According to the official definition of the Direct Marketing Association (DMA), direct marketing is an "interactive system of marketing which uses one or more advertising media to effect a measurable response and/or transaction at any location." While there are many other definitions of direct marketing, the DMA definition captures four basic concepts of direct marketing.
The notion of interactivity, or one-on-one communication between the marketer and the prospect or customer, distinguishes direct marketing from general advertising and other types of marketing. Direct marketing makes an offer and asks for a response. By developing a history of offers and responses, direct marketers acquire knowledge of their prospects and customers, resulting in more effective targeting.
Measurability sets direct marketing apart from general advertising and other forms of marketing. Direct marketers can measure the response to any offer. Measurability allows direct marketers to test a variety of lists, offers, media—virtually any aspect of a campaign—in order to allocate marketing resources to the most effective combination of elements.
Direct marketing uses a variety of media, including mail, magazine ads, newspaper ads, television and radio spots, infomercials (also television but longer format), free-standing inserts (FSIs), and card decks. This flexibility allows direct marketing to provide interactivity and measurability and still be able to take advantage of new technologies. By being able to utilize virtually any media, direct marketing will lead marketers into the 21st century as interactive television, the information highway, and other new technologies become a reality.
In direct marketing, the transaction may take place at any location and is not limited to retail stores or fixed places of business. The transaction may take place in the consumer's home or office via mail, over the phone, or through interactive television. It may also occur away from the home or office, as at a kiosk for example.
In his book, Profitable Direct Marketing, Jim Kobs wrote: "Direct marketing gets your ad message to the customer or prospect to produce some type of immediate action. It usually involves creating a database of respondents." He also said, "Direct marketing is really the straightest line between you—the advertiser—and the action you want those who receive your message to take."
The history of direct marketing starts with mail-order shopping and direct mail, two traditional elements that still play a role in many direct marketing campaigns. It is necessary to distinguish direct marketing from direct mail or mail-order business, although direct marketing encompasses those two concepts. A firm may spend millions of dollars on direct mail and not sell anything through the mail. Direct mail is an advertising medium, one of several media that direct marketers utilize. Mail order is a distribution channel; the other two channels of distribution are retail and personal sales.
How old is direct marketing? Garden and seed catalogs were known to be distributed in the American colonies before the Revolutionary War. Mail-order shopping 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. Consumers were no longer captives of their local stores, which had limited inventories and charged higher prices because the stores weren't 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 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 Mr. Leon Leonwood 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.
Another landmark in direct marketing occurred in 1926, when copywriter John Caples wrote a direct-response advertisement for a music correspondence school using the headline," They Laughed When I Sat Down at the Piano … but Then I Started to Play!" Today the Caples Award is a coveted prize among direct marketing copywriters.
Despite these and many other successes, direct marketing did not come into its own as a marketing discipline until the 1970s. It's interesting to note that the successful introduction of bank credit cards, including Visa and MasterCard, in the 1960s and 1970s was conducted using direct marketing methods to persuade consumers, merchants, and banks to accept the cards. Why were consumers, merchants, and banks ready to embrace bank credit cards, and why was direct marketing the most effective way to present the message about credit cards?
The very elements that contributed to the increased effectiveness of direct marketing in the 1960s and 1970s continued to fuel the discipline's growth in the 1980s and 1990s. From the many factors contributing to the growth of direct marketing and mail-order catalogs, direct marketing expert Jim Kobs selected five as, the most important.
Changing lifestyles were an important factor in the acceptance of direct marketing among consumers. The number of women working outside the home jumped from 42 to 58 percent between 1980 and 1990. This was a trend that began at least a decade earlier and contributed to the growth of direct marketing. After all, isn't it logical that when you have less time to go shopping, it's more convenient to select and examine merchandise in your own home, at your own convenience? Direct marketing extends this convenience beyond mail-order shopping to consumers receiving all kinds of offers in the home, either via mail or commercial television, as is common today, or via home-shopping networks and interactive television.
Another factor contributing to the growth of direct marketing was the increased cost associated with personal sales calls. By the end of the 1970s, the average cost of a single sales call was estimated to be about $137. By the end of the 1980s, the cost had risen to more than $250 per call. An interesting application of direct marketing now is to use direct marketing methods to make personal selling more cost-effective by generating qualified leads that can then be followed up by a personal sales call.
