EXAMINING THE HISTORY AND PROCESSES OF DIRECT AND INTERACTIVE MARKETING

Transcription

1 CHAPTER 1-2/E EXAMINING THE HISTORY AND PROCESSES OF DIRECT AND INTERACTIVE MARKETING Summary Direct marketing is a database-driven interactive process of directly communicating with targeted customers or prospects using any medium to obtain a measurable response or transaction via one or multiple channels. Almost all types of business can and do conduct direct and interactive marketing activities, including organizations and individuals whose goal is to establish long-term relationships with their customers. Direct and interactive marketing uses many different types of media and formats, including direct mail, catalogs, newspaper, magazine, radio, television, phone, Internet, hand-held devices, and mobile. The industry has a long history and has experienced rapid growth primarily due to credit cards, computers, advances in the printing industry, changing lifestyles of consumers, and the negative aspects of in-store retailing. Customers are at the heart of the direct and interactive marketing process. The main goal of the direct and interactive marketing process is to develop and strengthen longterm relationships with customers. Many direct marketers are finding great success in using membership clubs to enhance customer loyalty. These are becoming very popular among direct marketers and among consumers. However, as with any area of marketing, there are many uncontrollable variables affecting the way direct marketing activities can be carried out. The issues of privacy and security are the most pertinent at the moment and will require direct marketers to constantly seek ways to satisfy consumer needs and wants while adhering to the regulations governing their industry. Learning Objectives After completing this chapter, students should: Understand the convergence of direct marketing and traditional brand marketing Be able to define and discuss the special characteristics of direct marketing especially measurement and accountability; lists and databases Trace the historical roots of direct marketing as it has evolved from mail order (a selling method) and direct mail (an advertising medium)

2 Know the variety of media: print, broadcast, and electronic, high-tech digital Know how direct marketing enables both the creation and the cultivation of customers; understand the importance of customer interaction and customer value Know who uses the tools and techniques of direct marketing and how Identify recent trends in direct marketing Key Terms Brand marketing- Marketing that boosts knowledge of a company or product s name, logo, or slogan. Customer Relationship Management (CRM)- A business strategy to select and manage customers to optimize value. Direct Marketing- An interactive system of marketing that uses various media to affect a measurable response at any location, storing information about that in a database Lifetime Value of a Customer (LTV)- The discounted stream of revenue a customer will generate over the lifetime of his/her relationship with an organization Multichannel Fulfillment- Synergistic tapping of the various media, allowing respondents to select a channel they prefer when shopping for goods or services Review Questions 1. Name and elaborate on the characteristics that distinguish direct from traditional marketing. (pp. 7-9) A notable differentiating feature of direct marketing is that it always seeks to generate a measurable response and this response is stored in a database along with information about the respondent. In such a process, the direct marketer must always be accountable, always measuring responses so as to relate these results to the costs of their acquisition.

3 Direct marketing, database-driven, thus is a process, a discipline, a strategy, a philosophy, an attitude, and a way to run an organization characterized by: Customer/prospect databases that make targeting possible A view of customers as assets with lifetime value Ongoing relationships and affinity with customers Data-based market segmentation Research and experimentation (testing) Benefit-oriented direct-response advertising Measurement of results and accountability for costs Interactivity Multimedia promotion Multichannel distribution 2. What is meant by measurement of and accountability for marketing decisions? (pp ) Database-driven direct marketing utilizes a variety of tools and techniques that enable recording, analysis and measurement of responses and/or transactions. Through a key code placed on an order form or other return device, the response resulting from a particular promotional effort can be identified and measured. The expenditure can thus be accounted-for with results being related to costs. 3. What is the difference between a list and a database? (p.16 and p. 21) Lists, such as mailing lists, become databases and are most useful when they are enhanced beyond simply names/addresses with information about those on the list such as records of responses/transactions as well as relevant demographics and other information identifying the respondent. 4. Write an overview of the components of the direct and interactive marketing process and model. (pp ) A brief overview of the direct and interactive marketing process is as follows. The marketer sends out customized direct response communication via any type of media to customers or prospective customers on the basis of the information the marketer has about that customer or prospect. In the case of prospecting efforts, because customer data do not yet exist in the company s database, the company often rents a list of prospective customers based on specific selection criteria. The targeted customer or prospect receives that communication and responds directly to the company or organization via multiple channel options. The customer response, which could take many different forms (inquiry, transaction, donation, visit, vote, etc.), is entered into the company database and is processed. Once processed, the customer s response is fulfilled and delivery of the requested product, service, or information is provided directly to that customer. Then, the entire process begins again with the direct marketer using the data contained in its database to distribute more customized messages to select recipients and the process continues.

