Introduction BRIEFING PAPER. Title: Direct response marketing of distance education. Part 1 of 2

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1 BRIEFING PAPER Title: Direct response marketing of distance education Part 1 of 2 Introduction Commercial distance learning provision started in Pennsylvania in 1891 through an advertisement in the pages of Colliery Engineer and Metal Miner, a mining journal published in Shenandoah, Pennsylvania. Due to an excessive amount of mining accidents, Thomas J. Foster, publisher of the journal, insisted that miners be educated in mine safety beyond what they learn from their apprenticeships. He went on to establish International Correspondence Schools (ICS) in 1894, and by 1904 ICS opened its doors in the UK. ICS is therefore the oldest and most experienced commercial education provider still trading. About five years ago it launched a new market strategy by offering a range of degree courses in association with the University of East London. Concurrently many UK universities have been entering the market to provide their own programmes with varying degrees of success. In terms of market strategy it is interesting that a major education business is entering higher education, and that higher education is entering the business of distance learning. We can be certain that it is the intention of both representative organisations to provide a rewarding and successful educational outcome for their customers. However, businesses like ICS are probably better placed to manage commercial and financial challenges. They rely exclusively on generating income from paying customers and are not funded externally. For this reason commercial providers experience can be helpful to others unfamiliar with the so called no sell, no eat imperative. Other education providers are also becoming active in the provision of distance education. Professional Associations are seeing the potential to support their members by identifying and developing distance learning offerings. The potential advantage for them is that marketing additional products and services to a ring fenced audience of members with clearly defined requirements, means that the step involving acquisition of interest by media advertising is redundant. Extending a range of products and services to an existing network that is possibly obliged to purchase them in some way, typically as continuing professional development, is easier than having to find the buyers in the first place. None the less, communication with a known audience and informing them of a new product is advertising, and the principles of promotion and conversion of any interest, into incremental revenues, are similar. In this first part of a two part briefing paper on direct response marketing in distance education, we look at the commercial provider s perspective, and examine and learn from some key lessons learned by them, about the particular nature and value of direct response marketing. BP119A Copyright CAPDM 2011 All Rights Reserved

2 Success? What exactly do we mean if we say a programme/product of education has been successful? If it reaches the targeted numbers of student customers who pay to enrol perhaps, though if they all drop out the following week then the success is somewhat short lived. Perhaps achieving a set number of off campus registrations was the goal, or possibly (and understandably) a simple trial of the method within a department to test the feasibility for a wider roll out was the objective. The point is that there is a need to be very clear about what success means for you, and to work hard to try to find ways to quantify it as much as possible. For businesses and commercial providers of distance education success means the implementation of a market strategy that delivers a targeted number of enrolments at an allowable marketing cost. The following example gives a basic illustration of how such organisations calculate this allowable marketing cost. Example: Simple framework to establish allowable marketing cost Arriving at an allowable marketing cost per enrolment differs according to a variety of factors. In the following table, two different scenarios are used to highlight the difference between an acceptable return scenario A from a marketing perspective, and an unacceptable one B. Scenario A Scenario B Advertising cost 10,000 10,000 Resulting number of inquiries Advertising cost per inquiry Promotion cost at 5 per inquiry 5, Conversion % 10 3 Resulting enrolments Cost per enrolment 150 3,500 Total advertising and promotion costs 15,000 10,500 Income per enrolement 1,200 1,200 Resulting revenue 120,000 3,600 Sales staff and other sales costs - example 60,000 60,000 Acceptable return on course marketing/sales 45,000-66,900 In scenario A, a well researched and targeted advertising campaign has delivered a reasonable number of inquiries 1000, at a cost per inquiry of 10. This would indicate that the placement, content, proposition and response mechanism appealed to the target audience. But in scenario B the numbers tell us there has been a failure since the number of inquiries generated was low. The advertising costs have been incurred; the money is spent but with only 100 inquiries to try and convert the initial results are bad. BP119A Copyright CAPDM 2011 All Rights Reserved 2