Technological growth in general, and computer-based technologies in particular, have played an important role in many areas of direct marketing. New computer technologies have allowed direct marketers to be more precise in the analysis of results, in the targeting of messages based on more complex psychographics and demographics, in developing more sophisticated customer and prospect databases, and even in the creative execution of direct-mail packages.
The growth in the number of available products and services has made direct marketing more attractive than mass marketing when a larger number of goods and services are being offered to a smaller group of prospects.
Increased consumer acceptance of the telephone as a way to place orders has also helped direct marketing achieve phenomenal growth. Coupled with telephone-based ordering are faster order fulfillment and the elimination of delays previously associated with mail order. Today, placing an order by phone offers almost the same "instant gratification" as picking up a piece of merchandise at the store.
Other socioeconomic factors contributing to the growth and acceptance of direct marketing include a population growing older, rising discretionary income, more single households, and the growth of the "me" generation. External factors include the rising cost of gasoline (at-home shoppers use less gasoline and reduce environmental pollution), the availability of toll-free telephone numbers, the expanded use of credit cards, the low cost of data processing, and the widespread availability of mailing lists.
While many people associate direct marketing with direct mail, direct mail is only one of several advertising media used by direct marketers. Other major direct marketing media include the telephone, magazines, newspapers, television, and radio. Alternative media include card decks, package and bill inserts, and matchbooks. Within the major media, new technological developments are giving direct marketers a new range of choices from videocassettes (possibly advertised on television, requested by telephone or interactive computer, and delivered via mail or alternate delivery services) to home-shopping networks and interactive television.
The Internet and the World Wide Web also have the potential to become major direct marketing media. Internet commerce grew from around $200 million in 1994 to $518 million in 1996 and was projected to reach $1 billion by the year 2000. Some 40,000 retail Web sites went up in the first six months of 1998. We have already seen how direct marketing's flexibility allows it to provide interactivity and measurability in virtually any medium, and the Internet is no exception. Direct marketing techniques can be applied to online catalog sites, virtual malls, and stand-alone retail Web sites to build customer databases, develop customer relationships, and provide ways to measure response.
Direct marketers are also experimenting with targeted electronic mail messages as more qualified email lists become available. While some direct marketers went against Internet conventions by sending out large e-mail mailings to people who neither requested nor wanted them—a technique referred to as spamming—the industry as a whole has realized that untargeted e-mail messages are not a viable marketing tactic. Instead, direct marketers have been compiling and utilizing e-mail lists based on personal preferences and looking for ways to enhance e-mail delivered direct-response messages.
Direct mail has traditionally been the most heavily used direct marketing medium and the one direct marketers learned first. Direct mail has been used to sell a wide variety of goods and services to consumers as well as businesses. Despite postage increases, direct mail continues to grow. According to Kobs, a recent count showed some 714,000 businesses had bulk-mail permits that allowed them to mail at lower rates, and they sent out more than 63 billion pieces of advertising mail a year. According to the U.S. Postal Service's 1997 annual report, Standard Mail (A) (formerly third-class mail), which includes advertising letters, flats, and small parcels, increased by 7.8 percent over 1996.
Direct mail offers several advantages over other media. Perhaps the most important is selectivity and personalization. This doesn't necessarily mean addressing every individual by name, but it does allow targeting individuals with known purchase histories or particular psychographic or demographic characteristics that match the marketer's customer profile. Direct mail can be targeted to a specific geographic area based on zip codes or other geographic factors. Personalization in direct mail means not only addressing the envelope to a person or family by name, it can also mean including the recipient's name inside the envelope on a letter, for example, or elsewhere in the package.
Direct-mail packages come in all shapes and sizes, making it one of the most flexible of the direct marketing media. A standard direct-mail package includes an envelope, a letter, a brochure, and a response device. The envelope's job is to motivate the recipient to open the package. Regardless of the volume of mail a person receives, the envelope must distinguish itself from other mail by its size, appearance, and any copy that might be written on it.
The letter is a sales letter and provides the opportunity to directly address the interests and concerns of the recipient. The letter typically spells out the benefits of the offer in detail. The more personal the sales letter, the more effective it is generally. While the letter tells the recipient about the benefits of the offer, the brochure illustrates them. Illustrated brochures are used to sell services as well as products. Finally, the package must include a response device, such as a business reply card, that the recipient can send back. Response rates are generally higher when the response device is separate from, rather than part of, the brochure or letter. Toll-free numbers are often prominently displayed to allow the recipient to respond via telephone.
