TELEMARKETING

Telemarketing is a direct market technique for selling goods and services, making appointments, and generating sales leads over the telephone. Although the telephone has been used as a sales tool for nearly a century, the term telemarketing was first used by AT&T in the early 1980s in conjunction with a long-distance phone service sales campaign. Telemarketing may be in-bound or out-bound. With in-bound telemarketing the consumer responds to advertisements, usually featuring toll-free 800-numbers, and calls a company or a company's telephone service and orders products directly. Out-bound telemarketing involves a company's sales force calling consumers, usually at their residence, and soliciting orders or making appointments. Out-bound telemarketing as such is proactive, with the telemarketing company taking the initiative. Out-bound telemarketing has as of late become controversial because of privacy issues and questionable if not outright fraudulent telemarketing schemes. In spite of this controversy, in 1996 approximately 304,000 Americans were employed in telemarketing or telemarketing related jobs as reported by the Occupational Outlook Quarterly. Management Review estimates that telemarketing generates about $424.5 billion in annual revenue.

The telemarketing industry dates back to the early part of the 20th century, when the financial services industry used the telephone as a marketing technique. Stock brokers have traditionally made extensive use of the phone, a practice that continues today. In the 1930s and 1940s, telemarketing units—commonly known as inside sales operations, because the sales reps remained "inside" the office—began to emerge in wholesale distribution organizations. This trend accelerated during World War II as much of the nation's sales force was drafted into service and travel was restricted due to rationing of gasoline and tires.

Magazine publishers began to use telemarketing extensively in the 1940s and 1950s, trying to sign up new subscribers as well as re-sign former subscribers. In 1955 Reuben H. Donnelley began a major telemarketing success story when he started a telephone sales program to sell advertising in the Yellow Pages to small businesses. In 1985, the most profitable publishing entity in the state of California was the Pacific Telephone's Yellow Pages—and approximately 60 percent of the adds and one-third of the revenue were generated by phone.

The introduction in 1960 of the Wide Area Telephone Services (WATS) lines helped increase business use over the telephone. This opened the way for high volume outbound calling at low cost, so it became cost-effective to have large regional or national call centers. Similarly, with the 1967 unveiling of 800 numbers, inbound WATS lines paved the way for direct response capability, where consumers could respond to national advertising toll free.

The telemarketing industry is rapidly growing in the United States, tripling between 1988 and 1998 to about 2,500 companies. In 1995 about 81 million Americans bought goods and services from telemarketers. Consumer sales totaled about $186 billion with business-to-business sales reaching over $238 billion. Telemarketing has grown because it is so cost-effective. One telemarketer, sitting at a phone with a telephone list of sales leads, can reach many more potential customers in eight hours than can a salesperson on the road. It is estimated that face-to-face field calls to potential customers cost about $250 each with outside sales people making four to six contacts a day. An outbound telemarketer, however, can make 90-100 calls a day with 35-50 of these calls ending up as full presentations. Wages in the telemarketing industry are also relatively low. Again citing the Occupational Outlook Quarterly, in 1996 the median wage for workers in the telemarketing category was $7.77. Training for telemarketers takes only a day or two before the trainee makes his or her first sales call. Even faster and cheaper but probably less effective are automatic dialing machines with a pre-recorded sales message.

The telephone, as an "intimate" means of communication, also contributes to the success of telemarketing. "The telephone is one of the few mediums that allow you to have a dialogue with prospective or existing customers. You have the ability to deliver or fine-tune the message and respond based on what you're hearing over the phone," Jon Kaplan, past president of the American Telemarketing Association told Management Review during an interview. People are also more and more comfortable doing business over the phone, especially those with hectic schedules. Andrew Wetzler, president of Wetzler & Associates, a consulting company specializing in telemarketing sales, also has great belief in the telephone as an effective tool for sales." Everyone thought you had to have face-to-face contact for selling. In reality, there aren't a lot of things that can't be sold over the phone. Some big-ticket items are the exception, but in most cases, product upgrades and smaller items are perfect for phone sales," said Wetzler when interviewed for the same article.

