1 It is based on direct responses.

Direct marketing communications invite customers to respond - by mail,

telephone, Internet, redeemable retail vouchers, etc. The response may range from enquiry and giving
information to ordering. This opportunity for monitoring feedback is critical to direct marketing.
2 Direct marketing is measurable. In any direct marketing campaign responses are measured, evaluated and
analyzed. Responses can be through any medium - telephone, mail, Internet hits, etc. Measuring responses
leads to accountability. All costs can be related to response. Return on investment can be calculated.
Traditional advertising relies mainly on market research techniques based on samples to measure
effectiveness, though for some campaigns sales results can be accurately measured (e.g. if run in test areas
only). Direct marketers use transaction data to measure. This is one reason why direct marketing has been
called scientific advertising - direct marketers conduct their tests in controlled environments. While
environments do change, direct marketing is as near to a science as marketing achieves.
3 Direct marketing usually requires you to build and maintain a database of customers and prospects. This
gives you better understanding of your market and can give you competitive advantage.

DEFINITION

1. Direct marketing is an interactive marketing system that uses one or more advertising media to
effect a measurable response & / or transaction at any location.

2. Direct marketing is the planned implementation, recording, analysis and tracking of customers'
direct response behavior over time to derive future marketing strategies, for developing long-term
customer loyalty and ensuring continued business growth.

3. Direct marketing is any activity that creates and exploits a direct relationship between a firm and
its individual customer.

4. Direct Marketing is the interactive use of advertising media to stimulate an (immediate) behavior
modification in such a way that this behavior can be tracked, recorded, analyzed and stored on a
database for future retrieval and use.

5. Any Promotional activity that creates and exploits a direct relationship between an organization
and its prospect and / or customer as an individual.

6. Selling via a promotion delivered individually to the prospective customer

The definitions bring about 3 key elements:

Interactive system: - There is a 2-way communication between the marketer and his/her target market.
The response or non-response of the customer completes the communication loop in DM process, e.g. the
customer will fill in the response coupon & mail it.
Measurability of response: - The number of coupons indicates the response rate to marketer’s
communication.
Direct Marketing activities are not location specific: - It is not necessary for the marketer to interact
physically with the customer. He / She can establish contact through mail, phone, fax, or Internet.

PRINCIPLES OF DIRECT MARKETING

There are eight key principles of direct marketing, as follows.

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 1. Planning your marketing activity: All direct marketing should form part of a controlled marketing
strategy, which has been produced as a result of market and competitor analysis and in relation to
achievable objectives.
2. Targeting your customer: Customer information should be stored and capable of manipulation and
retrieval from your customer database, to contact your existing customers. Analysis of this also
helps you to identify characteristics of potential future customers.
3. Measuring your marketing activity: The results of direct marketing should be measured to tell you
what works and what doesn't.
4. Tracking This involves monitoring customers' responses over time, ideally for as long as your
relationship with them lasts. This enables you to measure their value and understand how much of
it is a result of how you marketed to them.
5. Customer behavior: Tracking the spending patterns and general behavior of your customer can
help you establish which products are popular and which aren't. This can help you determine
future products and strategy.
6. Future strategies: One aim of marketing is to maximize the value of your customers to you. So the
previous steps will ensure you have the information to plan effective and efficient marketing to
achieve this aim.
7. Developing long-term loyalty: By targeting the right customers, offering them what they want and
encouraging them to take more of your products, you will protect your customer database. Your
customers will be more likely to stay with you for longer.
8. Encouraging profitable business growth. Increasing the number of loyal and valuable customers
you have and limiting the number of customers with low value and/or high risk achieve this. This
increases turnover and profit, which can be reinvested to ensure that service and product standards
are maintained and that your customers stay happy.