A "lift letter" is often added to the package to "lift" the response rate. The lift letter often carries the message, "Read this only if you've decided not to accept our offer," or something similar to grab the recipient's attention one more time.
More complex direct-mail packages are three-dimensional; that is, they include an object such as a gift or product sample. These three dimensional mailings can be effective in reaching top executives whose mail is screened by a secretary, and they are practically guaranteed to be opened by consumers at home.
Direct mail is the most easily tested advertising medium. Every factor in successful direct marketing—the right offer, the right person, the right format, and the right timing—can be tested in direct mail. In terms of selecting the right list, computer technologies have made it easier to select a randomized name sample from any list, so that mailers can run a test mailing to determine the response from a list before "rolling out," or mailing, the entire list. Different packages containing different offers can also be tested. Other media allow some degree of testing, but direct mail is the most sophisticated.
Direct mail is the most effective media for reaching a company's customer base, which is likely to provide the best sales opportunities, thereby maximizing the profit from a business's customer list. The only other advertising medium that allows a marketer to reach its customers without any waste is telephone-based selling.
In relation to the other direct marketing media, direct mail is considered to offer the most cost-effective way of achieving the highest possible response. Only telemarketing produces a higher response rate, but usually at a much higher cost per response.
The use of the telephone in direct marketing has grown dramatically over the past two decades. According to a 1996 study conducted by The WEFA Group for the Direct Marketing Association, more money was spent on telemarketing than on direct-mail advertising. Of all direct marketing media spending in 1995, telemarketing accounted for 40 percent, or $54.1 billion, compared to $31.2 billion for direct mail.
Telephone-based direct marketing may be outbound and/or inbound. Inbound telemarketing is also known as teleservicing and usually involves taking orders and responding to inquiries. Outbound telemarketing for consumers may be used for one-step selling, lead generation, lead qualification or follow-up, and selling and servicing larger and more active customers. In business, telemarketing can be used to reach smaller accounts that don't warrant a personal sales call, as well as to generate, qualify, and follow up leads.
Telemarketing has the advantage of being personal and interactive. It's an effective two-way communications medium that enables company representatives to listen to customers. Telephone salespeople typically work from a script, but the medium allows the flexibility of revising the script as needed. It also allows up- and cross-selling. While customers are on the phone it's possible to increase the size of their orders by offering them additional choices, something that tends to lead to confusion in other direct marketing media. Examples include offering "telephone specials" to callers or letting them know about clearance or discounted merchandise.
Telemarketing is more expensive than direct mail. It also lacks a permanent response device that the prospect can set aside or use later. It is not a visual medium at present, although the technology to make it one may be available in five years. Finally, it's perceived as intrusive, generating consumer complaints of "invasion of privacy" that have led to legislative actions to regulate the telemarketing industry.
Direct-response print ads in magazines must ask the reader to do something by making a definite offer or request of the reader. Typically this means sending in a coupon or bound-in reply card, or calling a toll-free number. With well over 2,000 consumer magazines now being published, magazine ads allow direct marketers to reach audiences with identifiable interests. In addition to advertising heavily in special-interest magazines, direct marketers utilize mass consumer magazines and take advantage of regional advertising space to target specific audiences.
Unlike general advertisers, who measure the effectiveness of their print ads in terms of reach and frequency, direct marketers measure the effectiveness of their print ads in terms of cost-effectiveness, either cost-per-inquiry or cost-per-order. Magazine ads offer the advantages of good color reproduction, a relatively long ad life (especially compared to daily newspapers), and a lower cost per thousand. Creative costs for magazine ads are also usually lower than for direct mail.
Direct marketers find magazines' long lead times, slower response, and scarcer space than direct mail to be disadvantages. In some cases magazine advertising is not as selective as direct mail or telemarketing.
While direct marketers advertise in magazines more than newspapers, newspapers have some distinct advantages over magazines, the more popular direct marketing medium. They include the variety of sections offered within a newspaper, shorter closing dates, an immediate response, and broad coverage of a large and diverse audience. Disadvantages include poor ad reproduction and the limited availability of color. Editorial content can also have more of an adverse effect on ad response than in magazines. In addition to advertising in the regular pages of a newspaper, direct marketers also advertise in freestanding inserts that are usually distributed with the Sunday editions of newspapers.
