Accountability in advertising and marketing is becoming increasingly important. More so when companies are

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pruning budgets for marketing. As we go into the future, more and more companies will demand a return on investment (RoI) from advertising before our budget requests are approved. In this scenario, we may need to add some new marketing skills to our arsenal. A true understanding of direct-response advertising and the skills it requires will be essential.

How could a tool associated only with direct mail be so critical to our future? Direct-response advertising 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, or direct marketing, 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. Looking at this definition, we can see that many of our current campaigns are actually direct-response efforts, for example; TV, newspaper, or magazine campaigns that drive calls to a specific number or address.

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 the products, markets, media, and offers that deliver the strongest return.

Most of us are familiar with general or image advertising. Image advertising should be used when our 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 very 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 10,000 sales, determine the average close ratio (leads to sales) to be 30 per cent and decide the number of qualified leads needed to generate 10,000 sales (40,000 responses). Then determine how much it will cost to bring in 40,000 qualified leads. That equals our budget. If past response is five per cent, then 800,000 pieces need to be mailed to yield 40,000 qualified leads. For print, if past response is two per cent, then a reach of two million is needed to yield 40,000 qualified leads.

We then price an 800,000-piece direct mail campaign or a print campaign that reaches 2 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 revolve around 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.

The writer is the CEO and MD of CustomerLab Solutions