Ted Grigg's Reflections about Direct Marketing

I grew up in the direct marketing world starting with advertising agencies then moving over to the client side where success depended upon proper application of the discipline. But with everything changing faster than ever, I think we must sit back for a few minutes and get our bearings.

Let’s revisit the definitions of what direct marketing was to the earlier practitioners of the trade. The chart below does not represent all of the definitions out there. But the authors of these definitions represent some of the best-known leaders in the business over the years. (Double click the image below to enlarge)

Yes, direct marketing elicits some form of response. it tracks response, applies testing as a core strategy and uses all available media to solicit a response. All of these tools characterize the direct marketing discipline.

So we are left with determining if new media fit this definition. For example, is the new “social media” concept a direct marketing strategy? Is this activity trackable or is there a “measurable response”? I submit that if this effort is not measurable, then it no longer qualifies as a direct marketing strategy.

Some online activities may require the creation of an entirely new discipline that does belong to any established marketing category. If forced to categorize it, then I would place it in the branding camp.

The measurability dilemma existed long before the advent of new media. And the explosive growth of the Internet has made the quantification challenge more complex.

Could you help expand on this idea of where these new applications Internet belongs? Clearly, some aspects of online marketing fit comfortably with the trade. But there are new ideas about how marketers should view the selling challenge that do not belong in the direct marketing camp. What is your view?

Traditional media still rule in most companies’ budgets. But the day is coming when that may no longer be true.

For example, Jeff Brooks makes the point in his fundraising blog “Direct mail: news of its death may be premature” that direct mail is changing, but that it is far from dead. He says:

“Online is coming up behind it. Fast. Nearly every nonprofit fundraiser is now raising meaningful amounts of money online. Even if they aren't trying very hard.

So you need to be thinking ahead. As a response medium, direct mail is losing ground to online. That change is likely to accelerate in the coming years. If you aren't getting good at raising money online now, you may find yourself suddenly in a world of hurt in the not-too-distant future.”

I believe that most of us in the direct marketing field concede that online is here, it’s growing fast, and we need to inculcate our deep knowledge of what makes people respond into this emerging medium.

The rise and fall of various media normally causes no alarm to direct marketers. Direct marketing strategists are media agnostic. We routinely test in and out of media.

But here’s the rub. Do you think companies really care that you know how to make traditional media work? I contend that most companies do not see the intimate relationship between the direct marketing strategy and their desire to leverage the online medium.

Highly experienced direct marketing strategists, however, believe that online was made to order for direct marketers. Online represents the ultimate opportunity for CRM and one-to-one marketing. It embodies the ideal interactive medium direct marketers have dreamed about for years.

So what’s the problem? Here’s part of what I wrote to Jeff Brooks in response to his blog (with a few edits).

The productive copywriters in direct marketing and fundraising cut their teeth on direct mail and other traditional media.

Does their hard earned knowledge in traditional media make them obsolete now that online has become the media with tremendous expansion opportunity? Are these proven and experienced direct response copywriters really in the best position to help nonprofits or companies as a whole maximize the power of online marketing?

I think most organizations would say that they would prefer to hire someone with 3-5 years of pure online marketing experience rather than the proven direct response copywriter with 15+ years of experience who has little hands on experience with online marketing.

That seems to represent hiring managers’ typical mindset not only for copywriters, but at one degree or another, they also apply this philosophy to all direct marketing functional areas.

Your take on this?

In his excellent Direct Creative Blog, Dean Risk recently posted an insightful article entitled "Reports of the death of advertising as we know it are greatly exaggerated."  In the following paragraph, he responds strongly to the now popular idea that disruptive advertising, or advertising that is not controlled by the consumer, is fading away in the Internet age.

“My prediction? People love and respond to advertising far more than they’ll ever admit. And the interruption-disruption model may be tinkered with and modified, but it will never die. Ever. Because no matter what you call it, selling means pushing products. And if you aren’t pushing, you aren’t selling. And if you aren’t selling, you’re out of business.”

Here is my comment to Dean about the unchanging nature of what I choose to call “disruptive marketing.”

About Disruption Dying Out ---

Disruption is fundamental to all communications, not just selling. Every time we ask a question or talk to someone, we are disrupting his thought process or something he is doing.

