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Direct MarketingComments by Dr. Laukamm
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Many of the marketing and promotion tools that we've examined in previous chapters were developed in the context of mass marketing:
targeting broad markets with standardized messages and offers
distributed through intermediaries. Today, however, with the trend
toward more narrowly targeted or one-to-one marketing, many companies
are adopting direct marketing, either as a primary marketing
approach or as a supplement to other approaches. Increasingly,
companies are using direct marketing to reach carefully targeted
customers more efficiently and to build stronger, more personal,
one-to-one relationships with them. In this section, we explore the
exploding world of direct marketing.
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Direct marketing
consists of direct connections with carefully targeted individual
consumers to both obtain an immediate response and cultivate lasting
customer relationships. Direct marketers communicate directly with
customers, often on a one-to-one, interactive basis. Using detailed
databases, they tailor their marketing offers and communications to the
needs of narrowly defined segments or even individual buyers. Beyond
brand and image building, they usually seek a direct, immediate, and
measurable consumer response. For example, Dell Computer interacts
directly with customers, by telephone or through its Web site, to
design built-to-order systems that meet customers' individual needs.
Buyers order directly from Dell, and Dell quickly and efficiently
delivers the new computers to their homes or offices.
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The New Direct-Marketing ModelComments by Dr. Laukamm
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Early
direct marketers—catalog companies, direct mailers, and
telemarketers—gathered customer names and sold goods mainly by mail and
telephone. Today, however, fired by rapid advances in database
technologies and new marketing media—especially the Internet—direct
marketing has undergone a dramatic transformation.
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In
previous chapters, we've discussed direct marketing as direct
distribution—as marketing channels that contain no intermediaries. We
also include direct marketing as one element of the marketing
communications mix—as an approach for communicating directly with
consumers. In actuality, direct marketing is both these things.
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Most
companies still use direct marketing as a supplementary channel or
medium for marketing their goods. Thus, Lexus markets mostly through
mass-media advertising and its high-quality dealer network but also
supplements these channels with direct marketing. Its direct marketing
includes promotional videos and other materials mailed directly to
prospective buyers and a Web page (www.lexus.com)
that provides consumers with information about various models,
competitive comparisons, financing, and dealer locations. Similarly,
office supply retailer Staples conducts most of its business through
brick-and-mortar stores but also markets directly through its Web site.
And most department stores sell the majority of their merchandise off
their store shelves but also mail out catalogs.
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However,
for many companies today, direct marketing is more than just a
supplementary channel or medium. For these companies, direct
marketing—especially in its newest transformation, Internet marketing
and e-commerce—constitutes a new and complete model for doing business.
More than just another marketing channel or advertising medium, this
new direct model is rapidly changing the way companies think about building relationships with customers.
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Whereas
most companies use direct marketing and the Internet as supplemental
approaches, firms employing the direct model use it as the only
approach. Some of these companies, such as Dell Computer, Amazon.com,
and eBay, began as only direct marketers. Other companies—such as Cisco
Systems, Charles Schwab, IBM, and many others—are rapidly transforming
themselves into direct-marketing superstars. The company that perhaps
best exemplifies this new direct-marketing model is Dell Computer. Dell
has built its entire approach to the marketplace around direct
marketing. This direct model has proved highly successful, not just for
Dell, but for the fast-growing number of other companies that employ
it. Many strategists have hailed direct marketing as the new marketing
model of the next millennium.
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Benefits and Growth of Direct MarketingComments by Dr. Laukamm
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Whether
employed as a complete business model or as a supplement to a broader
integrated marketing mix, direct marketing brings many benefits to both
buyers and sellers. As a result, direct marketing is growing very
rapidly.
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For
buyers, direct marketing is convenient, easy to use, and private. From
the comfort of their homes or offices, they can browse mail catalogs or
company Web sites at any time of the day or night. Direct marketing
gives buyers ready access to a wealth of products and information, at
home and around the globe. Finally, direct marketing is immediate and
interactive—buyers can interact with sellers by phone or on the
seller's Web site to create exactly the configuration of information,
products, or services they desire, then order them on the spot.
