Direct Marketing 101

Let's say you identify a new market, one that you think is going to be very receptive to your product or service. The cost of advertising to this market may be prohibitive: The best publications are frightfully expensive, and your ads couldn't appear for a few months.

Direct marketing provides you with a way to conduct a test of this market relatively quickly, at a reasonable cost, and with convincing certitude. You'll know whether this is indeed the gold mine you hope it is.

Perhaps the most common use of a marketing database is to generate a target list for a direct-mail campaign. Of course, direct mail also works with purchased lists. Direct mail provides giant companies with the ability to target defined markets with specialized offers.

For smaller companies, using direct mail has a number of attractive advantages:

1. You can target recipients very precisely.
2. You can protect against overwhelming response. If you ran an advertisement, you can't know whether you're going to get 10 responses or 10,000. For a small company, a powerful response to an ad can be even more disastrous than no response at all, since a poor reaction to a prospect's response will likely damage your relationship even before it's begun. With direct mail, you can start out with a modest-size mailing to study the response and make sure you can handle it expeditiously.
3. Costs can be modest. Or, more accurately, you can create a campaign to fit large or small budgets.
4. Definition, Please

   "Direct marketing," "direct mail," "direct reponse": These terms are used confusingly in the trade. Direct marketing typically refers to marketing efforts by the manufacturer that are directed at the end-user when a retailer or distributor is in the middle. Direct-mail advertising uses the mail service to deliver your best sales effort directly to the mailbox of your prospect. Direct-response advertising is any advertising (print or broadcast ads, or direct-mail packages) that invites the recipient to contact you directly through an 800-number, a mailing address or a business reply card.
5. Direct mail can happen fast. With a modest campaign to a known target audience, you can acquire a mailing list, develop mailing materials (including direct-mail letter, flier, reply card), launch a mailing and start to receive results in just a few months. This is faster than the typical advertising campaign-and a lot faster than waiting for the phone to ring.
6. You can test different appeals, called "offers" in the trade, to revel the most potent message. By making a different offer to randomly different portions of your mailing list, you can see which offer pulls best. Go with your best puller until you find a better draw. As you try different offers and different letters, you'll find one does better than another. Use the better one, than try to beat that in your next mailing. Eventually, you should get better and better response rates.
7. You can mail to the same list again with a slightly different mailing and still garner worthwhile results. Most direct-mail experts say that companies don't get enough mileage out of their materials. Use them until they no longer pay their way.
8. You can never run out of prospects. Use your imagination to find new niche direct-mail markets for your products, whether retail or business-to-business. Your list broker or mailing consultant can suggest possible target markets worth trying.

With consumer products, you can often sell them right through the mail . . . or at least get customers to stop in. With business-to-business products, you usually face a two-step process. First, you get a response to your solicitation with an indication or interest (request for catalog, literature, report or sample). This is the lead-generation phase. Once you mail off the requested material, you then follow up with additional material or a phone call/fax/e-mail to use your skills at transforming the lead into a prospect.

Building a List

One of the most important aspects of direct mail is the mailing list you begin with. And the most logical starting point for creating a list is to start with your current customers. Build outward from what you know. Everything starts with your first customers. This is the known. You may have to guess at lots of things in targeting your market, but you know this customer purchased your product-an island of certainty in a sea of haze and obscurity.

Where do your customers live? Sort by ZIP code. Do one or two ZIP codes stand out from the rest for a majority of your customers? What are the demographics of that ZIP code? The Census Bureau and other data suppliers can provide you with significant demographic data by ZIP code. You can use this to get a more thorough understanding of the profile of your geographic market. Chances are you're selling much more in a few ZIP codes than in others, and it may have little to do with your physical location.

As you learn more about your customers, take the next step. If these people buy your product, then people like them will be likely to buy your product. At least they'll be more likely to buy your product than the public as a whole.

One business sells desks, filing, shelving and storage units to the business market. They conducted surveys of their customers and found that a disproportionate percentage of sales were to SOHOs: small office/home office owners. They purchased a mailing list of these companies (sole proprietors with less than five people, sorted by the appropriate ZIP codes for their geographic market) and scored several successes in direct-mail programs. They supported their mailings with modest ads in several of the publications that target this growing market. They included tear sheets (color copies) of the ads along with their mailing to bolster their credibility in this market. Prospects can see they're sophisticated enough (and stable enough) to advertise in respected publications.

With your best customer profile in hand, go to professionals in the database/mailing list business and see what lists they have that match your current customer/prospect demographics.

You can start your search for a list broker by looking in your local Yellow Pages. Check out their references carefully before getting involved. You're using your customers as templates for additional prospects. Depending on your product line, you might focus on ZIP codes, on subscribers to a particular magazine, sometimes on income or on the number of kids.

