as a training partner of yours. But something has changed in our relationship and we've been unable to serve you as we have in the past. Our catalogue mailings are a major expenditure and under the current circumstances, we cannot continue to send these catalogues out to you".
Cal State Fullerton has mailed me catalogues twice a year for twenty years, having no clue I'm a forever non-prospect, but if I miss one shoe order, Road Runner is ready to "fire" me (stop investing in me). Road Runner did fire me, but shortly after that, I called from Pennsylvania, ordered my shoes, provided updated information to a running specialist and our relationship was reinstated.
Here's a simple rule of thumb and a great sanity check for whether or not a tactic is direct marketing. Ask yourself the following four things; Is the mailing timely? Is it relevant? Is it highly personalized? Is it pre qualified? In order for it to be direct marketing, it has to be all four of these things.
I recently received a direct mail piece from the local Ford dealership where I bought a Ford truck. I opened it because it was from the place I had bought my truck, in other words, there was a pre-qualified relationship. The letter said there was an appointment reserved for me for my thirty two thousand mile check up. I looked at my odometer and there were (almost to the mile), thirty two thousand miles on the truck. Was it timely? Yes. Was it relevant? Yes. How did they know? They know because they have more than my name address and phone number in their database. Their database is obviously dynamic and their customers are obviously segregated by value. Segregated by value? Does this mean that we are to treat our customers differently? Absolutely. All customers are not equal. Some customers are more valuable than others. Customer value is constantly changing. We do not want every customer's business, only those who value our customized bundling of value added services more than they value their money.
Was the Ford example timely, relevant, highly personalized and pre-qualified? Yes. When J.C. Penny mailed me a catalogue in the spring, was it timely? Maybe. Was it relevant? Maybe. Was it highly personalized? No. Was it pre qualified by previous history? No. When Cal State Fullerton mailed me their catalogue for Fall classes, was it timely? No. Was it relevant? No. Was it highly personalized? No. Was it pre qualified by previous history? Yes, but a twenty year history which was no longer relevant. When Road Runner mailed me a catalogue, was it timely? Yes. Was it relevant? Yes. Was it highly personalized? Yes. Was it pre qualified? Yes. It was all four of those things and so it was truly direct marketing. I trust you're beginning to recognize when a tactic is direct marketing and when it is not.
It's amazing that many direct marketing texts being written today are designed to increase "junk mail" response rates and "sweat shop" telemarketing programs from 1/2 of 1% to something a bit higher (something that is still a high ninety percentile failure rate). The so called "direct marketer" of today attempts to sell us things on impulse via trickery and manipulation. The "direct marketer" of today will do a back flip if they can trick you into opening the mail before it hits the "round file", or get you to stay on the phone for a few seconds longer so they can "manage differences" and create a flawed logic trail that leads to an impulse purchase.
As we move through this text, we'll continue to dispel misconceptions surrounding the tool of direct marketing. We'll continually learn to discern what direct marketing is and what it is not. Most importantly, we'll learn that direct marketing is not a "stand alone" marketing tool, not a mass media tool, not an awareness tool, not a response motivation tool, but rather, one of five specific integrated marketing communications tools (advertising, public relations, sales promotion, personal selling, and direct marketing) which when pre-qualified, becomes the most powerful of all relationship marketing tools.
Food For Thought Questions:
1.) Is direct mail direct marketing? Is telemarketing direct marketing?
2.) Can you ever possibly own 100% of your customer's business?
3.) What is the "relationship" test? Can you give an example of a tactic that passes the relationship test?
4.) Can you provide an example of confrontational marketing? What disturbs you about it?
5.) Provide an example of an impulse purchase you recently made. What triggered the purchase?
6.) Can you name a company that you regularly do business with that actually anticipates your needs? How is this possible?
7.) After reading this chapter, how has your view of direct marketing changed?