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For
sellers, direct marketing is a powerful tool for building customer
relationships. Using database marketing, today's marketers can target
small groups or individual consumers, tailor offers to individual
needs, and promote these offers through personalized communications.
Direct marketing can also be timed to reach prospects at just the right
moment. Because of its one-to-one, interactive nature, the Internet is
an especially potent direct-marketing tool. Direct marketing
also gives sellers access to buyers that they could not reach through
other channels. For example, the Internet provides access to global markets that might otherwise be out of reach.
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Finally,
direct marketing can offer sellers a low-cost, efficient alternative
for reaching their markets. For example, direct marketing has grown
rapidly in B2B marketing, partly in response to the ever-increasing
costs of marketing through the sales force. When personal sales calls
cost $170 per contact, they should be made only when necessary and to
high-potential customers and prospects. Lower cost-per-contact
media—such as telemarketing, direct mail, and company Web sites—often
prove more cost-effective in reaching and selling to more prospects and
customers.
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As
a result of these advantages to both buyers and sellers, direct
marketing has become the fastest-growing form of marketing. Sales
through traditional direct-marketing channels (telephone marketing,
direct mail, catalogs, direct-response television, and others) have
been growing rapidly. Direct sales to consumers and businesses in the
United States last year reached an estimated $1.86 trillion, nearly 9
percent of the economy. Moreover, whereas total U.S. sales over the
next five years will grow at an estimated 5 percent annually,
direct-marketing sales will grow at an estimated 8 percent annually.
According to the Direct Marketing Association, total U.S. spending on
direct marketing exceeded $197 billion last year, or more than 55
percent of total U.S. advertising expenditures.23
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Customer Databases and Direct MarketingComments by Dr. Laukamm
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Effective direct marketing begins with a good customer database. A customer database
is an organized collection of comprehensive data about individual
customers or prospects, including geographic, demographic,
psychographic, and behavioral data. The database can be used to locate
good potential customers, tailor products and services to the special
needs of targeted consumers, and maintain long-term customer
relationships.
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Many
companies confuse a customer mailing list with a customer database. A
customer mailing list is simply a set of names, addresses, and
telephone numbers. A customer database contains much more information.
In B2B marketing, the salesperson's customer profile might contain the
products and services the customer has bought; past volumes and prices;
key contacts (and their ages, birthdays, hobbies, and favorite foods);
competitive suppliers; status of current contracts; estimated customer
spending for the next few years; and assessments of competitive
strengths and weaknesses in selling and servicing the account.
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In
consumer marketing, the customer database might contain a customer's
demographics (age, income, family members, birthdays), psychographics
(activities, interests, and opinions), buying behavior (past purchases,
buying preferences), and other relevant information. Some of these
databases are huge. For example, Ritz-Carlton's database holds more
than 500,000 individual customer preferences. Pizza Hut's database lets
it track the purchases of more than 50 million customers. Internet
portal Yahoo! records every click made by every visitor, adding some
400 billion bytes of data per day to its database—the equivalent of
800,000 books. And Wal-Mart's database contains more than 100 terabytes
of data—that's 100 trillion bytes, equivalent to 16,000 bytes for every
one of the world's 6 billion people.24
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Armed
with the information in their databases, these companies can identify
small groups of customers to receive fine-tuned marketing offers and
communications. Kraft Foods has amassed a list of more than 30 million
users of its products who have responded to coupons or other Kraft
promotions. Based on their interests, the company sends these customers
tips on issues such as nutrition and exercise, as well as recipes and
coupons for specific Kraft brands. FedEx uses its sophisticated
database to create 100 highly targeted, customized direct-mail and
telemarketing campaigns each year to its nearly 5 million customers
shipping to 212 countries. By analyzing customers carefully and
reaching the right customers at the right time with the right
promotions, FedEx achieves response rates of 20 to 25 percent and earns
an 8-to-1 return on its direct-marketing dollars.25
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Nordstrom manages customer data on a more personal, one-to-one basis. Its Personal Touch program provides a good example:
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[Nordstrom] knows that a person can extrapolate from past choices to current styles much more reliably than a computer, so it uses Personal Touch shoppers—fashion consultants seeking long-term customer relationships. The company trains the personal shoppers in color use, current fashions, and the matching of products to a customer's appearance, taste, and lifestyle. The personal shoppers record customer likes, dislikes, lifestyle, and apparel needs, ascertained through telephone contacts or face-to-face conversations. Then they apply their fashion expertise to sell the customers entire ensembles, not just individual items. The personal shoppers can also access a customer's purchasing history to gain insight into a customer's tastes or to suggest items that might complement a prior purchase.26 Comments by Dr. Laukamm
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Companies
use their databases in many ways. They can use a database to identify
prospects and generate sales leads by advertising products or offers.
