2.

1 relationship marketing- building mutually satisfying long term relationships with key parties, in order
to earn and retain their business.
Having rich, multi faceted relationships with customers, channel members and other marketing partners
RELATIONSHIP MARKETING Increasingly, a key goal of marketing is to develop deep, endur-ing
relationships with all people or organizations that could directly or indirectly affect the suc-cess of the
firm's marketing activities. Relationship marketing has the aim of building mutually
satisfying long-term relationships with key partiescustomers, suppliers, distributors, and other
marketing partnersin order to earn and retain their business.
23
Relationship marketing
builds strong economic, technical, and social ties among the parties.
Relationship marketing involves cultivating the right kind of relationships with the right
constituent groups. Marketing must not only do customer relationship management (CRM),
but also partner relationship management (PRM) as well. Four key constituents for market-ing are
customers, employees, marketing partners (channels, suppliers, distributors, deal-ers, agencies), and
members of the financial community (shareholders, investors, analysts).
The ultimate outcome of relationship marketing is the building of a unique company asset
called a marketing network. A marketing network consists of the company and its supporting
stakeholders (customers, employees, suppliers, distributors, retailers, ad agencies, university
scientists, and others) with whom it has built mutually profitable business relationships.
Increasingly, competition is not between companies but between marketing networks, with the
prize going to the company that has built the better network. The operating principle is simple:
Build an effective network of relationships with key stakeholders, and profits will follow.
24
The development of strong relationships requires an understanding of the capabilities
and resources of different groups, as well as their needs, goals, and desires. A growing num-ber of
today's companies are now shaping separate offers, services, and messages to indi-vidual customers.
These companies collect information on each customer's past transac-tions, demographics,
psychographics, and media and distribution preferences. They hope to
achieve profitable growth through capturing a larger share of each customer's expenditures
by building high customer loyalty and focusing on customer lifetime value.
The ability of a company to deal with customers one at a time has become practical as a
result of advances in factory customization, computers, the Internet, and database marketing
software. BMW's technology now allows buyers to design their own models from 350 varia-tions, 500
options, 90 exterior colors, and 170 trims. The company claims that 80 percent of
the cars bought by individuals in Europe and up to 30 percent of those in the United States
are built to order. British supermarket giant Tesco is outpacing its rival store, Sainsbury, by
using its Clubcard data to personalize offers according to individual customer attributes.
25
Yet the practice of one-to-one marketing is not for every company: The required invest-ment in
information collection, hardware, and software may exceed the payout. It works
best for companies that normally collect a great deal of individual customer information,
carry a lot of products that can be cross-sold, carry products that need periodic replacement
or upgrading, and sell products of high value.
Rich, multifaceted relationships with key constituents create the foundation for a mutu-ally beneficial
arrangement for both parties. For example, tired of having its big rigs return
empty after making a delivery as often as 15 percent of the time, General Mills entered a pro-gram with
Fort James and a dozen other companies to combine one-way shipping routes
into a cross-country loop via a tag-team of contracted trucks. As a result, General Mills
reduced its empty truck time to 6 percent, saving 7 percent on shipping costs in the process.
***
An increasingly essential ingredient for the best relationship marketing today is the right
technology. Table 5.2 highlights five imperatives of CRM and where technology fits in. GE
Plastics could not target its e-mail effectively to different customers if it were not for
advances in database software. Dell Computer could not customize computer ordering for
its global corporate customers without advances in Web technology. Companies are using
e-mail, Web sites, call centers, databases, and database software to foster continuous con-tact between
company and customer.
Relationship Marketing
The principles of personal selling and negotiation we have described are largely transaction-oriented
because their purpose is to close a specific sale. But in many cases the company is
not seeking an immediate sale, but rather to build a long-term supplier-customer relation-ship. The
company wants to demonstrate that it has the capabilities to serve the account's
needs in a superior way. Today's customers are large and often global. They prefer suppliers
who can sell and deliver a coordinated set of products and services to many locations; who
can quickly solve problems that arise in different locations; and who can work closely with
customer teams to improve products and processes.
Salespeople working with key customers must do more than call when they think cus-tomers might be
ready to place orders. They should call or visit at other times, take cus-tomers to dinner, and make
useful suggestions about the business. They should monitor key
accounts, know customers' problems, and be ready to serve them in a number of ways.
When a relationship management program is properly implemented, the organization
will begin to focus as much on managing its customers as on managing its products. At the
same time, companies should realize that while there is a strong and warranted move
toward relationship marketing, it is not effective in all situations. Ultimately, companies
must judge which segments and which specific customers will respond profitably to rela-tionship
management.