These principles view direct marketing as a continuing process of acquiring new customers, continuing to
satisfy existing customers, and developing all customers so as to achieve greater loyalty and increased
purchasing. This process is illustrated below

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e.g. Many of the world's major airlines now work to these principles, particularly in the business market,
where frequent flyer programs are common. These identify best customers on the database, reward them
for their loyalty, and learn from the data generated. They use profiles of high value customers to acquire
new customers with similar characteristics

DIRECT MARKETING DRIVERS

 Environment has become very complex
 Bargaining power of the consumer has increased
 Market has become very competitive
 Costs of marketing a product have phenomenally increased
 Advertising costs are very high
 There is very little customer loyalty
 Direct marketing helps companies focus on their marketing efforts
 Market “de-massification” has resulted in a large number of market niches
 Higher cost of driving, traffic congestion, parking problems, lack of time, queues at counters are
some of the reasons that encourage home shopping
 Toll free phones, willingness to accept orders at night & commitment to customer service have
made consumers respond favorably to direct marketing

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  Consumer life-styles have changed. Today consumers look out for convenience in shopping, tele
shopping, home shopping & on-line shopping.
 Globalization has further promoted direct marketing

MAIN TYPES OF DIRECT MARKETING

Direct marketing can be applied to all three key business sectors:
• business to consumers;
• business to intermediaries;
• business to business.
APPROACHES TO DIRECT MARKETING
1. Stand-Alone Direct Marketing
This could be regarded as the “ultimate" Direct marketing approach. Organizations that employ this type
of approach employ no other means to manage the relationship with their customers. Companies such as
‘First Direct’, ‘Direct Life insurance’ or Bazee.com fall under this category. Here the customers are
directly recruited via direct response press advertising, direct mail or the internet. There after, the
relationship is managed using a combination of telephone, mail, e-mail etc.
2. Integrated Direct Marketing
In this approach Direct Marketing is viewed as a part of an integrated marketing mix. Organizations such
as 'Save the child', 'Readers Digest', ‘Pizza-Hut’ are seen to adopt this approach.
Peripheral Direct Marketing
In this type of approach, Direct Marketing is employed as only an occasional, tactical marketing tool.
Here direct marketing could be initiated as a short-term response to decreasing sales or competitive
pressures. Hindustan Lever and many other FMCG companies adopt this form.

MASS MARKETING AND ONE-TO-ONE MARKETING

MASS MARKETING ONE TO ONE MARKETING

Average customer Individual customer
Customer anonymity Customer profile
Standard product Customized market offerings
Mass production Customized production
Mass distribution Individualized distribution
Mass advertising Individualized messages
Mass promotion Individualized incentives
One way communication Two way communication
Economies of scale Economies of scope
Share of market Share of customers
All customers Profitable customers
Customer attraction Customer retention

BENEFITS OF DIRECT MARKETING

1. Home shopping is fun, convenient & hassle free.
2. Saves time
3. Introduces customer to a large variety of products at a time.
4. Comparative shopping is possible by browsing through mail catalogues & on line shopping.
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 5. Customers can order goods for themselves & for others also.
6. Sellers also benefit, as they can personalize & customize messages.
7. Direct marketers can build a continuous relationship with each customer e.g. Parents of newborn
babies may receive a periodic mailings describing new clothes, toys & other goods as the child grows.
For e.g. Nestles baby food division continuously builds a database of new mothers & sends
personalized packages of gifts & advice at the key stages in the baby's life.
8. Direct marketing strategies can be timed to reach prospects at the right time & moments &
therefore it receives a higher readership because it is sent to more interested prospects.
9. Direct marketing also makes the direct marketers’ offer & strategy less visible to competitors.
10. Direct Marketers can measure the responses to their campaigns to decide which of them have
been more profitable.
11. Tracking performance allows direct marketing to analyze relationship between customer
characteristics & buyer behavior in their database
12. DM activities have an advantage over general marketing activities in the area of performance
tracking. Campaigns can be monitored to determine if they are successful, knowing precisely what
worked & what did not. This allows selling goods effectively and leads to a more efficient allocation
of resources.
13. DM attempts to elicit response. In the process, the communication performs both, advertising &
selling function without an intermediary
14. Because no intermediaries are needed, they reduce the intermediary mark ups & increase profits
15. Precision Targeting – Direct marketing activities are aimed at individuals. This reduces the
waste inherent in many other types of communications.
16. The prospect is encouraged to place an order or trust information more as he is calling a number
or sending a card