Or they can use the database to profile customers based on previous
purchasing and to decide which customers should receive particular
offers. Databases can help the company to deepen customer
loyalty—companies can build customers' interest and enthusiasm by
remembering buyer preferences and by sending appropriate information,
gifts, or other materials.
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For
example, Mars, a market leader in pet food as well as candy, maintains
an exhaustive pet database. In Germany, the company has compiled the
names of virtually every German family that owns a cat. It has obtained
these names by contacting veterinarians, via its mypetstop.com
Web site, and by offering the public a free booklet titled "How to Take
Care of Your Cat." People who request the booklet fill out a
questionnaire, providing their cat's name, age, birthday, and other
information. Mars then sends a birthday card to each cat in Germany
each year, along with a cat food sample and money-saving coupons for
Mars brands. The result is a lasting relationship with the cat's owner.
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The
database can help a company make attractive offers of product
replacements, upgrades, or complementary products, just when customers
might be ready to act. For example, a General Electric appliance
customer database contains each customer's demographic and
psychographic characteristics along with an appliance-purchasing
history. Using this database, GE marketers assess how long specific
customers have owned their current appliances and which past customers
might be ready to purchase again. They can determine which customers
need a new GE range, refrigerator, clothes washer, or something else to
go with other recently purchased products. Or they can identify the
best past GE purchasers and send them gift certificates or other
promotions to apply against their next GE purchases. A rich customer
database allows GE to build profitable new business by locating good
prospects, anticipating customer needs, cross-selling products and
services, and rewarding loyal customers.
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Like
many other marketing tools, database marketing requires a special
investment. Companies must invest in computer hardware, database
software, analytical programs, communication links, and skilled
personnel. The database system must be user-friendly and available to
various marketing groups, including those in product and brand
management, new-product development, advertising and promotion, direct
mail, telemarketing, Web marketing, field sales, order fulfillment, and
customer service. A well-managed database should lead to sales gains
that will more than cover its costs.
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Forms of Direct MarketingComments by Dr. Laukamm
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The major forms of direct marketing—as shown in Figure 17.4—include personal
selling, telephone marketing, direct-mail marketing, catalog marketing,
direct-response television marketing, kiosk marketing, and online marketing.
We examined personal selling in depth earlier in this chapter and
looked closely at online marketing in Chapter 3. Here, we examine the
other direct-marketing forms.
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Telephone MarketingComments by Dr. Laukamm
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Telephone marketing—using
the telephone to sell directly to consumers—has become the major
direct-marketing communication tool. Telephone marketing now accounts
for more than 38 percent of all direct-marketing media expenditures and
36 percent of direct-marketing sales. We're all familiar with telephone
marketing directed toward consumers, but B2B marketers also use
telephone marketing extensively, accounting for 58 percent of all
telephone marketing sales.27
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Marketers use outbound telephone marketing to sell directly to consumers and businesses. Inbound
toll-free 800 numbers are used to receive orders from television and
print ads, direct mail, or catalogs. The use of 800 numbers has taken
off in recent years as more and more companies have begun using them,
and as current users have added new features such as toll-free fax
numbers. Residential use has also grown. To accommodate this rapid
growth, new toll-free area codes (888, 877, 866) have been added. After
the 800 area code was established in 1967, it took almost 30 years
before its 8 million numbers were used up. In contrast, 888 area code
numbers, established in 1996, were used up in only 2 years.28
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Properly
designed and targeted telemarketing provides many benefits, including
purchasing convenience and increased product and service information.