4 5. Direct marketing is an aspect of marketing characterized by measurability and accountability with reliance on databases. Explain this statement. (pp ) See discussion question #2 above. 6. Discuss the historical roots and the emergence of direct marketing; how has it been influenced by technological, economic and social change? (pp ) During the 500 years from mid-15 th to mid-20 th centuries spurred on by Gutenberg s invention of movable type/printing in Europe and, later, price inflation following the Civil War in America the concept of mail order came of age. The process became both art and science by the 1950 s, relying on direct mail as there emerged a proliferation of specialized publications, book clubs and distinct market segments such as those relatively few rugged individuals who (in 1912) bought L. L. Bean s water-repellent boots to wear while hunting bear in the Maine woods. Post saw growth that mushroomed as a result of data-based market segmentation, benefit-oriented promotion and a concept of marketing that was customer-driven. Providing major impetus for all of this were: printing technology, credit cards, personal computers, changing consumer lifestyles, negative aspects of traditional retailing and, of course the Internet with its World Wide Web. Mail-order firms like L. L. Bean have been at the forefront of this revolution as they watched their bear-hunting segment evolve into many yuppie segments who found these same boots appropriate to wear while doing their Saturday afternoon chores! 7. Compare and elaborate on the changes in graphic design between the 1976 and 2008 catalog covers of Oriental Trading Company shown in Figure 1-6. (p.16) Not only had the capabilities of printing changed but so had consumer lifestyles and product preferences. These catalogs represent life as it was then and now influenced not only by technology but, as well, by value systems and regulatory intrusions. There are many differences. See if you can list a half-dozen of them. 8. How does the Internet fit into the total marketing scheme of things and the distinguishing characteristics of direct marketing. (pp ) The proliferation of advertising media, and especially the electronic capabilities of the telephone, is now augmented by access via personal computers to the vastness of the Internet and its commerce affiliate, the World Wide Web. It is apparent that those who have been most successful with this boundless medium for disseminating information and generating responses are those who are knowledgeable about the characteristics of and utilize the tools and techniques of direct marketing. Like print or broadcast, the Internet is a medium one with boundless interactive capabilities.

5 9. What is direct response advertising and how does it relate to direct mail as well as print, broadcast and web sites? (p ) Direct-response advertising as distinguished from brand/image advertising is characterized by the fact that it always asks for an action: an order or inquiry response, a visit to a retail store or a web-site, a contribution to a charitable cause, a vote for a political candidate. To this end, it utilizes a variety of media: print (direct mail, magazines, newspapers), broadcast (television, radio), and electronic (telephone, Internet). Advertising messages are discussed in Chapter 5. The variety of media is discussed in Chapters 6, 7, and 8. While all media are utilized for traditional ads, these chapters discuss their special relevance for direct marketing Describe the use of direct marketing by a business. Describe its use by a nonbusiness organization. Describe how it fits into the political scheme of things. (pp and Chapter 14) The tools and techniques of business-to-consumer direct marketing are utilized as well by business-to-business organizations. The nuances of such applications are discussed in Chapter 14. These tools and techniques are also applicable to not-forprofit organizations such as fundraising and political advocacy groups. Extensive discussion of these applications also appears in Chapter 14.

6 CHAPTER 2-2/E BUILDING DATABASES, SELECTING CUSTOMERS, AND MANAGING RELATIONSHIPS Summary A customer is the company s most important asset. Customer retention is more beneficial to most companies than is new customer acquisition. A customer database is a tool used to retain customers. It enables a company to establish and strengthen relationships with customers by allowing them to interact with each customer on a personalized basis. The information captured and stored in a database provides the company with knowledge about the particular needs, wants, and interests of each customer. Armed with this knowledge, marketers are better able to develop products and services that will satisfy each customer s needs and wants. In addition, the information housed in the customer database may assist the marketer in more effectively communicating with each customer. The end result is this a highly satisfied customer a loyal customer! Database marketing employs a number of activities designed to acquire, store, and use customer information. Database marketing activities commonly include customer loyalty programs, such as the many airline, hotel, and grocery programs. In addition, direct marketers regularly assess the value of their customers. This may include applying the recency/frequency/monetary assessment and calculating the lifetime value of a customer over a period of time. Of course, direct marketers must keep their customer database current and accurate for it to be of value. Direct marketers perform common database maintenance activities, such as applying match codes and a merge-purge process to identify and delete duplicate customer records, identifying multibuyers, and performing status updates to keep each record current. Direct marketers also carry out a variety of activities designed to safeguard their database against improper use or theft. Some of these activities include salting or seeding their customer lists, applying access passwords, and ensuring information privacy protection for their customers. Each of these database marketing activities is critical in maintaining strong customer relationships, which, in turn, lead to the retention of customers. Database analytics, including data mining, are enabling marketers to better understand its current customers and target key prospects. CRM programs are highly valuable and are growing in popularity. Learning Objectives After completing this chapter, students should: Understand what a customer database is, how to create one and its value and uses for direct marketing