LIMITATIONS OF DIRECT MARKETING

(A) Acquisition of data of individual customers may be difficult – Direct marketing is
effective only when all information about the individual customer is available. It may be difficult to
acquire this data, as people would be reluctant to part with personal information.
(B) The customers could be exposed to information overload – In today’s rich business and
personal environment everyone is bombarded with all types of data. Daily people receive letters, voice
mails, catalogues etc. Welcome and unwelcome information accosts the senses through the radio,
television, telephone, books etc. Direct marketers are perceived to be contributing to this overload.
(C) Requires highly skilled staff to analyze each customer profile – In Direct marketing
communications, individual customers should be addressed by name & title. Also information from
database is used to produce specific appeal based on consumers personal characters &/or past
purchase behavior. It is therefore important that the profile of each individual customer is accurately
maintained. This would be possible only if the staff employed is highly competent to carry out this
accurately.
(D) Customer Service rather than customer loyalty is more important in direct marketing

PLANNING PROCESS OF DIRECT MARKETING

There are three key stages in direct marketing:

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 Acquisition (recruiting new customers). It involves:
Deciding what kinds of customers you want. .
Finding out who they are, how many of them there are and where they are
• Understanding what motivates them. .
• Determining which media to use to talk to them. .
• Developing communications and executing campaigns. .
• Converting prospects to customers - the sale.
Often, the most likely prospects are targeted first as this represents the lowest cost per sale in acquisition terms

Database (storing and manipulating customer information). Database

marketing involves:
• Obtaining relevant customer information. .
• Storing the information in a usable, retrievable format
• Enhancing this information over time. .
• Analysis of the information. .
• Selection of key target segments of customers for campaigns. .
• Recording sales and response. .
• Evaluating and measurement and future business planning

2. Retention (customer care/loyalty programmers to keep existing customers).Retention involves:

• Giving your customers service and product quality that meets or exceeds their expectations. .
• Building loyalty over time. .
• Maximizing the length and value of the relationship with customers. .
• Communicating regularly to your customers, at the right time (right for them). .
• Deepening the relationship with your customers by encouraging them to buy different types of
products, to upgrade and renew. .
• Monitoring profitability

LIFE TIME VALUE OF CUSTOMERS

Bitran & Mondschcin have defined LTV as 'the total net contribution that a customer generate during his
or her life time on a house list’.
The lifetime value (LTC/LTV/CLV) of a new customer can also be defined as 'the net present value of all
future contributions to overhead and profits’.
It is a measure of the total worth to an organization of its relationship with a particular customer. To
calculate it, one has to estimate the costs & revenues that will be associated with managing the
communication with that customer during each year of his / her relationship. For example, if the expected
relationship of a customer is four years then the cost of servicing the relationship with that customer
(mail, newsletter, catalog, telephone etc) should is subtracted from the revenue so generated. There is
some amount of crystal ball grazing involved since it becomes increasingly more & more difficult to
predict future costs & revenues the further one looks into the future.
The 4 most important factors contributing to a customer’s lifetime value are-
• Future Forecast Revenue
• Expenses
• Profits
• Cost of Capital

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been applied. The resultant NPVs can then be summed to arrive at a 'lifetime value' of 101.24 for this
particular customer.