However, the recent explosion in unsolicited telephone marketing has
annoyed many consumers, who object to the almost daily "junk phone
calls" that pull them away from the dinner table or fill the answering
machine. Lawmakers around the country are responding with legislation
ranging from banning unsolicited telemarketing calls during certain
hours to letting households sign up for "Do Not Call" lists. Most
telemarketers support some action against random and poorly targeted
telemarketing. As a Direct Marketing Association executive notes, "We
want to target people who want to be targeted."29
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Direct-Mail MarketingComments by Dr. Laukamm
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Direct-mail marketing
involves sending an offer, announcement, reminder, or other item to a
person at a particular address. Using highly selective mailing lists,
direct marketers send out millions of mail pieces each year—letters,
ads, brochures, samples, video- and audiotapes, CDs, and other
"salespeople with wings." Direct mail accounts for more than 23 percent
of all direct-marketing media expenditures and 31 percent of
direct-marketing sales. Together, telemarketing and direct-mail
marketing account for more than 60 percent of direct-marketing
expenditures and 66 percent of direct-marketing sales.30
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Direct
mail is well suited to direct, one-to-one communication. It permits
high target-market selectivity, can be personalized, is flexible, and
allows easy measurement of results. Although the cost per thousand
people reached is higher than with mass media such as television or
magazines, the people who are reached are much better prospects. Direct
mail has proved successful in promoting all kinds of products, from
books, magazine subscriptions, and insurance to gift items, clothing,
gourmet foods, and industrial products. Direct mail is also used
heavily by charities to raise billions of dollars each year.
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The
direct-mail industry constantly seeks new methods and approaches. For
example, America Online has mailed out CDs by the hundreds of millions
in one of the most successful direct-mail campaigns in history. Now
other marketers, especially those in technology or e-commerce, are
using CDs in their direct-mail offers. Used in conjunction with the
Internet, CDs offer an affordable way to drive traffic to Web pages
personalized for a specific market segment or a specific promotion.
They can also be used to demonstrate computer-related products. For
example, Sony sent out a CD that allowed PC users to demo its VAIO
portable notebook on their own computers.31
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Until
recently, all mail was paper based and handled by the U.S. Post Office
or delivery services such as FedEx, DHL, or Airborne Express. Recently,
however, three new forms of mail delivery have become popular:
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These
new forms deliver direct mail at incredible speeds compared to the post
office's "snail mail" pace. Yet, much like mail delivered through
traditional channels, they may be resented as "junk mail" if sent to
people who have no interest in them. For this reason, marketers must
carefully identify appropriate targets so as not waste their money and
recipients' time.
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Catalog MarketingComments by Dr. Laukamm
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Advances in technology, along with the move toward personalized, one-to-one marketing, have resulted in exciting changes in catalog marketing. Catalog Age magazine used to define a catalog
as "a printed, bound piece of at least eight pages, selling multiple
products, and offering a direct ordering mechanism." Today, only a few
years later, this definition is sadly out of date. With the stampede to
the Internet, more and more catalogs are going electronic. Many
traditional print catalogers have added Web-based catalogs to their
marketing mixes, and a variety of new Web-only catalogers have emerged.
However, the Internet has not yet killed off printed catalogs—far from
it. Web catalogs currently generate only about 13 percent of all
catalog sales. Printed catalogs remain the primary medium, and many
former Web-only companies have created printed catalogs to expand their
business.32
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Catalog
marketing has grown explosively during the past 25 years. Annual
catalog sales (both print and electronic) are expected to grow from $69
billion in 1996 to more than $160 billion by 2006.33
Some huge general-merchandise retailers—such as J.C. Penney and
Spiegel—sell a full line of merchandise through catalogs. In recent
years, these giants have been challenged by thousands of specialty
catalogs that serve highly specialized market niches. According to one
study, some 10,000 companies now produce 14,000 unique catalog titles
in the United States.34
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Consumers
can buy just about anything from a catalog. Sharper Image sells $2,400
jet-propelled surfboards. The Banana Republic Travel and Safari
Clothing Company features everything you would need to go hiking in the
Sahara or the rain forest. And each year Lillian Vernon sends out 37
editions of its 8 catalogs with total circulation of 162 million copies
to its 20-million-person database, selling everything from shoes to
decorative lawn birds and monogrammed oven mitts.35
Specialty department stores, such as Neiman Marcus, Bloomingdale's, and
Saks Fifth Avenue, use catalogs to cultivate upper-middle-class markets
for high-priced, often exotic, merchandise. Several major corporations
have also developed or acquired catalog divisions. For example, Avon
now issues 10 women's fashion catalogs along with catalogs for
children's and men's clothes. Walt Disney Company mails out over 6
million catalogs each year featuring videos, stuffed animals, and other
Disney items.