Think of how the world turns --- the mall-intercept interview, the dog that wants to be petted, the sick child, the gardener knocking on the door for his check, the e-mail asking the recipient to complete a questionnaire and so on. Some interruptions are not pleasant, others are.

That's the way it is with selling products. Some we like and don't mind the interruption and others we don't.

And as you say, this activity is as old as man himself. It will never go away.

If companies ceased disrupting and interrupting, then they would cease selling. But no one ever should think that these disruptive activities are always distasteful.

It is true that some distasteful interruptions are dying out such as door-to-door selling and unwelcome phone calls. These were indeed out of control. But other means of communication like mail and online (except for email) are easily controlled by the customer.

New, distasteful disruptions have come with the growth of new media. Nine out of every ten emails bombard the inboxes with spam and the problem continues to grow in size and complexity. And the Internet has enabled identity theft to grow to epidemic proportions.

So things are changing, but consumers are hardly getting more control over every aspect of their new age lives.

In an article published by iMedia Connection on March 23, 2007 and entitled “The 2007 Direct Marketing Forecast,” Denise Zimmerman wrote the following.

“Many marketers -- but particularly direct marketers -- are working with a fixed budget that was developed in the C-level suite rather than in response to testing and opportunity, which demands a more rolling type of budgeting and forecasting. The fixed budget approach is being challenged as marketers deliver proven tests, but it challenges many organizations at the highest level, creating necessary dialogue and intersections between operations, finance and marketing. The approach to metrics, budget setting and management -- and even how to measure the success of a business -- are being re-evaluated.”

If direct marketers contribute nothing else to marketing as a whole other than budgeting savvy, then they have accomplished much.

As Denise states, the direct marketing philosophy of testing and reliable sales projections turns the fixed marketing budget approach on it’s head.

As long as marketing maintains the allowable cost per sale, then companies  should plan for budget expansion to achieve full potential. In other words, marketing budgets shrink or expand on the fly based on the overall allowable cost per sale.

The investment and CPA world need to reconsider how they view marketing. It is an investment and not an expense.

How does your firm view the advertising budget? On what basis do you develop your company’s marketing budget? What challenges have you encountered when your marketing budget is treated as an expense rather than an investment? Why do companies resist the idea that marketing is an investment?

There’s a lot of talk about what makes a rented response list work. But few have written about the subject. So if you use lists or test them, perhaps you could add to some of the success steps I missed in this blog.

The list brokers I work will usually offer a logical explanation to why I should test a certain list. But when I probe, I often find that many of my questions go unanswered or I don’t believe what they tell me when they do answer.

That’s because compilation tactics and list sources remain secret with the list owner who wants to keep the competition at bay. Or worse, they think I wouldn’t like the truth if they told me.

So comments from list brokers like, “Try it, you won’t regret it” or “Take my word for it, test it” are the common retorts. These are code for “My client, who is in a similar business to yours, tried it, and it is now a control list.”

In spite of this lack of openness in the industry, there really is a rational process to the whole list selection strategy.

As the title states, this discussion centers on list testing for new customer acquisition. Inquiry, customer or compiled lists testing strategies require another discussion.

What are the primary things to look for when testing new lists? I believe the predictors for list success revolve around these four things.

1. Response medium

Did the people on the list purchase a product directly from the company using a direct medium? In other words, did they buy as a result of responding to a DRTV spot, an email, by telephone or a direct mail package? If the answer is yes, then did they buy through the medium through which you are promoting your product?

Even though people are influenced to purchase through many media, mail responders, for example, should help improve your direct mail response.

2. Affinity to your offerings

Once the list passes the litmus test as a direct response list, then you need to focus on the interest of the prospects on the list.

If you are selling outdoor excursions to remote parts of Canada, then you will want to look at direct and indirect interests. Consider travel lists that contain travelers who love the great outdoors. Look for response names that display an interest in hunting and fishing. What about backpacking, bicycling and motorcycle magazine subscribers?

I consider subscription files less effective than comparable response list. But they do demonstrate interests in areas that may correlate to your product offer.

A good broker knows how to think outside the box adding new categories of lists based on interest affinities.