Customer
relationship managemen fallows the company to discover who its customers are, how they
behave, and what they need or want. It also enables the company to respond appropri-ately,
coherently, and quickly to different customer opportunities. To respond effectively,
the company requires internal resource management to integrate major business
processes (e.g., order processing, general ledger, payroll, and production) within a single
family of software modules.
The aim of customer relationship management (CRM) is to produce high customer equity.
Customer equity is the total of the discounted lifetime values of all of the firm's customers.
43
Clearly, the more loyal the customers, the higher the customer equity. Rust, Zeithaml, and
Lemon distinguish three drivers of customer equity: value equity, brand equity, and rela-tionship equity
Customer Relationship Management (CRM)
In addition to working with partnerscalled partner relationship management (PRM)
many companies are intent on developing stronger bonds with their customerscalled
customer relationship management (CRM). This is the process of managing detailed infor-mation about
individual customers and carefully managing all customer "touch points" to
maximize customer loyalty. A customer touch point is any occasion on which a customer
encounters the brand and productfrom actual experience to personal or mass communi-cations to
casual observation. Por a hotel, the touch points include reservations, check-in
and check-out, frequent-stay programs, room service, business services, exercise facilities,
laundry service, restaurants, and bars. For instance, the Four Seasons relies on personal
touches, such as a staff that always addresses guests by name, high-powered employees who
understand the needs of sophisticated business travelers, and at least one best-in-region
facility, such as a premier restaurant or spa.
49
Customer relationship management enables companies to provide excellent real-time
customer service through the effective use of individual account information. Based onwhat they know
about each valued customer, companies can customize market offerings,
services, programs, messages, and media. CRM is important because a major driver of com-pany
profitability is the aggregate value of the company's customer base.
50
A pioneer in the
application of CRM techniques is Harrah's Entertainment.
Some of the groundwork for customer relationship management was laid by Don Peppers
and Martha Rogers in a series of books.
52
Peppers and Rogers outline a four-step framework
for one-to-one marketing that can be adapted to CRM marketing as follows:
c Identify your prospects and customers. Do not go after everyone. Build, maintain, and
mine a rich customer database with information derived from all the channels and cus-tomer touch
points. Differentiate customers in terms of (1) their needs and
(2) their value to your company. Spend proportionately more
effort on the most valuable customers (MVCs). Apply Activity
Based Costing and calculate customer lifetime value. Estimate net
present value of all future profits coming from purchases, margin
levels, and referrals, less customer-specific servicing costs.
Interact with individual customers to improve your knowledge
about their individual needs and to build stronger relationships.
Formulate customized offerings that are communicated in a per-sonalized way.
Customize products, services, and messages to each customer.
Facilitate customer/company interaction through the company
contact center and Web site.
Table 5.1 lists the main differences between mass marketing and
one-to-one marketing.
A key driver of shareholder value is the aggregate value of the cus-tomer base. Winning companies
improve the value of their customer
base by excelling at strategies such as the following:
n Reducing the rate of customer defection. Whole Foods, the
world's largest retailer of natural and organic foods, woos cus-tomers with a commitment to marketing
the best foods and a team
concept for employees. Selecting and training employees to be
knowledgeable and friendly increases the likelihood that the
inevitable shopping questions from customers will be answered
satisfactorily.
~ Increasing the longevity of the customer relationship. The more
involved a customer is with the company, the more likely he or she is
to stick around. Some companies treat their customers as partners
especially in business-to-business marketssoliciting their help in
the design of new products or improving their customer service.
Instant Web Companies (IWCO), a Chanhassen, Minnesota, direct-mail printer, launched a monthly
Customer Spotlight program
where guest companies provide an overview of their business and
direct-mail programs and comment on IWCO practices, products,
and services. IWCO's staff not only gains exposure to customers, but
also develops a broader perspective on customers' business and marketing objectives and
how to add value and identify options that help meet their customers' goals.
53
B Enhancing the growth potential of each customer through "share-of-wallet," cross-selling, and up-
selling.
34
Harley-Davidson sells more than motorcycles and riding supple-ments (such as gloves, leather jackets,
helmets, and sunglasses). Harley dealerships sell
more than 3,000 items of clothingsome even have their own fitting rooms. Licensed goods
sold by others range from the predictable (shot glasses, cue balls, and Zippo cigarette
lighters) to the more surprising items (cologne, dolls, and cell phones). Ilarley-branded mer-chandise
amounted to more than $211 million in company sales in 2003.
Making low-profit customers more profitable or terminating them. To avoid the direct
need for termination, unprofitable customers can be made to buy more or in larger quanti-ties, forgo
certain features or services, or pay higher amounts or fees. Banks, phone compa-nies, and travel
agencies are all now charging for once-free services to ensure minimum cus-tomer revenue levels.
Focusing disproportionate effort on high-value customers. The most valuable customers
can be treated in a special way. Thoughtful gestures such as birthday greetings, small gifts, or
invitations to special sports or arts events can send a strong signal to the customer.

CRM Imperative
Acquiring the right customer Crafting the right value proposition Instituting the best processes
Motivating employees Learning to retain customers

You Get It When...
You've identified your most valuable customers.
You've studied what products or services your customers need today and will need tomorrow.
You've researched the best way to deliver your products or services to customers, including the
alliances you need to strike, the technologies you need to invest in, and the service capabili-ties you
need to develop or acquire. and the service capabili-ties you need to develop or acquire.
B You know what tools your employees need to foster customer relationships.
B You've learned why customers defect and how to win them back.
You've calculated your share of their wallet for your goods and services.
You've analyzed what your competitors are doing to win your high- value customers.
You've surveyed what products or services your competitors offer today and will offer tomorrow.
You've identified the HR systems you need to institute in order to boost employee loyalty.


You've spotted what products or services you should be offering.
Your senior management monitors customer defection metrics.


CRM Technology Can Help .
Analyze customer rev- Capture relevant product B Process transactions B Align incentives and B
Track customer defection
enue and cost data to and service behavior faster. metrics. and retention levels.
identify current and data.
Provide better information 0 Deploy knowledge man- a Track customer service
future high-value
Create new distribution to the front line. agement systems. satisfaction levels.
customers.
channels.
Manage logistics and
Target your direct- Develop new pricing the supply chain more
marketing efforts better.
models.
Build communities.
efficiently.
Catalyze collaborative
commerce.
Source: Darrel K. Rigby, Frederick F. Reichhelcl, and Phil Schefter, "Avoid th



a.5. brand extension a company's use of an established brand to
introduce a new product.

When a firm uses an established brand to introduce a new product, it is called a brand exten-sion. When
a new brand is combined with an existing brand, the brand extension can also be
called a sub-brand, as with Hershey Kisses candy, Adobe Acrobat software, Toyota Camry
automobiles, and American Express Blue cards. An existing brand that gives birth to a brand
extension is referred to as the parent brand. If the parent brand is already associated with
multiple products through brand extensions, then it may also be called a family brand.
Brand extensions can be broadly classified into two general categories:
49
In a line exten-sion, the parent brand is used to brand a new product that targets a new market
segment
within a product category currently served by the parent brand, such as through new flavors,
forms, colors, added ingredients, and package sizes. Dannon has introduced several types of
Dannon yogurt line extensions through the yearsFruit on the Bottom, Natural Flavors,
Fruit Blends, and Whipped. In a category extension, the parent brand is used to enter a dif-ferent
product category from that currently served by the parent brand, such as Swiss Army
watches. Honda has used its company name to cover such different products as automo-biles,
motorcycles, snowblowers, lawnmowers, marine engines, and snowmobiles. This
allows Honda to advertise that it can fit "six Hondas in a two-car garage."

Brand Extensions
Recognizing that one of their most valuable assets is their brands, many firms have decided
to leverage that asset by introducing a host of new products under some of their strongest
brand names. Most new products are in fact line extensionstypically 80 to 90% in any
one year. Moreover, many of the most successful new products, as rated by various sources,
are extensions (e.g., Microsoft Xbox video game system, Apple iPod digital music player,
and Nokia 6800 cell phone). Nevertheless, many new products are introduced each year as
new brands (e.g., Zyprexa mood stabilizer drug, TiVo digital video recorders, and Mini
automobile).

Two main advantages of brand extensions are
that they can facilitate new-product acceptance, as well as provide positive feedback to the
parent brand and company.
New-Product Success Brand extensions improve the odds of new-product
success in a number of ways. With a brand extension, consumers can make inferences and
form expectations as to the likely composition and performance of a new product based on
what they already know about the parent brand itself and the extent to which they feel this
information is relevant to the new product.
55
For example, when Sony introduced a new
personal computer tailored for multimedia applications, Vaio, consumers may have been
more likely to feel comfortable with its anticipated performance because of their experience
with and knowledge of other Sony products.
By setting up positive expectations, extensions reduce risk.
56
Because of the potentially
increased consumer demand resulting from introducing a new product as an extension, it
also may be easier to convince retailers to stock and promote a brand extension. From a
marketing communications perspective, an introductory campaign for an extension does
not have to create awareness of both the brand and the new product but instead can con-centrate on
the new product itself.
57
Extensions can thus result in reduced costs of the introductory launch campaign, impor-tant given that
establishing a new brand name in the U.S. marketplace for a mass-consumer-packaged good can cost
$100 million! They also can avoid the difficultyand expenseof
coming up with a new name. Extensions allow for packaging and labeling efficiencies.
Similar or virtually identical packages and labels for extensions can result in lower produc-tion costs and,
if coordinated properly, more prominence in the retail store by creating a
"billboard" effect. For example, Stouffers offers a variety of frozen entrees with identical
orange packaging that increases their visibility when they are stocked together in the freezer.
By offering consumers a portfolio of brand variants within a product category, consumers
who need a changebecause of boredom, satiation, or whatevercan switch to a different
product type without having to leave the brand family.
Positive Feedback Effects Besides facilitating acceptance of new prod-ucts, brand extensions can also
provide feedback benefits.