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More
than 90 percent of all catalog companies now present merchandise and
take orders over the Internet. For example, the Lands' End Web site,
which debuted in 1995, greeted 28 million visitors last year. Its
Web-based sales have more than doubled in the past two years, now
accounting for 16 percent of total sales. During the hectic Christmas
season, the site handled a record of 15,000 visitors in just one hour.36 Here's another example that illustrates this dramatic shift in catalog marketing:
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When novelty gifts marketer Archie McPhee launched its Web site in September 1995, response was underwhelming. But when the company added a shopping basket ordering feature in 1997, the site roared to life. According to Mark Pahlow, president of the catalog company, the site now has 35,000 unique visitors each month, generating 55 percent of the cataloger's total sales. The Web numbers are so positive that Archie McPhee has slashed circulation of its print catalog from 1 million to less than 300,000, and reduced the frequency from five issues a year to three. The Web site has saved the company more than 50 percent in the costs of producing, printing, and mailing its color catalog, which had been as high as $700,000 annually. The site can also offer much more merchandise. "A 48-page catalog would show fewer than 200 items, whereas the Web site offers more than 500," Pahlow notes. Another benefit is the site's real-time inventory feature. "The day a new product arrives, it is shown on the site. The moment we run out of an item, we pull it off. We are also able to show items we have small quantities of as Web-only specials." As an added benefit, the Web site also lets the cataloger build dynamic customer relationships using interactive features, such as "The Nerd Test" and a fortune-telling ball. Customers can elect to join the "Cult of McPhee" e-mail list and receive free monthly e-mails announcing the direct marketer's upcoming events, contests, and specials. Cult members also get advance notice of our new products and qualify for special members-only deals.37 Comments by Dr. Laukamm
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Along
with the benefits, however, Web-based catalogs also present challenges.
Whereas a print catalog is intrusive and creates its own attention, Web
catalogs are passive and must be marketed. "Attracting new customers is
much more difficult to do with a Web catalog," says an industry
consultant. "You have to use advertising, linkage, and other means to
drive traffic to it." Thus, even catalogers who are sold on the Web are
not likely to abandon their print catalogs completely. For example,
Archie McPhee relies on its print catalogs to promote its site. "I
think we will always produce at least one catalog a year," Pahlow says.
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Direct-Response Television MarketingComments by Dr. Laukamm
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Direct-response television marketing takes one of two major forms. The first is direct-response advertising.
Direct marketers air television spots, often 60 or 120 seconds long,
that persuasively describe a product and give customers a toll-free
number for ordering. Television viewers often encounter 30-minute
advertising programs, or infomercials, for a single product.
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Some
successful direct-response ads run for years and become classics. For
example, Dial Media's ads for Ginsu knives ran for seven years and sold
almost 3 million sets of knives worth more than $40 million in sales;
its Armourcote cookware ads generated more than twice that much. And
over the past 40 years, infomercial czar Ron Popeil's company, Ronco,
has sold more than $1 billion worth of TV-marketed gadgets, including
the original Veg-O-Matic, the Pocket Fisherman, Mr. Microphone, the
Giant Food Dehydrator and Beef Jerky Machine, and the Showtime
Rotisserie & BBQ.38 The current infomercial champ?