List brokers have access to many thousands of lists. You'll pay up to $300 per thousand names on a list, depending on the complexity of the list (i.e., if you want not only name and address but other demographic data). Brokers typically have a very thorough understanding of their lists and can give you insights into the best list for your use. The more you know about your current customers, the better use you'll be able to make of your list broker's experience.

You don't buy lists; you rent them, usually for a single-time usage. If you want to send a second mailing later to the same list, that's another charge. If you know you'll be sending a series of mailings to a given list, mention this upfront for a cumulative rate.

You can't simply fold these names into your database of customers. Not only would it be illegal and wrong, but you'd also get caught. Every list is "salted" with "ringers," names that aren't real but simply serve to give away any mailing done to the list. If the list broker's ringer gets a mailing from you for which you haven't paid the usage rights, you're busted. You do your mailing with the broker's list. Once people respond to your mailing, you're free to add them to your own database of customers. Your list grows and grows.

Waging a Direct-Mail Campaign

Once you've outlined your target market, staging a direct-mail campaign has seven key steps:

1. Develop a mailing list. Put your description of the targets on this list in writing, so you know exactly to whom you're mailing. If you're mailing to a larger-sized list (more than 20,000), you'll probably want to provide your letter shop with Cheshire labels: Unglued labels that are affixed to your mailing piece with special glue. These labels require machine application at the mailing house. For smaller quantities, you might just provide self-sticking labels. Your list supplier will provide you the labels in whatever format you want.

2. Create a mailing piece. You don't just mail out a brochure to your list. That gets too expensive, and your brochures weren't designed for it. You need to create a direct-mail piece with a strong offer that will spur the recipient to action. All direct mail leads to the "call to action": What do you want the recipient to do next? Mail back the business reply card? Call the 800 number? Fill out the order form and fax it to your number?

You can never be too pushy in direct-mail materials. You can also be clever, cute, whimsical, even overpower, but only in connection with being pushy. Your goal is to get action. You don't want a direct-mail piece to inform. That's what your brochures are for. You want action!

Designers of direct-mail pieces like to get create with graphics. Your goal is to get the reader to respond to the offer. Any graphics that don't contribute to that are not worth the design and printing costs. According to most direct-mail gurus:

• Forty percent of a piece's impact comes from sending it to the right list in the first place.
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• Forty percent comes from the value of the offer.
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• Twenty percent comes from the design or writing of the piece.

3. Code your response vehicle. Whatever way you ask recipients to respond, make sure you code your mailing. All you have to do is assign each mailing a batch number, such as 11042103: 1104 is the month/year of the mailing; 21 is the identifier for the particular list you mailed from; and 03 is the identifier for the particular offer. Coding provides a simple device for revealing just who has responded to which mailing and which offer. It makes individual responses much more valuable, since you can easily tabulate the different codes to see what's working the best for you.

4. Test the campaign. Even a modest campaign of the few thousand pieces can run up the budget with mailing and duplication costs. So you should always test mail a portion of your mailing list and check the results. No one can predict the response rate you'll get; there are just too many variables.

What percentage of your mailing makes for a reliable test? Again it varies, but most authorities would tell you to test 10 percent of your list and no fewer than 250 pieces. This will give you enough of a spread across the variables to make the results worth something. Before you do your test, you should decide what response rate will support your going ahead with the planned major mailing. This will depend on your budget. Writers on direct mail duck the issue of response rates because there are so many variables-and because no one really knows how to predict response. Experience suggests that if your rate is less than 2 percent, something is wrong. Either your list is wrong, or your offer is too weak. If you get a response rate above 7 percent for a mass mailing (without giving away the farm), you've done very, very well.

5. Run the campaign. Keep your mailing pace in line with your ability to handle the potential responses. Your test mailing will give you some sense of the rate of customer response. Use that as a gauge for how many pieces you should mail in a given week. Mail only those pieces you can support with your sales effort.

6. Handle customer responses. You can't handle the fulfillment end of a direct-mail campaign without considerable planning. If you're asking respondents to request additional information, what are you going to send them? How soon do you want to mail the information out? What else will you do with the responses? In other words, how will you make maximum use of the names you've spent so much time to acquire?

If you're a company with distributors or sales offices, it's common to pass along the names of prospects so that follow-up can be handled on the local level. The quicker the response the better, since your speed in dispatching information can quite justifiably be viewed as reflective of your commitment to customer service. Why should respondents have to wait for materials.

If you're mailing out product or samples, do you want that handled from your main office? Many mail order campaigns depend on fulfillment houses, professional organizations that handle the logistics of sending out materials to large quantities of customers. You provide the products and the prospects: They'll take care of the rest.

7. Analyze the results of the campaign. This is perhaps the most important, and underrated, aspect of the campaign. Did the final results match what you expected from the test? What parts of the demographics responded better than expected? Are there subsets of your target audience that you can focus on in future mailings?

Every direct-mail campaign you run should contribute not just to your sales figures but to enhancing your customer database. In very real terms, it represents the future of your business.

Excerpted from Knock-Out Marketing