59
They can help to clarify the
meaning of a brand and its core brand values or improve consumer perceptions of the cred-ibility of the
company behind the extension. Thus, through brand extensions, Crayola means "colorful crafts for kids,"
Aunt Jemima means "breakfast foods," and Weight Watchers means
"weight loss and maintenance."
Line extensions can renew interest and liking for the brand and benefit the parent brand by
expanding market coverage. Kimberly-Clark's Kleenex unit has a goal of having facial tissue in
every room of the home. This philosophy has led to a wide variety of Kleenex facial tissues and
packaging, including scented, ultra-soft and lotion-impregnated tissues; boxes with drawings
of dinosaurs and dogs for children's rooms, or colorful, stylish designs to match room decor;
and a "man-sized" box with tissues 50 percent larger than regular Kleenex. One benefit of a
successful extension is that it may also serve as the basis for subsequent extensions. During
the 1970s and 1980s, Billabong established its brand credibility with the young surfing com-munity as a
designer and producer of quality surf apparel. This success permitted it to extend
into other youth-oriented areas, such as snowboarding and skateboarding.
DISADVANTAGES OF BRAND I XTENSIONS On the downside, line extensions may cause
the brand name to not be as strongly identified with any one product.
60
Ries and Trout call
this the "line-extension trap."
f>1
By linking its brand to mainstream food products such as
mashed potatoes, powdered milk, soups, and beverages, Cadbury ran the risk of losing its
more specific meaning as a chocolates and candy brand.
62
Brand dilution occurs when con-sumers no longer associate a brand with a specific product or highly
similar products and
start thinking less of the brand.
If a firm launches extensions consumers deem inappropriate, they may question the
integrity and competence of the brand. Different varieties of line extensions may confuse
and perhaps even frustrate consumers: Which version of the product is the "right one" for
them? As a result, they may reject new extensions for "tried-and-true" favorites or all-purpose versions.
Retailers have to reject many new products and brands because they do
not have the shelf or display space for them.
The worst possible scenario with an extension is that not only does it fail, but it harms the
parent brand image in the process. Fortunately, such events are rare. "Marketing failures,"
where insufficient consumers were attracted to a brand, are typically much less damaging
than "product failures," where the brand fundamentally fails to live up to its promise. Even
then, product failures dilute brand equity only when the extension is seen as very similar to
the parent brand. The Audi 5000 car suffered from a tidal wave of negative publicity and
word of mouth in the mid-1980s when it was alleged to have a "sudden acceleration" prob-lem. The
adverse publicity also spilled over to the 4000 model. But the Quattro was relatively
more insulated from negative repercussions, because it was distanced from the 5000 by its
more distinct branding and advertising strategy.
63
Even if sales of a brand extension are high and meet targets, it is possible that this reveYiue
may have resulted from consumers switching to the extension from existing product offer-ings of the
parent brandin effect cannibalizingThe parent brand. Intrabrand shifts in sales
may not necessarily be so undesirable, as they can be thought of as a form of preemptive
cannibalization. In other words, consumers might have switched to a competing brand
instead of the line extension if it had not been introduced into the category. Tide laundry
detergent maintains the same market share now compared as it did 50 years ago because of
the sales contributions of the various line extensions (scented and unscented powder, tablet,
liquid, and other forms).
Flanker or "fighter" brands are positioned with respect to competitors' brands
so that more important (and more profitable) flagship brands can retain their desired posi-tioning.
Procter & Gamble markets Luvs diapers in a way that flanks the more premium posi-tioned Pampers. In
designing these fighter brands, marketers must walk a fine line. Fighter
brands must not be so attractive that they take sales away from their higher-priced compar-ison brands
or referents. At the same time, if fighter brands are seen as connected to other
brands in the portfolio in any way (e.g., by virtue of a common branding strategy), then
fighter brands must not be designed so cheaply that they reflect poorly on these other
brands.
A.3. Advertising is any paid form of nonpersonal presentation and promotion of ideas, goods, or
services by an identified sponsor. Ads can be a cost-effective way to disseminate messages,
whether to build a brand preference or to educate people.
Organizations handle advertising in different ways. In small companies, advertising is
handled by someone in the sales or marketing department, who works with an advertising
agency. A large company will often set up its own department, whose manager reports to the
vice president of marketing. The department's job is to propose a budget, develop strategy,
approve ads and campaigns, and handle direct-mail advertising, dealer displays, and other
forms of advertising.
Most companies use an outside agency to help create advertising campaigns and to
select and purchase media. Today, advertising agencies are redefining themselves as
communications companies that assist clients to improve their overall communications
effectiveness by offering strategic and practical advice on many forms of communication.
2
In developing an advertising program, marketing managers must always start by identi-fying the target
market and buyer motives. Then they can make the five major decisions,
known as "the five Ms": Mission:What are the advertising objectives? Money: How much can
be spent? Message: What message should be sent? Media: What media should be used?
Measurement: How should the results be evaluated? These decisions are summarized in
Figure 18.1 and described in the following sections.
Setting the Objectives
The advertising objectives must flow from prior decisions on target market, brand position-ing, and the
marketing program.