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It's three o'clock in the morning. Plagued with insomnia, you grab the remote and flip around until a grinning blonde in an apron catches your attention: "I'm going to show you something you won't believe! Juicy meals in minutes! Something else you won't believe . . . George Foreman!" The studio roars, and boxing's elder statesman, in a red apron, shows off his Lean Mean Fat-Reducing Grilling Machine and highlights the grease caught in the pan below. "Eew!" the audience screams. It can be yours for three easy payments of $19.95 (plus shipping and handling). Don't laugh. Such infomercials helped the Foreman grills product line notch almost $400 million in sales last year.39 Comments by Dr. Laukamm
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For
years, infomercials have been associated with somewhat questionable
pitches for juicers and other kitchen gadgets, get-rich-quick schemes,
and nifty ways to stay in shape without working very hard at it. In
recent years, however, a number of large companies—GTE, Johnson &
Johnson, MCA Universal, Sears, Procter & Gamble, Revlon, IBM,
Cadillac, Volvo, Land Rover, Anheuser-Busch, even the U.S. Navy—have
begun using infomercials to sell their wares over the phone, refer
customers to retailers, send out coupons and product information, or
attract buyers to their Web sites. Direct response TV commercials are
usually cheaper to make and the media purchase is less costly.
Moreover, results are easily measured. "Unlike branding campaigns,
direct-response ads always include a 1-800 number of Web address,
making it easier for marketers to gauge whether consumers are paying
attention to their pitches," says an industry analyst.40
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Home shopping channels,
another form of direct-response television marketing, are television
programs or entire channels dedicated to selling goods and services.
Some home shopping channels, such as Home Shopping Network (HSN), the
Quality Value Channel (QVC), and ValueVision, broadcast 24 hours a day.
On HSN, the program's hosts offer bargain prices on products ranging
from jewelry, lamps, collectible dolls, and clothing to power tools and
consumer electronics—usually obtained by the home shopping channel at
closeout prices. Viewers call a toll-free number to order goods. At the
other end of the operation, 400 operators handle more than 1,200
incoming lines, entering orders directly into computer terminals.
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With
widespread distribution on cable and satellite television, the top
three shopping networks combined now reach 248 million homes worldwide,
selling more than $4 billion of goods each year. They are now combining
direct-response television marketing with online selling. For example,
QVC recently launched a feature called "61st Minute," in which QVC
viewers are urged to go online immediately after a given product
showcase. Once there, viewers find a Webcast continuation of the
product pitch.41
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Kiosk MarketingComments by Dr. Laukamm
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Some companies place information and ordering machines—called kiosks
(in contrast to vending machines, which dispense actual products)—in
stores, airports, and other locations. Hallmark and American Greetings
use kiosks to help customers create and purchase personalized greeting
cards. Tower Records has listening kiosks that let customers listen to
the music before purchase. Kiosks in the do-it-yourself ceramics stores
of California-based Color Me Mine Inc. contain clip-art images that
customers can use to decorate the ceramics pieces they purchase in the
store. At Car Max, the used-car superstore, customers use a kiosk with
a touch-screen computer to get information about its vast inventory of
as many as 1,000 cars and trucks. Customers can choose a handful and
print out photos, prices, features, and location on the store's lot.
The use of such kiosks is expected to increase fivefold during the next
three years.42
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Business
marketers also use kiosks. For example, Dow Plastics places kiosks at
trade shows to collect sales leads and to provide information on its
700 products. The kiosk system reads customer data from encoded
registration badges and produces technical data sheets that can be
printed at the kiosk or faxed or mailed to the customer. The system has
resulted in a 400 percent increase in qualified sales leads.43
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Like
about everything else these days, kiosks are also going online, as many
companies merge the powers of the real and virtual worlds. For example,
in some Levi Strauss stores, you can plug your measurements into a Web
kiosk and have custom-made jeans delivered to your home within two
weeks. At the local Disney Store, kiosk guests can buy merchandise
online, purchase theme-park passes, and learn more about Disney
vacations and entertainment products. Gap has installed interactive
kiosks, called Web lounges, in some of its stores that provide gift
ideas or let customers match up outfits without trying them in dressing
rooms. Outdoor equipment retailer REI recently outfitted its stores
with kiosks that provide customers with product information and let
them place orders online.44
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Integrated Direct MarketingComments by Dr. Laukamm
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Too
often, a company's individual direct-marketing efforts are not well
integrated with one another or with other elements of its marketing and
promotion mixes. For example, a firm's media advertising may be handled
by the advertising department working with a traditional advertising
agency. Meanwhile, its direct-mail and catalog business may be handled
by direct-marketing specialists, while its Web site is developed and
operated by an outside Internet firm. Even within a given
direct-marketing campaign, too many companies use only a "one-shot"
effort to reach and sell a prospect or a single vehicle in multiple
stages to trigger purchases.