7 Explain the function of a customer loyalty program and overview examples of customer loyalty programs Be able to explain the various database maintenance activities that direct marketers should implement on a regular basis Know the importance and the various kinds of database security activities Understand the role and value of database analytics and database enhancement Be familiar with R-F-M assessment and customer LTV tools Understand the role a database plays in managing relationships with customer and partners Key Terms Attrition- the assumed (historic) drop off in active customers from one time period to the next Continuity selling- offers that are continued on a regular (weekly, monthly, quarterly, annually (also called club offers ) Cross-selling- an important characteristic of direct marketing where new and related products (or even unrelated products) are offered to existing customers Customer database- a list of customer names to which additional information has been added in a systematic fashion Customer loyalty program- programs sponsored by an organization or firm to encourage customer repeat purchases through program enrollment processes and the distribution of awards and/or benefits Customer relationship management (CRM)- a business strategy to select and manage customers to optimize value. Database enhancement- adding and overlaying information to customer records to better describe and understand the customer Data mining- the process of using statistical and mathematical techniques

8 Lifetime value of a customer (LTV)- the discounted stream of revenue a customer will generate over the lifetime of his or her relationship or patronage with a company (also called customer lifetime value ) Match code- abbreviated information about a customer record that is constructed so that each individual record can be matched, pair wise, with each other record Merge-purge- a computerized process used to identify and delete duplicate names/addresses within house lists Micro-targeting- the creating and direct delivery to customers of customized winning messages, proof points, and offers, and accurately predicting their impact. Multi-buyers- an individual s name/address that appears on two or more response lists simultaneously Nixie- mail that has been returned by the United States Postal Service because it is undeliverable as addressed Partner relationship management (PRM)- the generation of greater value to customers through companies cooperation and close work with partners in other companies or departments. Recency/Frequency/Monetary (RFM)- an assessment of the date and volume of purchases, in the master list record over a period of time marketers can determine the transaction record of each customer in a given period, which helps determine the future potential of that customer Salting- the process whereby a direct marketer places decoys, which are either incorrect spellings or fictitious names, on a customer list to track and identify any misuse (also called seeding ) Seeding- the process whereby a direct marketer places decoys, which are either incorrect spellings or fictitious names, on a customer list to track and identify any misuse (also called salting ) Source data- the information contained in a customer database Stealth communications- communications secrecy in that direct marketers can communicate with small market segments or individual customers without competitors or other customers having knowledge of it. Transactional data- the information contained in a customer database. Review Questions

9 1. What is a customer loyalty program? Identify three customer loyalty programs with which you are familiar. What are the benefits to each of the organization s sponsoring these loyalty programs? The customer loyalty program is a program sponsored by an organization or firm to encourage customer repeat purchases through program enrollment processes and the distribution of awards and/or benefits. (p. 8) One customer loyalty program is the Harris Teeter VIC card. This card allows you to enjoy grocery discounts, while the company collects information on your purchases. By understanding what you are purchasing, they can provide coupons for certain grocery items specific to your tastes. The second customer loyalty program is the McDonald Garden Center, which rewards customer loyalty via its Garden Rewards Program. The Garden Reward Program enables its customer to receive discounts on certain plants and other purchases. Finally, the Marriott Honored Guest program launched the Marriott Rewards program in Members of this program can redeem point for more than 85 award options such as hotel stays, travel packages, room upgrades, etc. 2. When building a customer database, what must an organization first determine? What must they first identify? (p. 8) When building a customer database, an organization must first determine the company s primary goals. They must identify the objectives that it hopes to achieve with a customer database. For example, a company may want to get to know its customers better in order to develop more effective future promotional activities, encourage referral business, thank customers for their patronage, introduce a new product or service, introduce a new staff member, etc. 3. What is a match code? Explain its importance for database development and maintenance. (p. 12) A match code is abbreviated information about a customer record, which is constructed so that each individual record can be matched, pair wise, with each other record. This is important for database development because matching entire customer records would require a tremendous amount of computer memory. The match code makes this operation possible with a fraction of computer memory. Also, the match code can be designed in such a way to catch common errors in database development. This is of great assistance in maintaining an accurate customer database. 4. Describe the activities required to maintain a customer database? How often do you think database maintenance should be preformed? (pp ) The activities required to maintain a customer database is that the list is complied and developed in a uniform manner. Only when such uniformity exists within a computerized list is it possible to use match codes with any assurance of control. Database maintenance should be performed on a regularly scheduled basis to avoid any miscommunication with the consumers.