The benefits of LTV analysis

At this stage, it may not be immediately obvious why we might want to perform a calculation such as the
one alluded to above. In fact, lifetime value can be used to drive five key management decisions:
• Assigning acquisition allowances
• Refining the targeting for customer acquisition campaigns
• Setting selection criteria for customer marketing
• Investing in the reactivation of lapsed customers
• Assigning an asset value to the marketing database
Each of these will now be considered in turn.
(a) Assigning acquisition allowances
An understanding of the lifetime value of an organization's customers can guide the determination of
how much a particular organization may be willing to spend to recruit each new customer. Many
organizations strive conscientiously to achieve a break-even position at the end of each of their
recruitment campaigns. Whilst commendable, this is not at all necessary, so long as the future income
stream from the customers being recruited is a healthy one. Organizations employing the lifetime
value concept would therefore tend to assign somewhat higher acquisition allowances than those who
do not.
To take an example, Domino Pizzas calculated originally the amount they could afford to spend on
customer acquisition on the basis of the expected $ 6-7 sale. They soon realized that over the duration
of a 'lifetime' of business a typical customer would actually be worth of the order of $5,000. This had
a dramatic impact on thinking within the organization and it became much more relaxed about
customer acquisition costs. It knew that provided it could keep customers loyal, a more than
satisfactory return on their recruitment investment would accrue over time

(b) Refining the targeting for customer acquisition campaigns

Marketers engaged in the perennial problem of customer recruitment are well versed in the necessity
of asking questions such as:
'Which media should I be using for my recruitment activity?' 'What balance should I adopt between
the media options that are available?' 'On what basis should I select potential customers for target?'

The traditional approach to answering these questions would have been to calculate the immediate
ROI for each media and consider the response rates typically received from each media in the past.
Some marketers may have gone further and calculated the cost per new customer attracted (i.e. cost of
campaign - number of customers attracted), the level of the average purchase, etc. Such analyses
suggest sub-optimal allocations of marketing resource, because they ignore certain known customer
behaviors. Customers recruited from one medium may never buy again, whilst customers recruited by
another medium might exhibit much greater degrees of loyalty. For example, a company marketing
jeweler items might find that it generates a better immediate return on acquisition expenditure by
using DRTV in preference to Direct Mail. By looking only at this immediate return it might therefore
decide to invest heavily in DRTV. Looking at the lifetime value of customers recruited by each
medium might, however, paint a different picture. Suppose only 10 per cent of customers recruited by
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 DRTV ever buy again and the organization loses about 30 per cent of those that remain each year
thereafter. Further suppose that 40 per cent of customers recruited by direct mail will buy again and
only a 20 per cent attrition rate will be experienced each year thereafter. In this case, a consideration
of lifetime value assuming average purchase levels were similar might lead the organization to favor
direct mail over DRTV.

(c) Setting selection criteria for customer marketing

Lifetime value calculations can prove instructive, for more than just recruitment planning. The
information can also be utilized to guide contact strategies for ongoing customer development. For
example, organizations could calculate the projected LTV for all the individuals on the database and
assign them to one of, say, ten segments of value as a result.

profitable customers

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unprofitable
customers

It is not at all unusual for a company to be doing business with a percentage of customers who will
never be profitable. In some cases this figure can be as high as 30 per cent of the total customer base.
Clearly, this is an unsatisfactory state of affairs and, in practice there are alternative strategies for
handling this group of customers:
• Attempts could be made to upgrade the lifetime value of the individuals concerned, perhaps by
employing up selling or cross selling techniques.
• The individuals could be offered a new channel of distribution—perhaps instead of including them
in the standard mailing program or contacting them by using a sales-force, they could be managed
more cost effectively through the Internet.
• The individuals could simply be deleted from the database and ongoing business contact could be
refused.

Investing in the reactivation of lapsed customers

Without exception, all organizations now recognize the value of their database Few would question
the established wisdom that existing customers will always be the most cost-effective source of
additional business Few would also disagree with the notion that reactivating lapsed customers can be
profitable Having been sufficiently motivated to make a purchase at least once in the past, with the
proper encouragement it is eminently possible that some lapsed customers will do so again, The
problem, however, for many organizations lies in deciding which lapsed customers should be selected
for contact Whilst one could do this easily on the basis of the total amount they spent in the past, the
average purchase level, or the length of time since the last purchase, it can be instructive to use

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