MAIL-ORDER BUSINESS



A mail-order business is one that receives and fulfills orders for merchandise through the mail. One often hears the terms "mail order," " direct mail ," and " direct marketing " used as if they were synonymous, when in fact they have different meanings. While a mail-order business may solicit orders using a variety of direct mail packages and catalogs, there are also many businesses, organizations, and agencies that use direct mail that are not mail-order businesses. Direct mail is simply an advertising medium that delivers its message through the mail, in much the same way that television, radio, newspapers, and magazines are advertising media.

Direct marketing is a broader term than direct mail and encompasses other media. Mail-order businesses usually use direct-marketing techniques to reach potential customers and make sales. Direct marketing may be distinguished from other types of marketing by the fact that it always makes an offer and solicits a direct response. While direct marketing makes heavy use of direct mail, it also employs a range of other advertising media to get its message across to target audiences.

Mail order is simply a way of doing business. While mail-order businesses originally took orders primarily through the mail, the advent of lower long-distance rates and toll-free telephone numbers has made it more convenient for customers to place orders over the telephone. In the early 1990s there were an estimated 200,000 toll-free WATS (wide area telecommunications service) lines, and the number continues to grow. Mail-order businesses also use the telephone to solicit orders from potential customers.

Mail-order businesses represent a growing segment of the U.S. economy. Estimates of the amount of consumer and business products purchased from mail-order firms vary. The government does not publish statistics on the volume of business done by mail or telephone. Arnold Fishman, as cited in How to Start and Operate a Mail-Order Business, estimated that consumers purchased nearly $100 billion of products by mail in 1990, and more than $50 billion of business products were sold through the mail. According to a study of the catalog industry conducted by the WEFA Group for the Direct Marketing Association, catalog sales were expected to total more than $87 billion in 1998, a 7.7 percent increase over 1997 sales.

THE DEVELOPMENT OF MAIL-ORDER
BUSINESSES

How old is mail order? Garden and seed catalogs were known to be distributed in the American colonies before the Revolutionary War. Benjamin Franklin is said to have offered a catalog of books in 1744. The Orvis fishing catalog began in 1856 and is America's oldest mail-order catalog still in circulation. Mail-order shopping in the area of consumer goods entered a period of growth in the 1880s, when mail-order houses began to fiercely compete with local stores. Their marketing contest centered on three major issues—price, inventory, and assurances—the very factors that made mail-order houses successful.

Aaron Montgomery Ward (1843-1913), regarded as the first of the consumer goods catalogers, started his catalog business in 1872, while Richard Warren Sears (1863-1914) mailed his first flyers in the 1880s. These catalogs had a liberating effect on 19th-century consumers. They were no longer captive to their local stores, which had limited inventories and charged higher prices because they were not big enough to receive large volume discounts from their suppliers. With the advent of mail order, consumers could get attractive goods and prices whether they lived in the middle of Manhattan or a remote rural setting.

The postal system allowed direct-mail companies to operate on a national basis. With economies of scale working in their favor, mail order houses could undercut the pricing of local stores. In 1897 bicycles were selling for $75 to $100 and more, until Sears started offering them for $5 to $20 in its catalog. Sears could offer those low prices because it sold thousands of bicycles every week.

The large volume of business also allowed catalogers to offer a wider variety of goods. Consumers not only wanted low prices, they also wanted variety—20 kinds of dresses rather than 2. Here again, the enormous volume generated by leading mail-order houses made huge inventories not only possible but also practical. But price and variety, while important, have only limited value if the goods themselves are shoddy or poorly made. So the mail-order firms protected consumers with powerful guarantees. Montgomery Ward was one of the first companies to offer a money-back guarantee, and the Sears, Roebuck and Co. pledge of "satisfaction guaranteed or your money back" is one of the best-known commitments in American business.

Another successful cataloger, L. L. Bean of Freeport, Maine, began in 1913 when Leon Leon wood Bean mailed his first single-sheet flyer advertising his Maine hunting boots. Perhaps he got the idea of using direct mail from his brother, Guy Bean, who was the Freeport postmaster. L. L. Bean targeted his mailing to individuals who had hunting licenses.

