Catch the buzz, seek direct response

Tags: Knowledge
In advertising and marketing, the buzzword today is accountability. Every CEO demands this today when economy is swinging widely. Marketeers have to deliver more with less. More and more companies will demand ROI of advertising before budget requests are approved. The demands on marketeers will drive the search for new skills and frameworks.

One such tool people use now is direct-response advertising. This is much more than direct mail; it is separate from general advertising and can be used in all media. Understanding when and how to use it is key. Direct-response advertising is an overall approach to marketing, where the goal is immediate action, and information about the action is tracked, recorded and analysed, hopefully in a database, to improve relevance to customers. By this standard, many of today’s campaigns are actually direct-response efforts, for example; TV, newspaper, or magazine campaigns that drive calls to a specific number. Benefits of direct-response advertising include accountable marketing expenditures through tracking that can determine exactly how your funds should be spent. Direct response allows you to maximise your results by focusing on products, markets, media, and offers that deliver the strongest returns.

We are all familiar with general or image advertising. Image advertising should be used when primary objectives are building awareness, introducing something, creating an image, building a brand, or establishing a positioning. Direct-response advertising should be used when our primary objectives include generating leads or sales. Because image advertising and direct-response advertising are used to accomplish different objectives, they should use different techniques.

Image advertising strives for attitude change and should generate name recognition and incorporate strong branding elements, emotion, fantasy, imagery, and repetition. Direct-response advertising seeks behaviour change and should generate immediate action by using a specific offer, product information, and reason. The objectives are quantifiable and might include sales, new accounts, or new customers.

Number of calls, number of information requests, or number of leads is not the bottom-line objective in a direct-response campaign. You could have fabulous store traffic, mail out thousands of information packets, and generate a flood of phone calls and still have a highly ineffective programme if these never turn into new accounts or closed sales. Budgets for direct-response advertising also start with objectives, then work backward to determine how many households or companies must be reached. For example, for a lead generation programme, we might set a campaign objective of 20,000 sales, determine the average close ratio (leads to sales) to be 30 per cent, and determine the number of qualified leads needed to generate 20,000 sales (80,000 responses). Then determine how much it will cost to bring in 80,000 qualified leads. That equals our budget. If past response is 5 per cent, then 16,00,000 pieces need to be mailed to yield 80,000 qualified leads. For print, if past response is 2 per cent, then a reach of 4 million is needed to yield 80,000 qualified leads. We then price a 16,00,000-piece direct mail campaign or a print campaign that reaches 4 million readers. If we can’t run a campaign that mails these many pieces or reaches this many readers due to budget constraints, then our objectives need to be modified. It is critical to run these numbers before a campaign begins to ensure that management understands the economics of the promotion.

Marketing expenses dictate gross margin per sale. Usually, the maximum we can afford to spend equals the expected gross profit the product or customer account will generate. This assumes we are willing to bring in customers or generate sales to break even, with the hope we can cross-sell additional revenue-generating products or services, or begin to earn revenue on the account after the first sale. If we have to do better than break even, then the maximum we can afford to spend is less than the gross profit per sale. To compute the complete expected profit picture per customer, two pieces of information are needed: gross profit per product, or account, per year, and average length of time each account or customer stays with us. These two measures allow us to compute the lifetime values of accounts. It may be worth bringing in customers at the break-even point or at a loss, if, over time, the profit potential is good.

Once we know the maximum amount we can spend to bring in new sales or customers, we can use cost benchmarks in planning a direct-response campaign. If we know we have brought in new sales or customers at Rs xx per sale, then the cost-effectiveness of every promotional vehicle can be measured against that benchmark.

Cost benchmarks, gross profit, average time as customer, and lifetime value measures should be essential components of your marketing plans. If these are not, it is easy to predict where your company is headed. zz

(The writer is CEO and MD of CustomerLab)

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