An advertising goal (or objective) is a specific communications task and achievement
level to be accomplished with a specific audience in a specific period of time:
3
To increase among 30 million homemakers who own automatic washers the num-ber who identify
brand X as a low-sudsing detergent and who are persuaded that it
gets clothes cleaner from 10 percent to 40 percent in one year.
Advertising objectives can be classified according to whether their aim is to inform, per-suade, remind,
or reinforce. They aim at different stages in the hierarchy-of-effects discussed
in Chapter 17.
n Informative advertising aims to create brand awareness and knowledge of new products
or new features of existing products. One of the all-time most memorable ads starred
Australian rugby player Jacko for Energizer batteries. He was shown dressed as a battery,
bursting into an early morning subway car, repeatedly shouting out the brand name to the
commuters. Unfortunately, people remembered the namebut hated the ad! Brand aware-ness cannot
come at the expense of brand attitudes.
Persuasive advertising aims to create liking, preference, conviction, and purchase of a
product or service. Chivas Regal attempts to persuade consumers that it delivers more taste
and status than other brands of Scotch whiskey. Some persuasive advertising uses compar-ative
advertising, which makes an explicit comparison of the attributes of two or more
brands.
4
For years, VISA has run a successful ad campaign called "It's Everywhere You Want
to Be," that showcases desirable locations and events that don't accept the American Express
card. Comparative advertising works best when it elicits cognitive and affective motivations
simultaneously.
5
B Reminder advertising aims to stimulate repeat purchase of products and services.
Expensive, four-color Coca-Cola ads in magazines are intended to remind people to pur-chase Coca-Cola.
s Reinforcement advertising aims to convince current purchasers that they made the right
choice. Automobile ads often depict satisfied customers enjoying special features of their
new car.
The advertising objective should emerge from a thorough analysis of the current market-ing situation. If
the product class is mature, the company is the market leader, and brand
usage is low, the proper objective should be to stimulate more usage. If the product class is
new, the company is not the market leader, but the brand is superior to the leader, then the
proper objective is to convince the market of the brand's superiority.
Deciding on the Advertising Budget
How does a company know if it is spending the right amount? Some critics charge that large
consumer-packaged-goods firms tend to overspend on advertising as a form of insurance
against not spending enough, and that industrial companies underestimate the power of
company and product image building and tend to underspend.
6
Although advertising is treated as a current expense, part of it is really an investment in
building brand equity. When S5 million is spent on capital equipment, the equipment may
be treated as a five-year depreciable asset and only one-fifth of the cost is written off in the
first year. When $5 million is spent on advertising to launch a new product, the entire cost
must be written off in the first year. This reduces the company's reported profit and therefore
limits the number of new-product launches a company can undertake in any one year.
In Chapter 17, we described some general methods to estimate communications bud-gets. Here are five
specific factors to consider when setting the advertising budget:
7
1. Stage in the product life cycle - New products typically receive large advertising budgets
to build awareness and to gain consumer trial. Established brands usually are supported
with lower advertising budgets as a ratio to sales.
8
2. Market share and consumer base - High-market-share brands usually require less adver-tising
expenditure as a percentage of sales Co main tain siiare. To ouiiu
1
share by increasing
market size requires larger expenditures. On a cost-per-impression basis, it is less expensive
to reach consumers of a widely used brand than to reach consumers of low-share brands.
3. Competition and clutter- In a market with a large number of competitors and high
advertising spending, a brand must advertise more heavily to be heard. Even simple clutter from
advertisements not directly competitive to the brand creates a need for
heavier advertising.
4. Advertising frequency - The number of repetitions needed to put across the brand's
message to consumers has an important impact on the advertising budget.
5. Product substitulability - Brands in less-well-differentiated or commodity-like product
classes (beer, soft drinks, banks, and airlines) require heavy advertising to establish a dif-ferential image.
Advertising is also important when a brand can offer unique physical
benefits or features.
In one study of budget allocation, Low and Mohr found that managers allocate less to
advertising as brands move to the more mature phase of the product life cycle; when a brand
is well-differentiated from the competition; when managers are rewarded on short-term
results; as retailers gain more power; and when managers have less experience with the
company
9
Developing the Advertising Campaign
In designing and evaluating an ad campaign, it is important to distinguish the message strat-egy ox
positioning of an ad (what the ad attempts to convey about the brand) from its creative
strategy (how the ad expresses the brand claims). So designing effective advertising cam-paigns is both
an art and a science. To develop a message strategy, advertisers go through
three steps: message generation and evaluation, creative development and execution, and
social-responsibility review.
MESSAGE GENERATION AND EVALUATION It is important to generate fresh insights and
avoid using the same appeals and positions as others. Many of today's automobile ads have
a sameness about thema car driving at high speed on a curved mountain road or across a
desert. The result is that only a weak link is established between the brand and the message.
A good ad normally focuses on one or two core selling propositions. As part of refining
the brand positioning, the advertiser should conduct market research to determine which
appeal works best with its target audience. Once they find an effective appeal, advertisers
should prepare a creative brief, typically coverin g one or two pages. It is an elaboration of the
positioning statement {see Chapter 10) and includes: key message, target audience, commu-nications
objectives (to do, to know, to believe), key brand benefits, supports for the brand
promise, and media. All the team members working on the campaign need to agree on the
creative brief before investing in costly ads.
How many alternative ad themes should the advertiser create before making a choice?
The more ads created, the higher the probability of finding an excellent one. Under a com-mission
system, an agency may not like to go to the expense of creating and pretesting many
ads. Fortunately, the expense of creating rough ads is rapidly falling due to computers. An ad
agency's creative department can compose many alternative ads in a short time by drawing
from computer files containing still and video images.
CREATIVE DEVELOPMENT AND EXECUTION The ad's impact depends not only on what
is said, but often more important, on how it is said. Message execution can be decisive. In
preparing an ad campaign, the advertiser can prepare a copy strategy statement describing
the objective, content, support, and tone of the desired ad. Here is the strategy statement for
a Pillsbury product called 1869 Brand Biscuits.
SOCIAL-RESPONSIBILITY REVIEW Advertisers and their agencies must be sure advertising
does not overstep social and legal norms. Public policy makers have developed a substantial
body of laws and regulations to govern advertising.
Under U.S. law, advertisers must not make false claims, such as stating that a product
cures something when it does not. They must avoid false demonstrations, such as using
sand-covered plexiglass instead of sandpaper to demonstrate that a razor blade can shave
sandpaper. It is illegal in the United States to create ads that have the capacity to deceive,
even though no one may actually be deceived. For example, a floor wax cannot be advertised
as giving six months' protection unless it does so under typical conditions, and a diet bread
cannot be advertised as having fewer calories simply because its slices are thinner. The prob-lem is how
to tell the difference between deception and "puffery"simple exaggerations not
intended to be believed which are permitted by law.
Sellers in the United States are legally obligated to avoid bait-and-switch advertising that
attracts buyers under false pretenses. Suppose a seller advertises a sewing machine at $149.
When consumers try to buy the advertised machine, the seller cannot then refuse to sell it,
downplay its features, show a faulty one, or promise unreasonable delivery dates in order to
switch the buyer to a more expensive machine.
14
To be socially responsible, advertisers must be careful not to offend the general public as
well as any ethnic groups, racial minorities, or special-interest groups.
15
Ads for Calvin
Klein apparel have often been accused of crossing the lines of decency, with ads featuring
the waifish model Kate Moss that came under attack from Boycott Anorexic Marketing, and
ads featuring pubescent modelssome reportedly as young as 15in provocative poses,
which resulted in a massive letter-writing campaign from the American Family
Association.
16
Every year, the nonprofit trade group Advertising Women of New York singles out TV and
print ads that it feels portray particularly good or bad images of women. In 2004, Sirius
Satellite Radio won the TV Grand Ugly award for its "Car Wash" ad, which featured Pam
Anderson in a wet tank top using her entire body to clean a young man's car. Print Grand
Ugly went to a Sony Playstation ad that featured a woman giving birth to the head of a grown man. The
TV Grand Good ad went to a MasterCard commercial in which a woman opens a
jar of pickles after her weakling husband fails the test.
17
Ill Deciding on Media and Measuring Effectiveness
After choosing the message, the advertiser's next task is to choose media to carry it. The
steps here are deciding on desired reach, frequency, and impact; choosing among major
media types; selecting specific media vehicles; deciding on media timing; and deciding on