3. RFM segmentation

As most direct marketers know, response lists are segmented by Recency, Frequency and purchase amount (Monetary). Some of these segments are more responsive to your offer than others. It is probable that a single selector or some segment combinations will get the response you need, while others are not worth mailing.

Customers on a rented list who have bought within the last 6-12 months are often not available for rental. The list owners reserve these most valuable names exclusively for their own promotions. So purchase recency counts for a lot when evaluating the quality of any given list segment.

If the rented file is large, then consider testing various segments on the list by RFM. For smaller lists, segmentation may not be worth it because of the small rollout potential.

4. Co-op or aggregated list availability

One of the pioneers of such lists is Lifestyle Selectors. They remain one of the best such list available on the market.

As the name implies, these response list compilers aggregate many hundreds of response databases from multiple companies merging the response data from all sources to create large files that contain a massive amount of information on each record for pinpoint selectability.

Another good example is Abacus that merges and dedups the databases of over 2,000 clients’ customer names. They profile your names by bouncing and matching them against their master file to determine how to select names for your list test. They then project response rates within each of 10 segments taken from their massive database.

Testing such files is essential to your acquisition strategy. Aside from compiled lists, no other database category possesses the huge rollout potential of co-op lists.

The final word

The list testing business requires special experience and great contacts with list managers and list owners. Instead of trying to select your lists using SRDS, the Internet or by approaching list owners directly, work with an independent, experienced list broker who represents all list sources.  

Pick someone who knows your industry and has exposure to what lists work for a large variety of products and offers. Such a broker should be able to expose you to new, winning lists based on their personal experience.

As a past direct response agency executive and present direct marketing consultant, I have worked with CMOs in multiple industries. I’ve seen the good, the bad and the ugly.

From time to time, clients ask me for input on candidates and my perspectives on what they should look for when selecting their new CMO. And I wonder if companies really want the "ideal" Chief Marketing Officer.

Christopher C. Nadherny, global search consultant for Spencer Stuart wrote an article about this in the December 17, 2007 issue of DM News. I want to comment on his points as it relates to the reality faced by direct marketing executives who seek positions and qualify on all of these fronts.

Bear in mind that Mr. Nadherney's following list of five qualities that define the ideal candidate refers to CMOs in organizations that have a substantial investment in the direct marketing strategy. So my comments assume that the organization has a diverse distribution system that does not rely 100% on direct response.

1.    Mr. Nadherty says clients are looking for customer-centricity. That is, customer empathy and being able to stand in the shoes of the company’s best customers. He states that this ideally includes direct selling to customers that demonstrates an understanding of what works in practice, not theory.

This may be true, but most hiring managers operate in cultures that are shareholder rather than customer driven.

Another challenge direct marketing CMOs may face involve organizations that focus on the easy way that does not butt heads with the company’s internal operations.

CMOs confront significant internal barriers because they change things that help customers, but these changes often make life more difficult for employees. In short order, the needed changes do not happen and the CMO does not achieve the desired sales goals.

This makes me question whether companies truly want their CMOs to act as the company's customer advocate. What they may really want is a CMO that can achieve tremendous growth doing it within the company's sometimes-narrow comfort zone.

What is your take on this?

Most senior managers respect this skill because it implies the ability to evaluate the effectiveness of advertising dollars.

But once in the fold, CMOs find resistance to results that contradict the body of anecdotal evidence top operational executives carry in their brains.

CMOs are in the unique position of wielding the power of customer knowledge if they are truly skilled in interpreting customer purchasing behaviors. But this knowledge does not always fall on receptive ears.

The big question is, will the company accept the findings and allow the CMO to act on them? In my experience, facts alone rarely create major changes in many organizations.

In spite of the company's assurances that they want this analytical skill, they want it as long as it confirms what top management already believes.

The symptom: the CMO presents startling customer behavior information that requires a major strategic change, but the CEO and other top management states that they do not trust the customer data. So the conclusions are invalid.

What experiences have you had? What was the end result?

3.    An appreciation and instinct for technology grounded with basic selling and direct marketing savvy. Technology without customer connection costs money and is ineffective.

Well said by Mr. Nadherny! There exists a wide gulf between technical knowledge and translating that to media integration for maximum financial return.

The two technologies most relevant to direct marketing CMOs include online marketing and the management of the marketing database.