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A more powerful approach is integrated direct marketing,
which involves using carefully coordinated multiple-media,
multiple-stage campaigns. Such campaigns can greatly improve response.
Whereas a direct-mail piece alone might generate a 2 percent response,
adding a Web site and toll-free phone number might raise the response
rate by 50 percent. Then, a well-designed outbound telemarketing effort
might lift response by an additional 500 percent. Suddenly, a 2 percent
response has grown to 15 percent or more by adding interactive
marketing channels to a regular mailing.
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More
elaborate integrated direct-marketing campaigns can be used. Consider
the multimedia, multistage campaign shown in Figure 17.5. Here, the
paid ad creates product awareness and stimulates phone, mail, or Web
inquiries. The company immediately sends direct mail or e-mail
responses to those who inquire. Within a few days, the company follows
up with a phone call seeking an order. Some prospects will order by
phone or the company's Web site; others might request a face-to-face
sales call. In such a campaign, the marketer seeks to improve response
rates and profits by adding media and stages that contribute more to
additional sales than to additional costs.
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Public Policy and Ethical Issues in Direct MarketingComments by Dr. Laukamm
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Direct
marketers and their customers usually enjoy mutually rewarding
relationships. Occasionally, however, a darker side emerges. The
aggressive and sometimes shady tactics of a few direct marketers can
bother or harm consumers, giving the entire industry a black eye.
Abuses range from simple excesses that irritate consumers to instances
of unfair practices or even outright deception and fraud. The
direct-marketing industry has also faced growing concerns about
invasion-of-privacy issues.
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Irritation, Unfairness, Deception, and FraudComments by Dr. Laukamm
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Direct-marketing
excesses sometimes annoy or offend consumers. Most of us dislike
direct-response TV commercials that are too loud, too long, and too
insistent. Especially bothersome are dinnertime or late-night phone
calls. Beyond irritating consumers, some direct marketers have been
accused of taking unfair advantage of impulsive or less sophisticated
buyers. TV shopping shows and program-long "infomercials" seem to be
the worst culprits. They feature smooth-talking hosts, elaborately
staged demonstrations, claims of drastic price reductions, "while they
last" time limitations, and unequaled ease of purchase to inflame
buyers who have low sales resistance.
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Worse
yet, so-called heat merchants design mailers and write copy intended to
mislead buyers. Even well-known direct mailers have been accused of
deceiving consumers. Sweepstakes promoter Publishers Clearing House
recently paid $52 million to settle accusations that its high-pressure
mailings confused or misled consumers, especially the elderly, into
believing that they had won prizes or would win if they bought the
company's magazines.45
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Other
direct marketers pretend to be conducting research surveys when they
are actually asking leading questions to screen or persuade consumers.
Fraudulent schemes, such as investment scams or phony collections for
charity, have also multiplied in recent years. Crooked direct marketers
can be hard to catch: Direct-marketing customers often respond quickly,
do not interact personally with the seller, and usually expect to wait
for delivery. By the time buyers realize that they have been bilked,
the thieves are usually somewhere else plotting new schemes.
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Invasion of PrivacyComments by Dr. Laukamm
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Invasion
of privacy is perhaps the toughest public policy issue now confronting
the direct-marketing industry. These days, it seems that almost every
time consumers enter a sweepstakes, apply for a credit card, take out a
magazine subscription, or order products by mail, telephone, or the
Internet, their names are entered into some company's already bulging
database. Using sophisticated computer technologies, direct marketers
can use these databases to "microtarget" their selling efforts.
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Consumers
often benefit from such database marketing—they receive more offers
that are closely matched to their interests. However, many critics
worry that marketers may know too much about consumers' lives
and that they may use this knowledge to take unfair advantage of
consumers. At some point, they claim, the extensive use of databases
intrudes on consumer privacy.