geographical media allocation. Then the results of these decisions need to be evaluated.
Deciding on Reach, Frequency, and Impact
Media selection is finding the most cost-effective media to deliver the desired number and
type of exposures to the target audience. What do we mean by the desired number of expo-sures?
Presumably, the advertiser is seeking a specified advertising objective and response
from the target audiencefor example, a target level of product trial. The rate of product
trial will depend, among other things, on level of brand awareness. Suppose the rate of prod-uct trial
increases at a diminishing rate with the level of audience awareness, as shown in
Figure 18.2(a). If the advertiser seeks a product trial rate of (say) T", it will be necessary to
achieve a brand awareness level of A'.
The next task is to find out how many exposures, E", will produce a level of audience
awareness of A'. The effect of exposures on audience awareness depends on the exposures'
reach, frequency, and impact:
E3 Reach (R). The number of different persons or households exposed to a particular media
schedule at least once during a specified time period.
a Frequency (F). The number of times within the specified time period that an average per-son or
household is exposed to the message.
n Impact (I). The qualitative value of an exposure through a given medium (thus a food ad
in Good Housekeeping would have a higher impact than in Fortune magazine).
Figure 18.2(b) shows the relationship between audience awareness and reach. Audience
awareness will be greater, the higher the exposures' reach, frequency, and impact. There are
important trade-offs among reach, frequency, and impact. Suppose the planner has an
advertising budget of $1,000,000 and the cost per thousand exposures of average quality is
$5. This means the advertiser can buy 200,000,000 exposures ($1,000,000 H- [$5/1,000]). If the
advertiser seeks an average exposure frequency of 10, then the advertiser can reach
20,000,000 people (200,000,000 4- 10) with the given budget. But if the advertiser wants
higher-quality media costing $10 per thousand exposures, it will be able to reach only
10,000,000 people unless it is willing to lower the desired exposure frequency.
The relationship between reach, frequency, and impact is captured in the following
concepts:
a Total number of exposures (E). This is the reach times the average frequency; that is,
E = Rx /TThis measure is referred to as the gross rating points (GRP). If a given media
schedule reaches 80 percent of the homes with an average exposure frequency of 3, the man. The TV
Grand Good ad went to a MasterCard commercial in which a woman opens a
jar of pickles after her weakling husband fails the test.
17
Ill Deciding on Media and Measuring Effectiveness
After choosing the message, the advertiser's next task is to choose media to carry it. The
steps here are deciding on desired reach, frequency, and impact; choosing among major
media types; selecting specific media vehicles; deciding on media timing; and deciding on
geographical media allocation. Then the results of these decisions need to be evaluated.
Deciding on Reach, Frequency, and Impact
Media selection is finding the most cost-effective media to deliver the desired number and
type of exposures to the target audience. What do we mean by the desired number of expo-sures?
Presumably, the advertiser is seeking a specified advertising objective and response
from the target audiencefor example, a target level of product trial. The rate of product
trial will depend, among other things, on level of brand awareness. Suppose the rate of prod-uct trial
increases at a diminishing rate with the level of audience awareness, as shown in
Figure 18.2(a). If the advertiser seeks a product trial rate of (say) T", it will be necessary to
achieve a brand awareness level of A'.
The next task is to find out how many exposures, E", will produce a level of audience
awareness of A'. The effect of exposures on audience awareness depends on the exposures'
reach, frequency, and impact:
E3 Reach (R). The number of different persons or households exposed to a particular media
schedule at least once during a specified time period.
a Frequency (F). The number of times within the specified time period that an average per-son or
household is exposed to the message.
n Impact (I). The qualitative value of an exposure through a given medium (thus a food ad
in Good Housekeeping would have a higher impact than in Fortune magazine).
Figure 18.2(b) shows the relationship between audience awareness and reach. Audience
awareness will be greater, the higher the exposures' reach, frequency, and impact. There are
important trade-offs among reach, frequency, and impact. Suppose the planner has an
advertising budget of $1,000,000 and the cost per thousand exposures of average quality is
$5. This means the advertiser can buy 200,000,000 exposures ($1,000,000 H- [$5/1,000]). If the
advertiser seeks an average exposure frequency of 10, then the advertiser can reach
20,000,000 people (200,000,000 4- 10) with the given budget. But if the advertiser wants
higher-quality media costing $10 per thousand exposures, it will be able to reach only
10,000,000 people unless it is willing to lower the desired exposure frequency.
The relationship between reach, frequency, and impact is captured in the following
concepts:
a Total number of exposures (E). This is the reach times the average frequency; that is,
E = Rx /TThis measure is referred to as the gross rating points (GRP). If a given media
schedule reaches 80 percent of the homes with an average exposure frequency of 3, the
(a) Relationship between Product
Trial Rate and Audience
Awareness Level
(b) Relationship between Audience
Awareness Level and Exposure
Reach and Frequency
FIG. 18.2 |
Relationship Among Trial, Awareness,
and the Exposure Function
MANAGING MASS COMMUNICATIONS: ADVERSTISING, SALES PROMOTIONS, EVENTS, AND PUBLIC
RELATIONS CHAPTER 18 575
media schedule is said to have a GRP of 240 (80 x 3). If another media schedule has a GRP
of 300, it is said to have more weight, but we cannot tell how this weight breaks down into
reach and frequency.
Weighted number of exposures (WE). This is the reach times average frequency times
average impact, that is WE = Rx Fx I.
The media planner has to figure out the most cost-effective combination of reach, fre-quency, and
impact. Reach is most important when launching new products, flanker brands,
extensions of well-known brands, or infrequently purchased brands; or going after an unde-fined target
market. Frequency is most important where there are strong competitors, a
complex story to tell, high consumer resistance, or a frequent-purchase cycle.
18
Many advertisers believe a target audience needs a large number of exposures for the
advertising to work. Others doubt the value of high frequency. They believe that after people
see the same ad a few times, they either act on it, get irritated by it, or stop noticing it.
19
Another factor arguing for repetition is that of forgetting. The job of repetition is partly to
put the message back into memory. The higher the forgetting rate associated with a brand,
product category, or message, the higher the warranted level of repetition. However, repeti-tion is not
enough; ads wear out and viewers tune out. Advertisers should not coast on a
tired ad but should insist on fresh executions by their advertising agency
Choosing Among Major Media Types
The media planner has to know the capacity of the major advertising media types to deliver
reach, frequency, and impact. The major advertising media along with their costs, advan-tages, and
limitations are profiled in Table 18.1.
Media planners make their choices by considering the following variables:
n Target audience media habits. Radio and television are the most effective media for
reaching teenagers.
Product characteristics. Media types have different potential for demonstration, visual-ization,
explanation, believability, and color. Women's dresses are best shown in color mag-azines, and Kodak
cameras are best demonstrated on television.
Evaluating Advertising Effectiveness
Good planning and control of advertising depend on measures of advertising effectiveness.
Most advertisers try to measure the communication effect of an adthat is, its potential effect
on awareness, knowledge, or preference. They would also like to measure the ad's sales effect.
COMMUNICATION-EFFECT RESEARCH Communication-effect research seeks to deter-mine whether an
ad is communicating effectively. Called copy testing, it can be done before
an ad is put into media and after it is printed or broadcast.
There are three major methods of pretesting. The consumer feedback method asks con-sumers for their
reactions to a proposed ad. They respond to questions such as these:
1. What is the main message you get from this ad?
2. What do you think they want you to know, believe, or do?
3. How likely is it that this ad will influence you to undertake the action?
4. What works well in the ad and what works poorly?
5. How does the ad make you feel?
6. Where is the best place to reach you with this message? Where would you be most likely to
notice it and pay attention to it? Where are you when you make decisions about this action?
Portfolio tests ask consumers to view or listen to a portfolio of advertisements. Consumers
are then asked to recall all the ads and their content, aided or unaided by the interviewer. Recall
level indicates an ad's ability to stand out and to have its message understood and remembered.
Laboratory tests use equipment to measure physiological reactionsheartbeat, blood
pressure, pupil dilation, galvanic skin response, perspirationto an ad; or consumers may
be asked to turn a knob to indicate their moment-to-moment liking or interest while view-ing
sequenced material.
40
These tests measure attention-getting power but reveal nothing
about impact on beliefs, attitudes, or intentions. Table 18.4 describes some specific adver-tising
research techniques.
Pretest critics maintain that agencies can design ads that test well but may not necessarily
perform well in the marketplace. Proponents of ad pretesting maintain that useful diagnostic
information can emerge and that pretests should not be used as the sole decision criterion
anyway. Widely acknowledged as being one of the best advertisers around, Nike is notorious for
doing very little ad pretesting. "Marketing Memo: How to Sell in Hard Times" offers some com-
munication insights from its ad agency Weiden & Kennedy.
TABLE 18.4