MAIL-ORDER BUSINESSES TODAY

Mail-order businesses today offer consumers a wide array of products and services. Magazine subscription sales represent the largest segment of mail-order sales. Nearly 10 percent of all direct-mail advertising is done on behalf of magazine subscriptions. Books and newspapers also account for a significant portion of mail-order business.

The fastest-growing segment of the mail-order business is that of specialty catalogs. They are fast replacing the large general merchandise catalogs with which consumers are familiar. In fact, several of the major merchandise catalogs have been discontinued and replaced with a series of specialty catalogs. The list of specialty goods sold through the mail is endless and encompasses virtually hundreds of categories. Kitchenware, fancy foods, outdoor clothing, health products, gardening products, sporting goods, records, collectibles, and computer software and equipment are but a few of the more popular categories.

THE GROWTH AND ATTRACTION OF
MAIL-ORDER

People order through the mail for a variety of reasons. Historically, mail-order businesses became successful because they offered a wider variety of goods than could be found in local retail outlets. Goods purchased through the mail were often cheaper than those available locally. Mail order shopping offered consumers more convenience than shopping at retail stores. Individuals pursuing a hobby or special interest were more likely to locate those hard-to-find items in a specialty catalog than in a store.

In addition, several recent socioeconomic factors have contributed to the growth of "at-home shopping." These include changing lifestyles, most notably an increase in the number of women working outside the home. Increased consumer acceptance of the telephone as a way to place orders has also helped mail-order businesses. Coupled with telephone-based ordering are faster order fulfillment and the elimination of delays previously associated with the mail. Today, placing an order by phone offers almost the same "instant gratification" as picking up a piece of merchandise at the store. This has been made possible largely through the widespread use of credit cards and toll-free telephone numbers.

MARKETING AND ADVERTISING A
MAIL-ORDER BUSINESS

Mail-order businesses have a wide range of media to choose from when marketing and advertising their products. Mail-order advertisements are commonly found in direct mail (including catalogs), classified ads, and display ads. Other media that can be used to advertise a mail-order business include television, radio, matchbooks, package stuffers, bill stuffers, transit advertising, comic books, daily newspapers, and free-standing inserts in Sunday newspapers.

Mail-order advertising is usually direct-response advertising. Direct response advertising is a type of direct marketing. Like all direct marketing, direct-response advertising makes an offer and asks the reader for a response, such as placing an order or requesting more information. The response to any mail-order advertisement can be precisely measured. It is this measurability that allows direct marketers to test a variety of lists, offers, and media before committing valuable resources to a specific campaign.

Mail-order businesses are also using the Internet to display their merchandise without incurring postage and paper costs associated with catalog mailings. While estimates vary widely, one source reported that online retailers generated about $518 million in sales in 1996, up from only $200 million in 1994. That's certainly a small percentage of the overall $75 billion in mail-order sales generated in 1996, but the potential for growth is there.

Certain types of merchandise seem to sell better on the Internet than others. For example, items such as books, software, and music tend to sell well, because they can be described with words rather than pictures. Less successful are items such as apparel and gifts, which require an element of "romance" as part of their sell. Food and flowers, however, have reportedly done well over the Internet.

REGULATIONS THAT AFFECT
MAIL-ORDER BUSINESS

Mail-order businesses must comply with the regulations of the Federal Trade Commission (FTC) and the U.S. Postal Service. In addition mail-order businesses may be subject to applicable state laws. While recent court decisions have questioned the applicability of state-use tax laws to mail-order businesses, it is still necessary to be aware of state regulations concerning the collection of sales tax.

The FTC has issued several directives, guidelines, and advisory opinions concerning mail-order businesses. These and other relevant regulations are published in the Code of Federal Regulations (CFR), Title 16, Chapters 1 and 2, which is available in most large libraries or directly from the FTC. It is worth summarizing a few of the rules that mail-order firms must observe in the conduct of their business.