3 Once an inquiry is registered, we can term it a lead. A lead is now a potential customer and everything must be done to convert it. Promotional materials containing more detail about the product, price and assumed advantages, and an enrolment mechanism are issued. Commercial providers will frequently seek to make telephone contact with the lead in order that qualified specialists can address any concerns or questions in the mind of the lead, resolve them and close the sale. However if the promotional material and accompanying enrolment mechanism is good enough, many prospective customers act independently. In scenario A, because of the higher number of inquiries, the cost of sending out promotional materials or offers is in this example, The conversion of these leads at 10% indicates that the promotional and conversion processes worked well and produced a 100 paying customers. However the 3% conversion in scenario B points to there being further problems. Given the poor cost per inquiry, the only possible solution would be to convert at a much higher rate. If conversion was 75% the marketing team could probably feel satisfied. However such high conversion numbers are unlikely to be seen in the real world, where rates as low as 3% are tolerated in some commercial home study courses. The allowable cost per enrolment is therefore determined by the specifics of the performance of each component within the chain. From media placement through to the resulting enrolment. Since the allowable cost per enrolment is drawn from the costs and performance of advertising and promotional materials, we are only calculating one element of making a profitable foray into the market. Most organisations will employ people dedicated to sales (admissions) and will use sophisticated software and telephone contact management systems. The costs of this must obviously now be added to the initial cost per enrolment to build a fuller picture on performance of marketing and sales efforts. The greater resulting revenue secured in scenario A helps to offset the 60,000 cost of admissions and infrastructure and turn scenario A into a profitable return on marketing and sales costs. Scenario B would be unacceptable because the loss demonstrates a complete failure. There are some other general points to note about this example: The number of inquiries is affected by the quality of the advert. The cost per inquiry is a combination of the advertising cost relative to the number of inquiries generated. This should be further broken down by advertising medium. Promotion costs are variable depending on volume, and includes postage; handling s etc. This assumes the stock of promotional materials is not miscalculated incurring waste and cost. The conversion percentage is a factor of how well inquiries are managed and how well the sales process works. Cost per enrolment is the total advertising (all media) and promotional activity costs relative to the number of enrolments for all omnibus (a number of products within a generic offering) and product vertical campaigns. Income per enrolment depends on the price charged times the number of enrolments. This can be further complicated with sales discounts or credit schemes that extend over multiple years. Revenue is how much money is received. This is unlikely to be 100% of full value as enrolled but for simplicity in this illustration it has been assumed. Admissions cost is the overhead for sales staff and other costs like free phone; allocation of appropriate costs. BP119A Copyright CAPDM 2011 All Rights Reserved 3

4 The allowable marketing cost is therefore calculated by understanding the productivity of advertising and promotional activity. Commercial learning organisations put significant management effort into examining this continuously and in detail across different subjects. They use codes for identifying all media where a response is possible, and to understand in detail how well their marketing spend is working. Businesses involved in the direct response marketing of education for profit will often require that more than 30% to 45% of revenue is invested in advertising and response management. The average revenues per enrolment will influence this percentage directly. Lower income per customer means that higher enrolment volumes are required to absorb overheads and create a profitable scenario. The reverse may be true for those offering higher value courses, although being able invest in media can be harder if budgets are low, and it is not possible to promote and even offer discounts. The acceptable return on marketing/sales is a simple margin calculated before other organisational costs are taken into account. For example if Scenario A numbers can be repeated, 100,000 invested would produce a very healthy return assuming the business infrastructure can be scaled up to handle the volumes generated. A nice problem to have as a marketer. Overall, the profitability of a programme will depend on how costs are managed below the customer acquisition cost line, but the general rule is don t spend money where losses on expenditure show there is a problem. Resolve the problem and test, test, test until a mix of creative, media placement and response management resources combine to make a return on the costs. A question of approach For the commercial providers every penny spent must be accurately measured. All interactions with prospective customers are viewed as leading to a sale. This is direct response marketing where television has historically played a significant role, in combination with call centres, for example. The aim is to address the customer with encouragement to achieve their aspirations by taking action now, driving traffic to dedicated sales resources. All commercial providers web sites can take an immediate credit card payment and every piece of promotion literature addressed to a lead will include an enrolment form and a direct debit mandate or facility to make payment. Historically universities adopted a less aggressive approach to marketing. Access to information about the courses available on campus was out there, but the style and content was written as informative rather than being overtly sales oriented. Recently universities have begun to advertise on television, but in most cases what was being sold was the brand rather than the product. As universities seek to generate third stream revenues, distance learning programmes have been introduced to the portfolio of products available. However, these are often constrained by being made to be part of the wider product grouping, and subsumed into the general institutional offering. This makes life tough for the marketing team. Unless specific tracking can be achieved from such marketing methods, it becomes difficult to measure response rates. Further, if the sales department fail to log inquiries in a manner that permits subsequent measurements of activity in detail, then it is not possible to effectively BP119A Copyright CAPDM 2011 All Rights Reserved 4

5 measure the productivity and effectiveness of marketing practices and the return they generate. If the market strategy is to launch or develop a presence in the distance learning market, discrete and manageable campaigns will help prove or disprove the efforts and returns. If the market strategy is to introduce new programmes to existing markets, serious consideration must be given to vertical campaigns using well proven direct response marketing practices. Herein lays the challenge for distance learning marketers looking to use direct response methods: How to allocate budgets and measure outcomes in an environment where the marketing practices are not geared up to implement such methods easily? We will look at this issue in next month s briefing paper, but if you want to read ahead in preparation, then the CAPDM whitepaper Market Strategies for Distance Learning Programmes sets out the key concepts involved in identifying what needs to be done to attract customers (students/learners). CAPDM provides a range of professional services that commercial, professional and public education providers to develop successful programmes in education. Visit us on-line at for more information. BP119A Copyright CAPDM 2011 All Rights Reserved 5