a.2. Although environmental issues have long affected marketing prac-tices, especially in Europe, their
relevance has increased in the last
decade or so. With the well-publicized Earth Day activities in the
United States in April 1990, the "green marketing" movement was
born. An explosion of "environmentally friendly" products and mar-keting programs appeared as firm
after firm tried to capitalize on
consumers' perceived increased sensitivity to environmental issues.
From a branding perspective, however, "green marketing" pro-grams have not been entirely successful.
For example, in 1994,
Philips Electronics NV branded its eco-friendly, energy-saving fluo-rescent bulbs as "Earthlight." Due to a
lack of sales success, the
product was repackaged in 2000 as convenient, seven-year life
"Marathon" bulbs, and sales grew steadily at 7 percent annually.
Faced with slumping sales, Ben & Jerry's dropped its "Rainforest
Crunch" flavor of ice cream, introduced on Earth Day in 1990 to tout
conservation and nuts from rainforest trees. Despite a concerted
marketing effort, Green Mountain Energy has found it difficult to sell
electricity from eco-friendly power plants.
Many other marketers tried and failed with green sales pitches
over the last decade. What obstacles did this movement encounter?
Overexposure and lack of credibility. So many companies
made environmental claims that the public became skeptical of
their validity. Government investigations into some "green" claims
(e.g., the degradability of trash bags) and media reports of the
spotty environmental track records behind others only increased
consumers' doubts. This backlash resulted in many consumers
thinking environmental claims were just marketing gimmicks.
Consumer behavior. Research studies have shown that con-sumers as a whole may not be willing to
pay a premium for envi-ronmental benefits, although certain market segments will be. Most
consumers appear unwilling to give up the benefits of other alter-natives to choose green products. For
example, some consumers
dislike the performance, appearance, or texture of recycled paper
and household products. And some consumers are unwilling to
give up the convenience of disposable products such as diapers.
Poor implementation. In jumping on the green marketing band-wagon, many firms did a poor job
implementing their marketing
program. Products were poorly designed in terms of environ-mental worthiness, overpriced, and
inappropriately promoted.
Some ads failed to make the connection between what the com-pany was doing for the environment
and how it affected individ-ual consumers.
To get around these obstacles and make sure environmental ini-tiatives are implemented, some
companies recommend relying on
the efforts of a "Green Champion"an environmentalist who works
internally to make companies greener. Jean Palmateer, an environ-mental engineer, is a "green
champion" for DePuy Orthopaedics, a
division of Johnson & Johnson. She recommends getting broad goals
accomplished by personalizing the issue. For instance, when
Palmeteer wanted to keep the medical device makers' wastewater
tanks clean, she told workers that better maintained tanks would not
just help the earth, but save them from 3:00 A.M. phone calls when
the tanks failed to discharge. Now the tanks are cleaner and workers
are sleeping better at night.
There have been some notable green marketing successes
through the years. Chevron's highly visible "People Do" ad campaign
attempted to transform consumers' negative perceptions of oil com-panies and their effect on the
environment by describing specific
Chevron programs designed to save wildlife, preserve seashores, and
soon.
McDonald's has introduced a number of well-publicized environ-mental initiatives through the years,
such as unbleached paper carry-out bags and replacing polystyrene foam sandwich clamshells with
paper wraps and lightweight recycled boxes. McDonald's received
the EPA WasteWise Partner of the Year award for waste reduction
efforts that: (1) conserved 3,200 tons of paper and cardboard by
replacing sandwich containers with single-layer flexible sandwich
wraps; (2) eliminated 1,100 tons of cardboard materials that would
have been used for shipping by switching to light drink cups; and
(3) resulted in spending $355 million on recycled content products.
Which doesnot involve use of papers, colors, frames etc.thus it saves trees and helps in protecting
environmient called as green marketing