Technology knowledge without a firm grasp of marketing strategy leads many companies to trash sound marketing principles in exchange for novelty.

Testing, analysis, campaign development and all marketing strategies require first and foremost an understanding that customers buy using a large diversity of channels.

The direct marketer must also realize that the primary growth opportunities and knowledge for future growth reside in the customer database.

Unless the CMO has a strong direct marketing background, this gold mine called the marketing database will never contribute its full moneymaking potential.

For example, lead generation and sales conversions fail due to a lack of knowledge and attention to the database.

Have you seen technology running out of control? If so, how did you tame it and unlock its moneymaking potential?

4.    Financial know-how in controlling budgets that generate profitable revenue.

Direct marketers in particular should be experts at budget control.

Sales analysis and testing make the direct marketing skill set particularly useful to today’s marketers. Yet many companies need high-speed educations in understanding how much they can invest in new customers or what these customers’ lifetime values are. Asking them to evaluate marketing efforts in these terms is rarely achieved.

This is not usually a problem for companies that rely on the direct marketing strategy for most of their sales. But with multiple distribution channels or large sales forces, such in-house analytical skills may not yet exist.

This is not an insurmountable problem in itself, but the absence of such tools creates another, often debilitating problem. After successful testing, the money is not allocated based on results, but rather as a percentage of what was spent last year.

Top management in non-direct marketing driven companies sometimes has little understanding or appreciation of how the direct marketer develops advertising budgets.

Marketing is an investment and not an expense. So many direct marketing CMOs run immediately into this brick wall based on how the organization allocates the advertising budget.

5.    Experience across multiple industries and across multiple disciplines/channels to provide breadth of understanding and perspective.

I disagree with one point Mr. Nadherny makes here. Many industries do not appreciate multiple industry experience. In fact, they want most (if not all) of the CMOs’ experience concentrated in their industry.

For example, when was the last time you attempted to set up an interview with a financial institution or a high tech company without long term experience in those industries? Such companies will not even consider you for a CMO position without specific and recent category experience.

They do this at their peril in my opinion, because they inbreed to the point that they do not benefit from the marketing successes and failures marketers glean from other industries.

What other skills define the ideal CMO in your experience? 

 

It is well known that successful fundraising direct marketing leaders have contributed much to the direct marketing industry. No industry depends more on advanced direct marketing strategies to fund their futures than nonprofits.

In an October 17 issue of FundRaising Magazine, Jeff Brooks wrote a thought-provoking article entitled “The Enlightened Path for fundraisers.”

He talks about how donors have changed. In the commercial world, we think of how customers have changed.

This blog shows how those donor changes apply similarly to commercial customers.

Brooks starts by making this declaration.

“Donors are changing. They’re asking for more involvement with the charities they support. They need to know and feel their giving makes a difference. They want more information and more connection.”

In the same way, today’s customers depend on other customers for feedback and recommendations on products they are considering. They want to connect more with the companies they support with their purchases. Hence the tremendous growth of company sponsored blogs and forums.

As with donors, an organization’s most important customers want to connect with companies at the emotional level. Just consider the Apple computer brand. There is nothing more demonstrative of emotional attachment than the Mac fan.

The author continues his theme by elaborating on how nonprofits should respond to today’s changing donor base.

“The Old Way: Nonprofits harvest gifts from donors.

The Enlightened Way: Nonprofits cultivate relationships with donors.
Think of donors as people you get to know, not just assets you own. Asking for gifts is just one reason to communicate with donors. You also can encourage them to talk back to you — about what they care about and how they want to be treated. You also should be reporting back to donors about the impact of their giving.”

Any business today thinking that they are done once the product is sold will not survive. CRM leaders understand the critical need to cultivate customer relationships with liberally applied warranties, proper customer service and genuine appreciation.

“The Old Way: The development department does the fundraising.

The Enlightened Way: Everyone is responsible for fundraising.
 In most nonprofits, the program side (those responsible for carrying out the  organization’s mission) and the fundraising side (those responsible for  getting the money to pay for the  work) are completely separate. In  many cases, they don’t even speak the same language.”

