The Death of Direct Marketing?

thedeathofdirectmarketingLately I’ve been reading predictions that direct marketing is dead. Maybe its got a slight case of indigestion. But dead? Not hardly. It’s still a huge industry, with 2012 expenditures estimated by the Direct Marketing Association at $168Bn, generating sales of almost $2,000 trillion.

That’s over 50% of all advertising, accounting for over 8% of U.S. gross domestic product, and supporting 10 million U.S. jobs. It’s hardly dead, but it is hurting badly.

The symptoms?

  • Response rates are historically low. This is especially true for cross-sell campaigns, the engine of revenue growth.
  • There are large numbers of one-time buyers. Our recent analysis of many companies big and small, B2B and B2C, puts the number around 45%. Direct marketing is failing to get that crucial second sale; many companies have large numbers of unprofitable customers whose cost of acquisition is greater than the gross margin from their single purchase.
  • Large-scale consumer rejection, as evidenced by ‘do not call’ and ‘do not email’ lists, plus widespread complaints about spam. For potential customers, the signal to noise ratio is very low and they are tuning out.

Three strategies

There are three different strategies companies are using to fix these problems.

A. Turn up the volume

Marketers are trying to catch the attention of potential customers by figuratively talking louder. It’s becoming common for companies to send an email every day, sometimes even more. This is made possible by the low and still dropping cost of sending emails. At well less than $0.01 per email, campaigns can be profitable when revenue per email is only a few cents. No matter that many customers opt-out, as long as the campaign is making money, the marketers press on.

The seesaw that represents the balance in costs between direct mail and email has shifted dramatically in favor of email and changed the nature of direct marketing. With so many emails being sent, most companies don’t try to customize content. One size fits all, what we call ‘spray-and-pray’, and these broadcast emails can exacerbate the opt-out problem.

If you write it, they may or may not come

B. Make the customer come to you

This strategy is called inbound marketing or content marketing. The idea is that if a company publishes a lot of content (blog posts, newsletters, white papers, and news stories), search engines will point prospective buyers to their website leading to more customers and more sales. In theory, the more you write, the more visitors will come to your site and the more leads you will create.

This approach works, to a point. It is less expensive than outbound direct marketing and so best suited for small and medium sized companies with limited marketing budgets. It’s good for nurturing leads through the sales funnel.

However inbound marketing has shortcomings. It’s more suited to customer acquisition than marketing to existing customers. In a B2B world, lower level personnel are more likely to be attracted by the content than the decision makers needed to approve the sale, making for a long sales cycle. The communications are not customized; one size is expected to fit all prospects. Finally, content marketing is relatively passive. The call to action is to get someone to read your blog post, not to buy this cool new product at this great price.

Inbound/content marketing is a good alternative to bombarding prospects with a deluge of emails, but it is not nearly strong enough to carry the whole marketing burden. Ultimately, it is one tactic among many, not a sufficient strategy.

C. Tell them what they want to hear

The third strategy, gaining steam in this era of Big Data, is to use relevance to make outbound direct marketing more interesting to the prospect and harder to ignore. Most marketers agree that relevance raises response rates, but most marketers don’t know how to do it.

Marketing to different segments yields higher response rates than spray and pray, if you can segment properly. Most B2C segmentation is based on demographics, and demographic data is often incomplete, inaccurate, or out of date. Yet there is an over-reliance on demographics and under utilization of transaction data. Further, the regression techniques associated with this approach don’t scale when there are thousands of products to choose among.

Self-service, not lip-service

Relevant communications are delivered via variable data publishing (VDP), whether postal or email. But creating a file that combines customers and digital assets requires skills and experience that are in scarce supply. Combined with the lack of self-service tools, companies trying this approach end up hiring statisticians and consultants. Using relevance becomes a big company endeavor, because only larger companies can afford to hire the needed resources. Companies talk big about one-to-one marketing, but what usually happens is innocuous, ineffective “Dear Sally,” personalization.

All of these strategies work to some degree, but none of them work well enough to solve the problem. Is there a fourth strategy, or are there ways to improve the existing approaches enough to re-energize direct marketing? Stay tuned.

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