b.14. Public Relations
Not only must the company relate constructively to customers, suppliers, and dealers, it
must also relate to a large number of interested publics. A public is any group that has an
actual or potential interest in or impact on a company's ability to achieve its objectives.
Public relations (PR) involves a variety of programs designed to promote or protect a com-pany's image
or its individual products.
The wise company takes concrete steps to manage successful relations with its key
publics. Most companies have a public relations department that monitors the attitudes of
the organization's publics and distributes information and communications to build good-will. The best
PR departments spend time counseling top management to adopt positive
programs and to eliminate questionable practices so that negative publicity does not arise in
the first place. They perform the following five functions:
1. Press relations - Presenting news and information about the organization in the most
positive light.
2. Product publicity - Sponsoring efforts to publicize specific products.
3. Corporate communications - Promoting understanding of the organization through
internal and external communications.

4. Lobbying- Dealing with legislators and government officials to promote or defeat legis-lation and
regulation.
5. Counseling - Advising management about public issues and company positions and
image during good times and bad.
Marketing Public Relations
Many companies are turning to marketing public relations (MPR) to support corporate or
product promotion and image making. MPR, like financial PR and community PR, serves a
special constituency, the marketing department.
79
The old name for MPR was publicity, which was seen as the task of securing editorial
spaceas opposed to paid spacein print and broadcast media to promote or "hype" a
product, service, idea, place, person, or organization. MPR goes beyond simple publicity
and plays an important role in the following tasks:
ta Assisting in the launch of new products. The amazing commercial success of toys such as
Teenage Mutant Ninja Turtles, Mighty Morphin' Power Rangers, Beanie Babies, and
Pokemon owes a great deal to clever publicity.
m Assisting in repositioning a mature product. New York City had extremely bad press in
the 1970s until the "I Love New York" campaign.
E3 Building interest in a product category. Companies and trade associations have used
MPR to rebuild interest in declining commodities such as eggs, milk, beef, and potatoes, and
to expand consumption of such products as tea, pork, and orange juice.
a Influencing specific target groups. McDonald's sponsors special neighborhood events in
Latino and African American communities to build goodwill.
a Defending products that have encountered public problems. PR professionals must be
adept at managing crises, such as the Coca-Cola incident in Belgium over allegedly contam-inated soda,
and Firestone's crisis with regard to the tire tread separation problem.
m Building the corporate image in a way that reflects favorably on its products. Bill
Gates's speeches and books have helped to create an innovative image for Microsoft
Corporation.
As the power of mass advertising weakens, marketing managers are turning to MPR to
build awareness and brand knowledge for both new and established products. MPR is
also effective in blanketing local communities and reaching specific groups. In several
cases, MPR proved more cost-effective than advertising. Nevertheless, it must be
planned jointly with advertising.
80
In addition, marketing managers need to acquire
more skill in using MPR resources. Gillette is a trendsetter here: Each brand manager is
required to have a budget line for MPR and to justify not using it. Done right, the impact
can be substantial.
Clearly, creative public relations can affect public awareness at a fraction of the cost of
advertising. The company does not pay for the space or time obtained in the media. It pays
only for a staff to develop and circulate the stories and manage certain events. If the com-pany develops
an interesting story, it could be picked up by the media and be worth mil-lions of dollars in equivalent
advertising. Some experts say that consumers are five times
more likely to be influenced by editorial copy than by advertising. Here's an example of a
powerful PR campaign.

Major Decisions in Marketing PR
In considering when and how to use MPR, management must establish the marketing objec-tives,
choose the PR messages and vehicles, implement the plan carefully, and evaluate the
results. The main tools of MPR are described in Table 18.8.
83
)BJECTIVES MPR can build awareness by placing stories in the media to
bring attention to a product, service, person, organization, or idea. It can build credibilityby
communicating the message in an editorial context. It can help boost sales force and dealer
enthusiasm with stories about a new product before it is launched. It can hold down
promotion cost because MPR costs less than direct-mail and media advertising.
Whereas PR practitioners reach their target publics through the mass media, MPR is
increasingly borrowing the techniques and technology of direct-response marketing to
reach target audience members one-on-one.
CHOOSING MESSAGES AND VEHICLES The MPR manager must identify or develop
interesting stories about the product. Suppose a relatively unknown college wants more vis-ibility. The
MPR practitioner will search for stories. Do any faculty members have unusual
backgrounds, or are any working on unusual projects? Are any new and unusual courses
being taught? Are any interesting events taking place on campus? If there are no interesting
stories, the MPR practitioner should propose newsworthy events the college could sponsor.
Here the challenge is to create news. PR ideas include hosting major academic conventions,
inviting expert or celebrity speakers, and developing news conferences. Each event is an
opportunity to develop a multitude of stories directed at different audiences.
The best MPR practitioners are able to find or create stories even for mundane or out-of-fashion
products. Here is a recent success story.
IMPLEMENTING THE PLAN AND EVALUATING RESULTS MPR's contribution to the bot-tom line is difficult
to measure, because it is used along with other promotional tools. The
three most commonly used measures of MPR effectiveness are number of exposures; aware-ness,
comprehension, or attitude change; and contribution to sales and profits.
The easiest measure of MPR effectiveness is the number of exposures carried by the
media. Publicists supply the client with a clippings book showing all the media that carried
news about the product and a summary statement such as the following:
Media coverage included 3,500 column inches of news and photographs in
350 publications with a combined circulation of 79.4 million; 2,500 minutes of air
time of 290 radio stations and an estimated audience of 65 million; and 660 min-utes of air time on 160
television stations with an estimated audience of 91 million.
If this time and space had been purchased at advertising rates, it would have
amounted to $1,047,000.
85
This measure is not very satisfying because it contains no indication of how many people
actually read, heard, or recalled the message and what they thought afterward; nor does it
contain information on the net audience reached, because publications overlap in reader-ship. Because
publicity's goal is reach, not frequency, it would be more useful to know the
number of unduplicated exposures.
A better measure is the change in product awareness, comprehension, or attitude result-ing from the
MPR campaign (after allowing for the effect of other promotional tools). For
example, how many people recall hearing the news item? How many told others about it (a
measure of word of mouth)? How many changed their minds after hearing it?
Sales-and-profit impact is the most satisfactory measure. For example, 9-Lives cat food
sales increased 43 percent by the end of the Morris the Cat PR campaign. However, advertis-ing and
sales promotion had also been stepped up. Suppose total sales have increased by
$1.5 million, and management estimates that MPR contributed 15 percent of the total
increase. Then the return on MPR investment is calculated as follows:
Total sales increase
Estimated sales increase due to PR (15 percent)
Contribution margin on product sales (10 percent)
Total direct cost of MPR program
Contribution margin added by PR investment
Return on MPR investment ($12,500/$10,000)
$1,500,000
225,000
22,500
210,000
12,500
125%
PUBLIC RELATIONS AND PUBLICITY Marketers tend to underuse public relations, yet a
well-thought-out program coordinated with the other communications-mix elements can
be extremely effective. The appeal of public relations and publicity is based on three distinc-tive
qualities:
1. High credibility - News stories and features are more authentic and credible to readers
than ads.
2. Ability to catch buyers off guard- Public relations can reach prospects who prefer to
avoid salespeople and advertisements.
3. Dramatization - Public relations has the potential for dramatizing a company or product.