How often have marketing bloggers, business schools and think tanks referred to the destructiveness of silo marketing? Though this criticism refers primarily to uncoordinated communications to customers and prospects, it also alludes to a lack of coordinated goals between divisions and departments.

Customer sales and customer satisfaction relies on the cohesion of the entire organization to support any successful effort. Speaking with one voice does not refer only to brand unity, but also to unity in corporate behaviors that develop long-term customers and customer advocates.

“The Old Way: Nonprofits raise general funds and allocate according to their own needs and judgment.

The Enlightened Way: Donors fund projects and areas of their own choosing. Donors seem to be getting more specific all the time. They want to be able to see the difference they’re making. That’s why we need to give them choices about where their dollars go. That’s a tough order for nonprofits that rely on general donors for the operating dollars that keep them going. But more and more, donors demand choice, and they’re likely to avoid charities that can’t give it to them.”

Developing donor appeals that allocate funds into activities that most interest the donor reminds me of products that must be customized to customers’ special needs and requirements. More than ever, today’s technology allows more organizations to customize at the individual level. Digitized printing, for example, can now modify each printed piece delivered to recipients based on their individual needs.

Does this take more sophistication and costs to support? Yes, it does. But the trade off is a more competitive product that customers are often willing to pay more for to get.

What other things can we learn from fund raisers? I’d love to have your comments on this or any other part of this blog.

It really rankles me when non-direct marketers call direct marketing a tactic rather than a strategy. They flat do not understand what the direct marketing discipline is all about.

Take the marketing database as an example.

Creating a relational database that stores customer, inquirer and prospect records with purchase and contact history represents the foundation of true direct marketing. (In fact, some might say that the customer database represents the true worth of almost any company in existence today).

Over time prospects become buyers. With the application of skillful CRM strategies, these buyers become repeat customers. Many of them become lifetime advocates of the company. They refer company products to their friends and circles of influence. This process grows the size and power of the company’s database.

This widening and deepening of customers is commonly called database marketing. The banking industry sometimes uses the term database mining. Fund raisers use the donor pyramid illustrating how large bases of small donors gradually upgrade their commitment of money and time to become large donors. It is clear that the relational database not only represents the foundation of the direct marketing discipline but also qualifies it as a stratgey and not just a tactic.

Many organizations are not in a position to test, track responses or gather meaningful marketing intelligence from customer transaction data because they have never set up a relational database. In my view, any company that does not possess a relational database will never leverage the direct marketing strategy to full advantage.

But why is it that some companies attempt to set up a database and fail to get a satisfactory return on their database investment?

A December 1, 2007 article in Target Marketing magazine written by Kate Debevois summarizing a presentation made by by Arthur Middleton Hughes, vice president and solutions architect for KnowledgeBase Marketing at the DMA07 Conference addresses this very issue.  Mr. Hughes suggests five database mistakes companies should watch out for when setting up their relational databases.

My comments go well beyond this Target Marketing article. But I will borrow Hughes five points as the platform for this discussion.

I believe these same mistakes also provide marketing managers with direction on how to fix their present databases.

1.    Lack of a marketing strategy

I used to work for a bright boss in my younger days who would listen patiently as a prospect or client provided database details for an hour or so. Then he would often pop the almost maddening question: “What are you trying to do?”

The usual reaction was dead silence.

But then the client would sit back pondering the question and say. “I want to keep track of my customers so I can get repeat business. Or, I am losing my donor names due to poor record keeping. But I can see now that my problem is not the technical part, but getting my infrastructure right so I can collect and save the names on a permanent database.”

At that point, the discussions took on a different tone that walked away from pure technology for technology’s sake and focused on the goals.

Hughes put it another way. Develop “a successful marketing strategy that includes four steps: 1) Collect data on your customer’s purchases, demographics and lifestyle; 2) build a database that permits ad-hoc analysis; 3) construct a lifetime value table; and 4) determine what motivates your customers.”

The constant question to ask is what to include in the database based on what you are trying to do. Build “what if” scenarios spelling out what you would do if you had a given piece of information.

2.    Focusing on price instead of service.

Hughes points out the need to think strategically for the log term rather than one-shot deals. He says: “Database marketing builds loyalty, discounts do not.”