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For
example, they ask, should AT&T be allowed to sell marketers the
names of customers who frequently call the 800 numbers of catalog
companies? Should a company such as American Express be allowed to make
data on its 175 million American cardholders available to merchants who
accept AmEx cards? Is it right for credit bureaus to compile and sell
lists of people who have recently applied for credit cards—people who
are considered prime direct-marketing targets because of their spending
behavior? Or is it right for states to sell the names and addresses of
driver's license holders, along with height, weight, and gender
information, allowing apparel retailers to target tall or overweight
people with special clothing offers?
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In
their drives to build databases, companies sometimes get carried away.
For example, when first introduced, Intel's Pentium III chip contained
an embedded serial number that allowed the company to trace users'
equipment. When privacy advocates screamed, Intel disabled the feature.
Similarly, Microsoft caused substantial privacy concerns when it
introduced its Windows 95 software. It used a "Registration Wizard,"
which allowed users to register their new software online. However,
when users went online to register, without their knowledge, Microsoft
"read" the configurations of their PCs to learn about the major
software products running on each customer's system. When users learned
of this invasion, they protested loudly and Microsoft abandoned the
practice.
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These
days, it's not only the large companies that can access such private
information. The explosion of information technology has put these
capabilities into the hands almost any business. For example, one bar
owner discovered the power of information technology after he acquired
a simple, inexpensive device to check IDs.
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About
10,000 people a week go to The Rack, a bar in Boston. . . . One by one,
they hand over their driver's licenses to a doorman, who swipes them
through a sleek black machine. If a license is valid and its holder is
over 21, a red light blinks and the patron is waved through. But most
of the customers are not aware that it also pulls up the name, address,
birth date, and other personal details from a data strip on the back of
the license. Even height, eye color, and sometimes Social Security
number are registered. "You swipe the license, and all of a sudden
someone's whole life as we know it pops up in front of you," said Paul
Barclay, the bar's owner. "It's almost voyeuristic." Mr. Barclay bought
the machine to keep out underage drinkers who use fake IDs. But he soon
found that he could build a database of personal information, providing
an intimate perspective on his clientele that can be useful in
marketing. "It's not just an ID check," he said. "It's a tool." Now,
for any given night or hour, he can break down his clientele by sex,
age, ZIP code, or other characteristics. If he wanted to, he could find
out how many blond women named Karen over 5 feet 2 inches came in over
a weekend, or how many of his customers have the middle initial M. More
practically, he can build mailing lists based on all that data—and keep
track of who comes back.46Comments by Dr. Laukamm
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Such
access to and use of information has caused much concern and debate
among companies, consumers, and public policy makers. Consumer privacy
has become a major regulatory issue. For example, in 2001 alone, more
than 250 pieces of privacy legislation were put before Congress. 47
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The
direct-marketing industry is addressing issues of ethics and public
policy. For example, in an effort to build consumer confidence in
direct shopping, the Direct Marketing Association (DMA)—the largest
association for businesses practicing interactive and database
marketing, with more than 4,600 member companies—launched a "Privacy
Promise to American Consumers." The Privacy Promise requires that all
DMA members adhere to a carefully developed set of consumer privacy
rules. Members must agree to notify customers if any personal
information is rented, sold, or exchanged with others. They must also
honor consumer requests to "opt out" of information exchanges with
other marketers or not to receive mail, telephone, or other
solicitations again. Finally, they must abide by the DMA's Mail
Preference Service (www.the-dma.org/consumers/offmailinglist.html), Telephone Preference Service (www.dmaconsumers.org/cgi/offtelephonedave),
and e-mail preference services, three national services to remove the
names of consumers from direct-mail and telemarketing lists.
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Direct
marketers know that, left untended, such problems will lead to
increasingly negative consumer attitudes, lower response rates, and
calls for more restrictive state and federal legislation. "Privacy and
customer permission have become the cornerstones of customer trust,
[and] trust has become the cornerstone to a continuing relationship,"
says one expert. Companies must "become the custodians of customer
trust and protect the privacy of their customers."48
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Most
direct marketers want the same things that consumers want: honest and
well-designed marketing offers targeted only toward consumers who will
appreciate and respond to them. Direct marketing is just too expensive
to waste on consumers who don't want it.
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