10 5. What is the purpose of the merge-purge process? How does it work? (p. 13) The merge-purge process is a computerized process used to identify and delete duplicate names/addresses within house lists. It can also be used to eliminate names on house lists from outside response and/or compiled lists that the marketer is using for new customer solicitation. The merge-purge process is a highly sophisticated and complex process, but essentially it generates a match code for each name/address on each list and these match codes, potentially many million of them at a time, are matched, with every other name on the list in sequence 6. If incorrect addresses or phone numbers result in misdirected advertising promotions, what is the cost to the organization? How can this be avoided? (p. 14) If incorrect addresses or phone numbers result in misdirected advertising promotions, it would cost the organization the cost of the mailing package, list rental, postage and all other associated promotional costs. This can be avoided by performing the merge-purge process on a regular basis. 7. Explain the value of applying the recency/frequency/monetary assessment to an organization s customer database. Is it possible to determine when an organization should place more weight on one of the three variables over the other? If so, explain why. If not, explain why not. (p. 10) The value of applying the recency/frequency/monetary assessment to an organization s customer database cannot be understated. By carrying the date and volume of purchases, in the master list record over a period of time marketers can determine the transaction record of each customer in a given period, which helps determine the future potential of that customer. It is possible to determine when certain variables should be assigned more weight than other variables. For some promotions, marketers might need to manipulate their calculations by weighting one of the factors, so that, for example, the results will show those customers who had purchased most recently. 8. Describe the value of database analytics. Provide example of what can be learned via data mining. (p. 27) The value of database analytics is that it enables a direct marketer to better understand the needs and wants of its consumer so that it can create greater value and satisfaction for that customer. Companies use database analytics to make strategic decisions to retain current customers and attract new ones. Database analytics also enable companies to mine the most likely best customers from prospect lists and databases. One example presented in the text is that of Teredata, a division of NCR, which analyzed sales data of a well-known retailer and found correlations between purchases of beer and diapers.

11 9. Explain what is meant by the term lifetime value of a customer. Why is it important? (p. 36) Lifetime value of a customer is the discounted stream of revenue a customer will generate over the lifetime of his or her relationship or patronage with a company (also called customer lifetime value ). The information for calculating LTV is derived from transactions recorded in an organization s database. Customer LTV is important because it enables direct marketers to strategically determine which customers are more valuable to the company or organization so that it can concentrate its marketing efforts and expenditure on those more valuable customers. 10. Imagine that you have recently started a new business venture and that you already have a database of 10,000 customers. You are going to a financial institution to obtain a loan to expand your business. The financial officer asks you What is the biggest asset of your business? How will you respond? Provide support for your answer using the information presented in this chapter. (p. 41) A customer is the company s most important asset. Without customers there is no business. The customer database is key to developing the strong customer relationships and retaining current customers. The stronger the relationship with each customer, the more likely that the customer will continue purchasing from the company. A customer database is an asset just like buildings and equipment. However, the value of a customer database is intangible.

12 CHAPTER 3-2/E DEVELOPING LISTS AND DISCOVERING MARKETS Summary Most direct marketers conduct market segmentation to better serve consumer needs and wants. Lists are important market segmentation tools. There are three basic types of lists: house, response, and compiled. Each list is of value for direct marketers, although house lists are considered the most valuable. The list industry is comprised of list owners, list users, list brokers, list managers, list compilers, and service bureaus. Each member plays an important role in the list rental activities of direct marketers. Direct marketers strive to keep lists current and accurate. House lists normally hold a customer s name, address, and pertinent contact information. In addition, most direct marketers rent lists in an attempt to prospect for new customers. List rental strategies are made simple today due to computerized databases services with search techniques, such as NextMark s list services. List selections afford direct marketers the opportunity to further segment a list using a variety of segmentation variables. Direct marketers segment final consumers according to geographic, demographic, social, psychological, and behavioral characteristics. Often times, multiple variables are used to segment markets, such as geodemographic segmentation. Direct marketers also segment businesses or industrial consumers according to SIC codes or the NAICS. Direct marketers consider ZIP code areas to be geographic market segments that provide important customer information. Learning Objectives After completing this chapter, students should: understand the importance of market segmentation and the role that lists serve in direct marketing be familiar with the five bases (geographic, demographic, social, psychological and behavioral) used in segmenting the consumer market be able to compare and contrast the Standard Industrial Classification System (SIC) with the North American Industrial Classification System (NAICS) and understand their relevance in segmenting industrial consumers understand the importance of Zip Codes as a geographic segmentation tool, the criteria used to create a Zip Code and what each digit of the Zip Code represents