If you think about it carefully, CRM is nothing more than database marketing renamed. Technology now allows more touch points. But direct marketers worth their salt always knew that a company’s wealth depends on the loyalty of their long-term customers.

So maintaining a healthy relationship encapsulates the direct marketer’s perspective of the primary function of a relational database.

3.    Failing to test against a control.

“Because database marketing is accountable, everything you do can
be measured. However, marketers need to set up control groups that use key measurements such as response rates, ROI, profits and lifetime value.”

I find it shocking that Hughes felt compelled to mention this step as a requirement. He obviously encountered a number of instances where the database was not used properly.

By all means, an essential strategy to ongoing improvement in the direct marketing program is the application of the testing strategy.

I cannot tell you how many times I have seen a lift of 25%, 45%, 200% and even more based on testing offers, direct mail formats and various Multichannel combinations. Even seasonality dramatically affects response more than most companies realize or care to admit.

4.    Failing to link the database to the Web.

This point emphasizes the need to integrate the company in the communications area eliminating silos such as web under IT, advertising under corporate communications, direct marketing under product sales and so forth.

Focus on the customer relationship unifying it under one command.

5.    Building your database in-house.

Hughes believes as I do that building your database in-house is not a good idea. Yes, I realize that KnowledgeBase sets up databases and this comment sounds self-serving. But Hughes is correct in his assessment.

Corporate IT departments have no idea about how to set up relational databases. The specifications and business rules exclude them from managing this step. This process requires a direct response focus and a deep understanding of how the database drives the direct marketing program.

Make sure the company owns the database and all associated software should the company ever want to go in-house. Don’t let the supplier control your company’s future. Some clients I work with have been badly burned by this proprietary software development issue. Don’t make the same mistake they did.

What have you experienced when working with your internal or client databases? What other things should companies watch out for?

In some refreshingly frank language, H. Gordon Lewis, expert copywriter and author of 31 books as well as David Lewis, President and CEO of Merkle commented on this very question in the October 29, 2007 issue of DM News.

You can find these comments online on www.dmnews.com under the title “Does brand have a place in today’s DM?”

Here are some things they wrote.

“I have no problem with brand advertising, but would argue the same amount of money can be used to generate more revenue and loyalty than brand.
                                                                _______
If you have a budget of half a million dollars, how much do you want to spend on selling something and how much do you spend to build an image? A lot of people use brand marketing as a crutch. My position is looking at the bottom line. In direct marketing, we build lists of customers who buy product and that is gold. Anything else is false gold or some kind of alloy.”

“I think both camps have lost focus on what is truly important --- [that is, to develop] multimedia strategies and programs that enhance the value of relationships with consumers over time.
                                                                _______
The challenge today is not about which approach is better; it is figuring out how to create an effective blend of universal, unique offers and messages delivered through multiple media at the right time to drive results.”

 

 

“… Williams just beats him to the punch with an argument that speaks to longer-term relationship… just as direct focuses and amplifies branding, branding can drive direct.”

Do you think branding can drive direct as stated by the editor? Do branders give you sway on creating “unique offers” designed to drive results as stated by David Williams? Do you think direct marketers have missed the point in the discussion? Is this really a case of just missing the point?

Let’s confine this question to acquisition and customer development activity. Let’s also broaden it to include email and direct mail.

The answer is, “As often as the advertising continues to earn an appropriate return on the investment.”

For fundraisers, it is not uncommon to mail the core names up to 24 times a year. On the other hand, acquisition appeals may go out to control lists from 2 to 4 times a year before the response rate begins to drop to an unacceptable level.

With the advent of cheap email communication, however, it is no longer enough to evaluate contact frequency based on cost. If judged on this basis only, the outcome will hurt the brand. Over-communicating with existing customers has become a real temptation for many companies in the presence of a low cost medium like email.  

For direct mail, the financial barrier restrains excessive communications.

One of my BtoC clients has a small target market and needs to generate relatively large volumes of leads. At about the 8% penetration level, their response rates began eventually dropped from 1-2% to .1-.2%.

As penetration deepens, the cost per lead increases dramatically.

Unless this client finds a way to increase the size of its database or create new product offerings that create demand with existing names, his business will decline for lack of new prospects.

In your experience, when does high frequency begin to damage the brand or when does it no longer pay to mail?