Telemarketing programs can either be handled in-house by a company or farmed out to service bureaus. Operations can range from extremely small to major corporations or service centers that have more than 1,000 telephone stations. Although telemarketing can be used as a stand-alone operation, it often works best when part of an overall marketing effort. Companies considering the use of telemarketing have to look at such factors as which products and services are good candidates for telephone sales; whether telemarketing can be used to increase volume through upgrading the sale; how the process can help qualify prospects, define the market, and help service existing accounts; and whether telemarketing can help generate new business. Some of the roles telemarketing can be used to fulfill include: selling, the generation of sales leads, information gathering on such things as advertising effectiveness, and finally telemarketing can be used to improve customer service.

Telemarketing, like any other business or industry also has a downside. The success of any telemarketing operation is dependent on a list of customers in potential need of the good or service being sold. It is, for instance, a waste of time and money for a home improvement company to telephone people living in apartment buildings. Throughout the 1990s many laws and regulations went into effect curtailing telemarketing operations, especially the Telemarketing and Consumer Fraud and Abuse Prevention Act of 1994.-

Technology works both for and against telemarketers. The growing popularity of telephone answering machines, for instance, allows consumers to screen calls often denying the telemarketer a "foot in the door." Making use of expanding technology, however, telemarketers have started using predictive dialers which dial a high volume of numbers in such a way as to avoid dead time which can be caused by busy signals and answering machines. Predictive dialers allow operators to dial 80 calls an hour instead of the usual 45. Predictive dialers often go awry, however, and can "hang up" as soon as a telephone receiver is picked up leaving the consumer waiting for a person to answer or in some cases leaving the consumer with the feeling that they are being harassed or stalked by telephone. Juanita Abbott, who is a manager for the regional annoyance-call bureau for Bell Atlantic told Fortune magazine that much of their time is spent explaining predictive dialers to worried or frightened telephone customers. "The calls run the gamut. People say, 'I know it's my neighbor because I parked my car to close.' They think the worst." Fortune magazine estimates that 40 percent of telemarketers use predictive dialers, which means that 141 million calls can be dialed each day or about 5.5 percent of the total daily volume of calls in the United States. Telemarketers claim that abandoned calls remain low at between I and 2 percent (even so this is over 768,000 abandoned calls a day) but consumer advocacy groups claim the number can be as high as 10 percent.

Telemarketing also has a bad reputation because of fraudulent schemes that plague the industry. According to Black Enterprise American consumers lose $40 billion annually to fraudulent telemarketing scams. It is estimated by Cleo Manuel of the National Consumers League in Washington D.C. that 14,000 or 10 percent of the 140,000 telemarketing firms in the U.S. may be fraudulent. "Boiler-Room" scam operations are run out of motel rooms and low rent buildings that can be vacated quickly and just as quickly set up somewhere else. These fraudulent operators, however, never abandon their "mooch" list which is sort of an underground directory of consumers who have already fallen victim to fraudulent schemes making them likely to be targeted again. "They hit you up for $100 and then three months later, hit you up for a couple thousand," according to Tim Healey, an FBI supervisory special agent for economic crime and telemarketing fraud. Healey advises consumers to be wary of offers for free vacations, business opportunities, credit cards, magazine sales, and solicitations for charitable donations.

To discourage and prevent telemarketing fraud the Telemarketing and Consumer Fraud and Abuse Prevention Act became law in 1994. The act gave law enforcement agencies powerful tools with which to combat telemarketing fraud while giving consumers protection and guidance in separating fraudulent telemarketing schemes from legitimate offers. Under authority of the act the Federal Trade Commission (FTC) adopted the Telemarketing Sales Rule (which quickly became known as the "Rule") in 1995. The Rule contains a number of key provisions aimed directly at achieving the hoped for goals of the 1994 legislation. The Rule has language covering: specific disclosures; the prohibition of misrepresentations; times when telemarketers can and cannot call consumers; the prohibition of calls after a consumer asks not to be called; the setting of payment restrictions for the sale of certain goods and services; and the requirement that specific business records be kept for two years. It is important to note that the Rule does not supersede more stringent state and local telemarketing laws. Another telemarketing law in place is the Telephone Consumer Protection Act, which is enforced by the Federal Communications Commission (FCC).