13 be able to differentiate between house, response and compiled lists and be able to critically evaluate the value of each for direct marketers be able to explain how the list industry operates and the interaction between the various members in this industry Key Terms Cookie- an electronic tag on the consumer s computer that enables the website to follow consumers as they shop and recognize them on return visits. Compiled lists- lists that have been generated by a third party or market research firm of individuals who do not have a response history. Demographics- identifiable and measurable statistics that describe the consumer population. Global Positioning System- a segmentation tool that associates latitude and longitude coordinates with street addresses. House lists- lists of an organization s own customers (active as well as inactive). Hotline names- the most recent names acquired by specific list owners, but there is no uniformity as to what chronological period recent describes. Key code- a unique identifier placed on the response device or order form prior to mailing a promotional piece. List brokers- those who serve as intermediaries who bring list users and list owners together. List compilers- organizations that develop lists and data about them, often serving as their own list managers and brokers. List managers- managers who represent the interest of list owners and have responsibility to be in contact with list brokers and list users. List owners- those who describe and acquire prospects (as market segments) that show potential of becoming customers of the list user. Market segmentation- a marketing strategy devised to attract and meet the needs of a specific sub-market. Market segments- placing people (customers or potential customers) into homogeneous groups based on certain attributes such as age, income, stage in the family cycle, etc.

14 Product differentiation- a strategy that uses innovative design, packaging, and positioning to make a clear distinction between products and services serving the same market segment. Product positioning- a marketing strategy that enables marketers to understand how each consumer perceives a company s product or service based on important attributes (also called positioning ). Psychographics- the study of life-styles, habits, attitudes, beliefs, and value system of individuals. Reference groups- the people a consumer turns to for reinforcement. Reference individuals- persons a consumer turns to for advice. Response lists- lists of those who have responded to another direct marketer s offer. Service bureaus- provide data processing, data mining, outsourcing, on-line analytical processing (OLAP), etc. to support the interchange of lists and database information. Review Questions 1. What is market segmentation and how do direct marketers use it? (p. 20) Market segmentation is a marketing strategy devised to attract and meet the needs of a specific sub-market. Direct marketers use it to differentiate products for particular market segments and to position these products so that they will have special appeal to the intended market 2. How is segmenting industrial markets different from segmenting final consumer markets? (pp ) Segmenting industrial markets is different from segmenting final consumer markets based on purchase behavior and the type of segmentation bases used to classify consumers into respective market segments. Industrial consumer market segmentation is based on industrial classifications (SIC Codes and NAICS) while final consumer market segmentation is based on geographic, demographic, social, psychological and behavioral dimensions. 3. Overview the differences between SIC Codes and NAICS. Name some companies who might use industrial classifications in segmenting their industrial or business consumer market. (pp ) SIC Codes and NAICS have a variety of distinct differences. SIC codes classify establishments by the type of activity in which the business is primarily engaged, whereas, NAICS is based on a production-oriented, or a supply-based, conceptual framework. Other differences include the SIC code has a 4-digit

15 code and the NAICS has a 6-digit code. The SIC code lacked current information while the NAICS will be reviewed every five years so classifications will change with the economy. The divisions of the sectors has increased 10 times the amount of the SIC codes as the economy has provided for the increase in production. The companies who might use industrial classifications in segmenting their industrial or business consumer market might include health care, real estate, or arts, entertainment, and recreation, to name a few. 4. What are psychographics? In what way are they useful to direct marketers? (p. 27) Psychographics is the study of life-styles, habits, attitudes, beliefs, and value system of individuals. Psychographics are useful to direct marketers when they can identify and measure influences such as environment, self-perception, and lifestyles. This will help in effectively segmenting the mailing lists and thus predict potential consumer response by recognizing and evaluating the simultaneous appearance of a prospect s name on a variety of lists. 5. In the four-digit extension of an original five-digit ZIP code, what does each of the numbers stand for? (pp ) In the four-digit extension of an original five-digit ZIP code, each of the numbers stands for different locations. The sixth and seventh digits denote a sector and the last two denote a segment within a sector. For example, digits 6 and 7 could denote the location of a specific organization, like a university. The digits 8 and 9 could represent a specific segment or department within the university, perhaps the office of admissions. 6. How can ZIP codes help achieve product differentiation or promotional strategy? (pp ) ZIP codes can help achieve product differentiation or promotional strategy by enabling direct marketers to know more about their markets and to organize them according to local transportation patterns. For example, many major coupon distributors segment their markets on the basis of ZIP code areas. These companies also know which ZIP code areas possess a heavy concentration of residential households and coupon users. 7. What type of list is most important to an organization? Why? (p. 7) The house list is the most important list to an organization. The house list includes lists of an organization s own customers, active as well as inactive. They are the most productive mailing lists available in terms of future response and cost much less than that of acquiring response lists. It is not uncommon for a house list to be four times, or even ten times, as productive as an outside response list with which there is no existing customer relationship. 8. Identify a few products or services that probably incur response differences attributable to timing. (p. 18)