Direct marketing on television is increasing. It has undergone an evolution from the early days when products for the home were sold on television by carnival-like pitchmen giving lengthy product demonstrations. Television viewers are also familiar with direct-response advertisements for products such as knives, garden tools, exercise equipment, records, and books, which ask them to call in and order a specific product.
More-recent developments in direct-response television advertising include a return to a lengthier format, evident today in infomercials, where a product or other offer is explained in some detail over a period extending from several to 30 minutes or more. Advocates of this format point out that the lengthier format gives the advertiser the opportunity to build a relationship with the viewer and overcome initial viewer skepticism, and at the same time present a convincing story spelling out product features and benefits in greater detail. NIMA International, an infomercial industry trade association, estimated that advertisers spent between $450 million and $550 million in media costs to broadcast infomercials in 1997.
Not all direct-response television involves asking for an order. Long distance telephone companies and automobile manufacturers, among other advertisers, have included toll-free telephone numbers with their television ads to get viewers to call and request more information about their product or service. Any television ad that includes a toll-free number is asking for a response and qualifies as a direct-response advertisement.
With the prospect of interactive television looming on the horizon, together with developments in the delivery of more cable channels that attract audiences with identifiable interests and demographics, direct response television promises to be a dynamic area in the future of direct marketing.
Lists are commonly used in direct mail and telemarketing. The two basic types of lists are response lists and compiled lists. Response lists contain the names of prospects who have responded to the same offer. These typically contain individuals who share a common interest. Names on a response list may include buyers, inquirers, subscribers, continuity club members, or sweepstakes entrants. They may have responded to an offer from one of several media, including direct mail, television, or a print ad. Response lists are not usually rented; rather, they are an in-house list compiled by a particular business. Compiled lists are often rented by direct marketers. Compiled mass consumer, specialized consumer, and business lists are available for a wide range of interests.
Direct marketing databases are similar to mailing lists in that they contain names and addresses, but they are much more. They are the repository of a wide range of customer information and may also contain psychographic, demographic, and census data compiled from external sources. They form the basis of direct marketing programs whereby companies establish closer ties and build relationships with their customers.
In the 1980s database marketing became one of the prevalent buzzwords of the direct marketing industry. Whether it's called relationship marketing, relevance marketing, or bonding, the common theme of database marketing is strengthening relationships with existing customers and building relationships with new ones. Databases allow direct marketers to uncover a wealth of relevant information about individual consumers and apply that knowledge to increase the probability of a desired response or purchase.
As with mailing lists, there are two basic types of marketing databases, customer databases and external databases. Customer databases are compiled internally and contain information about a company's customers taken from the relationship-building process. External databases are collections of specific individuals and their characteristics. These external databases may be mass-compiled from public data sources; they may contain financial data based on confidential credit files; they may be compiled from questionnaires; or they may be a combination of all three sources.
Database marketing, and especially the prospect of using confidential information for marketing purposes, has made privacy an important issue in the direct marketing industry. Some states have passed legislation limiting access to previously public data or limiting the use of such data as automobile registrations, credit histories, and medical information. In order to avoid excessive government regulation, the direct marketing industry has attempted to be self-policing with regard to the use of sensitive data. Nevertheless, the struggle between industry self-regulation and government regulation continues and will probably continue for some time.
There are certain situations where direct marketing is more likely to work than others. The direct marketer must be able to identify the target audience in terms of shared characteristics. Are they likely to read a particular magazine? Live in a certain geographic area? Have a certain minimum income? Be a certain age or gender? The more characteristics of the target audience that can be identified, the more likely a direct marketing campaign targeted to those individuals will work. Since direct marketing relies on one-on-one communications and motivating the recipient to act, it is essential to be able to reach the target audience. It's no use identifying a target market if there's no mailing list or print or broadcast medium available to reach them.
Some other situations in which direct marketing works well are when there's a lot to say about a product or service; when the product or service has the potential for repeat sales; and when there's a need to have greater control over the sales message.
The success of a direct marketing program depends on delivering the right offer at the right time to the right person in the right way. Direct marketing is a complex discipline that requires expertise in several areas to achieve success. It involves identifying the target market correctly and selecting the appropriate media and/or lists to reach it. The offer must be presented in the best way, and direct marketers must use the most effective creative execution to successfully motivate customers and prospects. At its most effective, direct marketing is an ongoing process of communication to maintain relationships with existing customers and build relationships with new ones.
SEE ALSO : Catalog Marketing ; Channels of Distribution
[ David P. Bianco ]
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