Under its authority the Rule defines telemarketing as any plan, program, or campaign to sell goods or services through interstate telephone calls. With a few technical exceptions, all telemarketers must comply with the Rule whether or not the telemarketer initiates or receives the call and whether or not the telemarketer is actually the party supplying the goods or services. Not covered under the rules are: banks, federal credit unions, and federal savings and loans; common carriers; non-profit organizations; and companies engaged in the business of insurance, to the extent that the business is regulated by state law. Telephone calls not covered by the Rule generally include: calls placed by consumers in response to a catalog; 900-number calls; calls relating to franchising; unsolicited consumer calls; calls made in relation to a face-to-face sales transaction; business-to-business calls not involving the retail sale of nondurable office or cleaning supplies; calls made in response to general media advertising; and calls made in response to direct mail advertising (for important exceptions to the above see Complying with the Telemarketing Sales Rule. ) The Rule also prohibits credit card laundering. This occurs when a telemarketer who is unable to establish a legitimate merchant account with a financial institution that issues credit cards employs the unlawful services of a launderer or factor who provides access to a merchant account and thus the whole credit card collection and payment system.

In addition to federal legislation there is a growing body of state law regulating telemarketing. Georgia, for instance, passed a "do-not-call-list" law in 1999 which provides for the implementation of a list that consumers can add their names to. Telemarketers are forbidden from calling names on this list. Georgia became the fourth state to pass such a law that is stricter than present federal regulations. Similar pending legislation is on the calendar for 21 other states. In Georgia and Kentucky consumers can register their names on these lists for a $5 fee and the list is available to telemarketers for $10. Telemarketing data files must then be reconciled with updated lists. Other states such as Florida and Oregon require phone directory publishers to print a black dot next to the names of people wishing not to be called by telemarketers. Telemarketers again buy the list from the publisher and reconcile their files. In Georgia violating the list can result in a fine up to $2000. Growing "do-not-call-list" legislation means rising costs for telemarketing industry. "I estimate that telemarketing companies will need to hire one person for each two states to administer the do-not-call-rules," Tyler Prochnow, a legislative consultant for the American Teleservices Association, told Marketing News. "These new employees would be needed to get the updated lists from the states on time, format them properly and push them through the computer."

Expanding technology is also causing problems for telemarketers. Ameritech, for instance, introduced in 1998 a telephone screener called Privacy Manager. Costing under $4 per month, Privacy manager requires a caller ID display box that allows "normal" calls to pass through it. Calls originating from numbers classified as "private," "blocked," "out of area," "unavailable," or" unknown" are stopped and without the phone ringing a recorded message asks the caller to reveal their name. If a name is forthcoming the phone rings and upon picking up the phone the resident hears the message:" This is Privacy Manager, you have a call from…" The customer then can either accept the call, hang up, or choose to play a message saying: "We don't accept telemarketing calls. Please add me to your do-not-call list."

Ameritech's Richard Notebart is enthusiastic about Privacy Manager. "We have never had a product test this good, including voice mail and caller ID. It satisfied a need that consumers have just been pleading to have resolved," Notebart told the Wall Street Journal. Telemarketing consultant Rudy Oetting thinks that devices like Privacy Manager will only make telemarketers work harder. "It will cause marketers who use the telephone channel to become more selective and creative in their approach so that people who do receive calls will be interested in what they are being call about." Oetting did admit, however, that telemarketing calls reaching into homes is rapidly approaching the saturation level.

Telemarketers, however, are also making use of evolving technology to reach consumers, especially with the growth of the Internet and e-mail. Ron Weber, of Ron Weber and Associates expects e-mail business to grow by half in 1999 and Gene Gray of APAC Teleservices told Marketing News that telemarketers should be less concerned with the means of communication and more concerned with communicating. "It's not important that it come from an e-mail or a fax or an inbound call. The task is to be prepared to do all that." Telemarketing and direct marketing insiders also predict that the Internet will play a major role in that industry's future.

"Traditional phone and mail distribution of literature can be supplemented or augmented by the Web site," according to Warren Hunter, president of the Philadelphia office of DMW Worldwide. Michael Osborn of Catalyst Direct also views technology as the future of the industry. "Companies are also feeling the pressure, because of declining response rates, to target better and get down to one-to-one communications. As we start to market more one-to-one, a lot of technology and computer power is required," Osborn told Marketing News. Those companies that aren't equipped with the proper technology will not only find it more difficult to compete in the coming year but, over the long haul, "it will become virtually impossible," Osborn went on to say.

Working to promote telemarketing as an industry that will benefit the consumer and be good for the economy is the American Telemarketing Association (ATA). The ATA lobbies on behalf of the telemarketing industry, publishes a code of ethics for its members, and works with such groups as the FBI, the Federal trade Commission, and the National Consumers League to combat telemarketing fraud.