16 There are many products or services that probably incur response differences attributable to timing. Some direct marketers try to time their promotional efforts so as to avoid arrival during any type of holiday event, especially those that take people outdoors. For example, Land s End would not send sweater catalogs in the early portion of summer when consumers are wearing light summer clothing. Ballys fitness center receives a greater response to their direct marketing efforts during the months of January and February, although they are open for business 12 months a year. Timing is an important part of direct marketing and should be closely observed to improve response rates. 9. Explain the difference between a list user and a list owner. (pp ) A list user rents/buys response lists under an arrangement allowing them to make a specific one-time use of the data. List owners are those who describe and acquire prospects that show potential of becoming customers. 10. What are list brokers, list managers, and list compilers each responsible for? (pp ) List brokers, list managers, and list compilers are middlemen that are each responsible for bringing list users together with list owners. List brokers are those who serve as intermediaries who bring list users and list owners together. List managers represent the interest of list owners and have responsibility to be in contact with list brokers and list users. List compilers are those organizations that develop lists and data about them, often serving as their own list managers and brokers.

17 CHAPTER 4-2/E PLANNING THE OFFER Summary Planning the offer is a critical part of the success of any direct marketing campaign. It is reliant upon a solid understanding of consumer needs and wants. All direct marketing offers are response-driven. Direct marketers must plan each offer. This planning includes establishing objectives, deciding on offer attractiveness, reducing offer risk and selecting a creative appeal. Every offer consists of basic components and decisions that must be made by the direct marketer. These components include the product or service, pricing or payment terms, trial or examination period, guarantees, sweepstakes or contests, gifts or premiums and time limits. Direct marketers must carefully create the offer in order to ensure success. The step-by-step process to follow when creating the offer involves performing marketing research, determining the terms of the offer, targeting the offer, testing the offer, and finally, revising and executing the offer. Direct marketers can create many different types of offers. Many direct marketers vary the offer based on the season. Some popular offers include free gift offers, discount offers, sale offers, sample offers, time limit offers, guarantee offers, build-up-the-sale offers and sweepstakes offers. Learning Objectives After completing this chapter, students should: understand the role of an offer along with the elements of any effective offer know the required steps in planning an effective offer be familiar with the basic components of an offer and the decisions that direct marketers must make with regard to the offer understand the five step process that should be followed when creating an offer be able to overview some the popular offers used by direct marketers

18 Key Terms Continuity selling- offers that are continued on a regular (weekly, monthly, quarterly, annually) basis (also called club offers ) Cross-selling- an important characteristic of direct marketing where new and related products (or even unrelated products) are offered to existing customers Motivations- needs that compel a person to take action or behave in a certain way Negative option- the shipment of a product is sent automatically unless the customer specifically requests that it not be Offer- the terms under which a specific product or service is promoted to the customer Positioning- a marketing strategy that enables marketers to understand how each consumer perceives a company s product or service based on important attributes (also know as product positioning ) Positive option- the process whereby the customer must specifically request shipment of a product for each offer in a series Price elasticity- the relative change in demand for a product given the change in the price of the product Price penetration- a pricing strategy used when the direct marketer wants to maximize sales volume or market share by setting the price of a product at a low level Price skimming- a strategy used when the objective of the price is to generate the largest possible return on investment (ROI) where the price must be set at the highest possible level in order to skim-the-cream of the top of the market and only target a select number of consumers who can afford to buy the product/service Till-forbid (TF)- an offer that pre-arranges continuous shipments on a specified basis and are renewed automatically until the customer instructs otherwise Up-selling- the promotion of more expensive products or services over the product or service originally discussed or purchased Review Questions 1. Why is it important for direct marketers to understand consumer motivations when creating an offer? What can drive these motivations? (pp. 6, 20)