The Mail-Order Merchandise Rule, also known as the 30-Day Rule, is designed to protect consumers from unexpected delays in receiving merchandise ordered through the mail. When there is a shipping delay, mail-order businesses are required to notify customers before the promised shipping date or within 30 days after the order was received. The notice of delay must provide the customer with the option of canceling the order for a full refund or consenting to the delay. Among other things, the rule also requires that the option notice be sent by first-class mail.

Another FTC rule requires all mail-order advertising to indicate the country of origin of the product being advertised, but only if the product has fabric as part of its content. This rule was designed to protect domestic textile and wool producers. Product warranties and guarantees are the subject of additional FTC guidelines that apply to all businesses, not just mail-order businesses.

Mail-order advertising frequently contains endorsements or testimonials. Under FTC guidelines, any endorsement must reflect the views of the endorser, must not be reworded or taken out of context, and the endorser must be a bona fide user of the product. If the endorser has been paid, the ad must disclose that fact, unless they are celebrities or experts. Additional FTC rules apply specifically to endorsements by average consumers and expert endorsements.

The FTC has issued guidelines to help mail-order businesses avoid deceptive pricing. These rules affect two-for-one offers, price comparisons, and other issues. Use of the words "free" and "new" are subject to FTC review. Advertising products that have yet to be manufactured, while legal, is subject to FTC requirements. Also called dry testing, such advertising must clearly state that sale of the product is only planned and that it is possible that consumers who order the product may not receive it. In addition, if the product is not manufactured, consumers who ordered it must be notified within four months of the original ad or mailing, and they must be given the opportunity to cancel their order without obligation.

In addition to FTC regulations, mail-order businesses must also be aware of USPS regulations concerning materials that should not be mailed. Lotteries, for example, are illegal under USPS regulations. A lottery includes the element of chance, consideration, and a prize. Consideration means that consumers must pay something to enter the lottery. Consequently, mail-order businesses often offer consumers the opportunity to enter a sweepstakes that does not require any consideration, payment, or purchase on the part of the consumer. While sweepstakes have proved to be an effective method of advertising mail order merchandise, many states have laws affecting their use. Particularly deceptive practices in the area of sweepstakes have also drawn the attention of postal officials as a possible violation of laws concerning frauds and swindles.

THE FUTURE OF MAIL-ORDER BUSINESS

The mail-order industry has grown during the 1990s, and there is every indication it will continue to do so into the 21st century. Catalog revenues, which account for a significant portion of all mail-order sales, grew at an annual rate of approximately 7 percent from 1987 to 1993, according to a 1994 survey conducted by the WEFA Group for the Direct Marketing Association. The same survey forecast that catalog revenues would grow nearly 6.8 percent annually through 1997, reaching a total of $69.5 billion. In actuality, catalog sales reached $75 billion in 1996, and an update to the WEFA study predicted catalog sales of $87 billion in 1998, on catalog advertising expenditures of nearly $ 11 billion.

As consumers become more accustomed to at-home shopping, though, they are also showing increasing concern over such issues as privacy and deceptive mail practices. These concerns may lead to increased regulation of mail order businesses. A variety of federal and state regulations have been proposed to protect consumer privacy. Thus far the mail-order industry has been successful at efforts to regulate itself. Mail-order businesses, however, must remain aware of the constantly changing regulatory environment in which they operate.

SEE ALSO : Catalog Marketing

[ David P. Bianco ]

FURTHER READING:

Bruce, Ian. Successful Mail Order Marketing: How to Build a Really Cost Effective Operation from Scratch. Philadelphia: Trans Atlantic Publications, 1997.

Keup, Erwin J. Mail-Order Legal Guide. 2nd ed. Grants Pass, OR: PSI Research, 1993.

Muldoon, Katie. How to Profit through Catalog Marketing. Lincolnwood, IL: NTC/Contemporary Publishing, 1995.

Simon, Julian L. How to Start and Operate a Mail-Order Business. 5th ed. New York: McGraw-Hill, 1993.

Sroge, Maxwell. Inside the Leading Mail Order Houses. 4th ed. Lincolnwood, IL: NTC/Contemporary Publishing, 1996.



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