19 It is important for direct marketers to understand consumer motivations when creating an offer because the offer must be created in response to consumers needs and wants. Direct marketers must research and really know the target audience in order to create a need-satisfying offer that will attract the consumer. Driving consumer motivations are the consumers likes, dislikes, hot buttons and needs and wants. 2. What is an offer? What are the elements of an effective offer? (pp. 4-7) An offer is the terms under which a specific product or service is promoted to the customer. The elements of an effective offer include believability, involvement, and creativity. 3. What are the main differences between continuity selling, cross-selling, and up-selling? (pp. 8-10) The main differences between continuity selling, cross-selling, and upselling is that they are used to achieve different objectives. In continuity selling, customers buy related products or services as a series of small purchases, rather than all at a single time. Cross-selling offers new, related or even unrelated products to existing customers in which the customer views the direct marketer s reputation, reliability, and overall image as an important quality. Up-selling is completely different by using the promotion of more expensive products or services over the product or service originally discussed or purchased by the customer. 4. What are the basic components to include in planning an offer? (pp ) The basic components to include in planning an offer include: 1. Product/Service 2. Pricing/Payment Terms 3. Trial or Examination Period 4. Guarantees 5. Sweepstakes or contests 6. Gifts and Premiums 7. Time limits 5. Describe the four-step process to planning an offer. Is the order of this process important? Why or why not? (pp. 8-12) The four-step process to planning an offer is important in that it can mean the difference between success or failure it can make or break the sale. Step one is to establish objectives of the offer which is to ask questions such as What is the offer designed to do? Get orders? Generate sales leads? Without clearly established objectives, you won t be able to measure the success or failure of the offer. Step two is to decide on the attractiveness of the offer. Generally, the more attractive you can afford to make the offer, the better the response will be. Step three is to reduce the risk of the offer. The direct marketing consumer bears risk, usually greater than in traditional retail buying. Step four is

20 to select a creative appeal. The appeal can be rational in targeting a consumer s logical buying motives or emotional to focus on a consumer s desires and feelings. The order of this four-step process is important in planning an offer. It would be hard to imagine deciding on the attractiveness of the offer or the creative appeal when you have not established an offer. By using the structure of the steps, you are able to maintain clear understanding and control over the processes of planning an offer. 6. There are several popular offers. Name a few of the popular offers described in this chapter. How can you determine which offer will work best given a specific situation? (pp ) There are several popular offers described in this chapter. For instance, Harry and David s Fruit-of-the-Month Club offers consumers an opportunity to receive select fruit throughout the year. This continuity offer will work best given a specific season or holiday event. Busch Gardens teamed up with the Entertainment Book to provide an attractive free-gift offer for their consumers. The Entertainment Book was the complimentary gift and could be strategically planned when it is time to renew the Busch Gardens passport. 7. What are the four questions Donna Baier Stein and Floyd Kemske, in their book Write on Target, suggest every direct marketer or copywriter ask? What do they believe to be the key to effective direct marketing? (p. 23) The four questions that Donna Baier Stein and Floyd Kemske suggest every direct marketer or copywriter should ask include: 1. What am I selling? 2. Who am I selling to? 3. Why am I selling this now? 4. What do I want my prospect to do? They believe the key to effective direct marketing is unlocking the selling power that comes from knowing your target customer. 8. How do market segmentation and positioning strategies play a role in planning an offer? (p. 24) The process of targeting the offer is directly related to the important concepts of market segmentation and positioning. Market segmentation enables a marketer to view consumers as belonging to certain select groups based on shared characteristics and/or needs and wants. By understanding consumer perception, direct marketers can more effectively create an offer and target it toward a particular consumer segment. 9. Review Lois Geller s four-step approach to testing the offer. Apply these steps in the creation of a test to determine the best price for a new set of golf clubs. (p. 25) In reference to this question, a student should be able to relate each of the steps of the four-step process to finding the best price for a new set of golf clubs.

21 Through breaking down each step, the student will be able to carefully plan and set the golf clubs at a competitive, need-satisfying, yet profitable price. 10. Name the five specific product details direct marketers must consider when planning the offer. Select any direct marketing catalog and determine whether it provides each of these important product details. (p. 22) The five specific product details direct marketers must consider when planning the offer include a choice of sizes, a choice of colors, product specifications, product accessories and personalization. The catalog chosen for determining appropriate product detail is up to the discretion of the student and professor. [Note: this could easily be turned into an in-class exercise.]

22 CHAPTER 5-2/E PLANNING AND CREATING COMPELLING MESSAGE STRATEGIES Summary Direct response copywriting is both art and science, and those who have mastered it are very much in demand. FAB (features-advantages-benefits) analysis is often used by direct response copywriters to position products so that these provide benefits to users. There is a variety of copywriting formulas available to guide creative development and many of these are set forth in this chapter. Design and graphics are important adjuncts to copywriting, used to create attention and guide the reader through copy. These include the art, layout, symbols, and effects. Consideration should be given also to such factors as photographs, illustrations, type styles, paper, inks, size, and a variety of attentiongetting techniques. Development of direct response advertising must be concerned with the special characteristics of the medium to be used: direct mail, catalogs, print (magazines and newspapers), broadcast (television and radio), telephone, and the Internet. Learning Objectives After completing this chapter, students should: Understand the process in planning and creating compelling copy Understand the roles of creative research and message objectives when designing promotional campaign materials Know the tools and techniques of copywriting Understand the various copy appeals and be able to write promotional copy Know the various advertising media and how to create messages for each Key Terms Big Idea- The idea that becomes the company s logo, slogan, or tagline. It is the highlighted unique selling point or creative expression that is the focal point of a whole promotional campaign. Brochure (also called a circular)- A printed piece that augments the letter to provide additional information.

23 Catalog- A multipage format or booklet that displays photographs and/or descriptive details of products/services along with prices and order details Classic Format- A direct mail package format that consists of a mailing envelope, a letter, a circular, and a return device such as an order form/return envelope Copy Appeal- The essential theme, which generally stems from fundamental human needs, of the who promotion or campaign. Insert- Versatile pre-printed advertisement placed into a magazine or newspaper Involvement Devices- Attention-getters in advertising that engage the reader in order to spur action such as tokens, stamps, punch-outs, puzzles, sweepstakes, contests, premiums and other enticements Layout- A positioning of copy and illustrations not only to gain attention but also to direct the reader through the message in the sequence intended by the copywriter Letter- As an element of a direct mail package, the letter provides the primary means for communication and personalization Response Device- provides the means for action such as an order form, a telephone contact or a web site Self Mailer- A direct mail promotion not enclosed in an envelope Solo Mailers- A direct mail promotion with a single offer Storyboards- The visual portion of a television commercial through which continuity is shown along with illustrations and instructions for video action Review Questions 1. How do measurability and accountability, characteristics key to direct marketing, apply to advertising? (pp. 6-7) Direct marketers always relate the costs of advertising to the results achieved from it. They view costs, such as those for advertising and selling, as adding value. They work continually to improve the efficiency of direct marketing through accurate measurement of its costs relative to its results. 2. What specifically, is direct response advertising? (p. 7) Direct response advertising relies on copy, which emphasizes benefits to users in order to motivate response.

24 3. Why is an understanding of buyer motivations important in the creation of direct marketing promotions? (p. 5) It is imperative for direct marketers to understand the economic and social differences among an infinite variety of individuals within the total marketplace. They must also be aware of a vast number of factors motivating these individuals. The challenge to those responsible for direct marketing creative strategies is to get inside the head of a buyer do as to know what the benefits to the customer will be and what will motivate the customer to take action to gain them. 4. What is meant by writing by formula? Give an example. (p. 12) Successful copywriting often follows a formula to keep copy flowing in a logical sequence. Several of these formulas, which have been used extensively for many years, are presented in the chapter. 5. Why are design and graphics important in the creation of direct response advertising? (pp ) Through design and graphics, the designer, like the copywriter, creates mood and feeling while getting and holding attention. In direct marketing the ultimate goal of the designer, like that of the copywriter, is to stimulate action, to generate measurable response. Thus, design (like copy) becomes a means and not an end another element of the total promotion process. 6. What are the elements of design? (pp ) The elements of design include layout, photographs or illustrations, involvement devices, type styles, paper, color and ink. 7. Why is direct mail considered the primary medium for use by direct response advertisers? (pp ) Compared with other media, direct mail provides considerably more space and opportunity to tell a complete story. It can gain attention and develop an orderly and logical flow of information leading to action by the reader. Direct mail, too, has a unique capability to involve the recipient and faces less competition for attention at the time it is received than other advertising media. It is the most scientifically testable of all media because marketers can control experimentation with variables such as format, copy, and graphics. With adequate marketing research, direct mail affords the opportunity for positioning products to specific market segments and can, through computer and printing technology, individualize each piece to each recipient. 8. Of what elements does a classic direct mail package consist? (pp ) The classic format consists of these components: a mailing envelope, a letter, a brochure, and a return device. Some direct marketers include an extra enclosure or separate slip of paper that highlights a free gift or some other information, which is often printed on a different color and size of paper to make it stand out from the rest of the mailing package.