b.10. Direct Marketing
Direct marketing is the use of consumer-direct (CD) channels to reach and deliver goods
and services to customers without using marketing middlemen. These channels include
direct mail, catalogs, telemarketing, interactive TV, kiosks, Web sites, and mobile devices.
Direct marketers seek a measurable response, typically a customer order. This is some-times called
direct-order marketing. Today, many direct marketers use direct marketing to
build a long-term relationship with the customer.
2
They send birthday cards, information
materials, or small premiums to certain customers. Airlines, hotels, and other businesses
build strong customer relationships through frequency award programs and club programs.
Direct marketing is one of the fastest-growing avenues for serving customers. More and
more business marketers have turned to direct mail and telemarketing in response to the
high and increasing costs of reaching business markets through a sales force. In total, sales
from direct marketing generate almost 9 percent of the U.S. economy.
3
In addition to trying to increase sales force productivity, companies are seeking to substitute
mail- and phone-based selling units to reduce field sales expenses. Sales produced through tra-ditional
direct-marketing channels (catalogs, direct mail, and telemarketing) have been grow-ing rapidly.
Whereas U.S. retail sales grow around 3 percent annually, catalog and direct-mail
sales grow at about double that rate. Direct sales include sales to the consumer market (53 per-cent),
B2B (27 percent), and fund-raising by charitable institutions (20 percent). Total media
expenditures for direct marketing in 2000 (including direct mail, telephone, broadcast, Internet,
newspaper, magazine, etc.) has been estimated at $236.3 billion.
4
Figure 19.1 provides a break-down of the various types of direct marketing.
The Benefits of Direct Marketing
The extraordinary growth of direct marketing is the result of many factors. Market demassi-fication has
resulted in an ever-increasing number of market niches. Higher costs of driving,
traffic congestion, parking headaches, lack of time, a shortage of retail sales help, and lines
at checkout counters all encourage at-home shopping. Consumers appreciate toll-free
phone numbers and Web sites available 24 hours a day, 7 days a week, and direct marketers'
commitment to customer service. The growth of next-day delivery via FedEx, Airborne, and
UPS has made ordering fast and easy. In addition, many chain stores have dropped slower-moving
specialty items, creating an opportunity for direct marketers to promote these items
to interested buyers. The growth of the Internet, e-mail, mobile phones, and fax machines
has made product selection and ordering much simpler.
Direct marketing benefits customers in many ways. Home shopping can be fun, convenient,
and hassle-free. It saves time and introduces consumers to a larger selection of merchandise.
They can do comparative shopping by browsing through mail catalogs and online shopping services.
They can order goods for themselves or others. Business customers also benefit by
learning about available products and services without tying up time in meeting salespeople.
Sellers benefit as well. Direct marketers can buy a mailing list containing the names of
almost any group: left-handed people, overweight people, millionaires. They can customize
and personalize messages. Direct marketers can build a continuous relationship with each
customer. The parents of a newborn baby will receive periodic mailings describing new
clothes, toys, and other goods as the child grows.
Direct marketing can be timed to reach prospects at the right moment and receive higher
readership because it is sent to more interested prospects. Direct marketing permits the
testing of alternative media and messages in search of the most cost-effective approach.
Direct marketing also makes the direct marketer's offer and strategy less visible to competi-tors. Finally,
direct marketers can measure responses to their campaigns to decide which
have been the most profitable. (However, see "Marketing Memo: Public and Ethical Issues in
Direct Marketing.")
Direct marketers can use a number of channels to reach individual prospects and cus-tomers: direct
mail, catalog marketing, telemarketing, TV and other direct-response media,
kiosk marketing, and e-marketing.

Direct Mail
Direct-mail marketing involves sending an offer, announcement, reminder, or other item to a
person. Using highly selective mailing lists, direct marketers send out millions of mail pieces
each yearletters, flyers, foldouts, and other "salespeople with wings." Some direct mar-keters mail
audiotapes, videotapes, CDs, and computer diskettes to prospects and customers.
Direct mail is a popular medium because it permits target market selectivity, can be per-sonalized, is
flexible, and allows early testing and response measurement. Although the cost
per thousand people reached is higher than with mass media, the people reached are much
better prospects. Direct mail may be paper-based and handled by the U.S. Postal Service,
telegraphic services, or for-profit mail carriers such as FedEx, DHL, or Airborne Express.
Alternatively, marketers may employ fax mail, e-mail, or voice mail to sell direct.
Direct-mail marketing has passed through a number of stages:
E "Carpet bombing." Direct mailers gather or buy as many names as possible and send out
a mass mailing. Usually the response rate is very low.
Database marketing. Direct marketers mine the database to identify prospects who
would have the most interest in an offer.
a Interactive marketing. Direct marketers include a telephone number and Web address,
and offer to print coupons from the Web site. Recipients can contact the company with
questions. The company uses the interaction as an opportunity to up-sell, cross-sell, and
deepen the relationship.
B Real-time personalized marketing. Direct marketers know enough about each customer
to customize and personalize the offer and message.
Lifetime value marketing. Direct marketers develop a plan for lifetime marketing to each
valuable customer, based on knowledge of life events and transitions.
One company long recognized for its strong, beneficial focus on customers is Maine's
L.L. Bean, Inc., which sells outdoor/casual clothing and equipment through mail order,
online catalogs, and retail stores and factory outlets. To maximize customer satisfaction, the
company has an unequivocal, 100 percent guarantee for all purchases. Founder L.L. Bean
placed a notice on the wall of the Freeport store in 1916, which proclaimed, "I do not con-sider a sale
complete until goods are worn out and customer still satisfied." Bean even once
refunded the money on a pair of two-year-old shoes because the customer said the pair did
not wear as well as expected!
6
In constructing an effective direct-mail campaign, direct marketers must decide on their
objectives, target markets, and prospects; offer elements, means of testing the campaign,
and measures of campaign success.
)BJECTIVES Most direct marketers aim to receive an order from prospects. A campaign's
success is judged by the response rate. An order-response rate of 2 percent is normally con-sidered
good, although this number varies with product category and price. Direct mail can
achieve other communication objectives as well, such as producing prospect leads,
strengthening customer relationships, informing and educating customers, reminding cus-tomers of
offers, and reinforcing recent customer purchase decisions.
TARGET MARKETS AND PROSPECTS Direct marketers need to identify the characteristics
of prospects and customers who are most able, willing, and ready to buy. Most direct mar-keters apply
the R-F-M formula [recency, frequency, monetary amount) for rating and select-ing customers. For any
proposed offering, the company selects customers according to how
much time has passed since their last purchase, how many times they have purchased, and
how much they have spent since becoming a customer. Suppose the company is offering a
leather jacket. It might make this offer to customers who made their last purchase between
30 and 60 days ago, who make three to six purchases a year, and who have spent at least $100
since becoming customers. Points are established for varying R-F-M levels, and each cus-tomer is scored.
The higher the score, the more attractive the customer. The mailing is sent
only to the most attractive customers.
8
Prospects can also be identified on the basis of such variables as age, sex, income, educa-tion, and
previous mail-order purchases. Occasions provide a good departure point for seg-mentation. New
parents will be in the market for baby clothes and baby toys; college freshmen
will buy computers and small television sets; newlyweds will be looking for housing, furniture,
appliances, and bank loans. Another useful segmentation variable is consumer lifestyle or
"passion" groups, such as computer buffs, cooking buffs, and outdoor buffs. For business mar-kets, Dun
& Bradstreet operates an information service that provides a wealth of data.
In B2B direct marketing, the prospect is often not an individual but a group of people or
a committee that includes both decision makers and multiple decision influencers. See
"Marketing Memo: When Your Customer Is a Committee" for tips on crafting a direct-mail
campaign aimed at business buyers.
Once the target market is defined, the direct marketer needs to obtain specific names.
The company's best prospects are customers who have bought its products in the past.
Additional names can be obtained by advertising some free offer. The direct marketer can
also buy lists of names from list brokers, but these lists often have problems, including name
duplication, incomplete data, and obsolete addresses. The better lists include overlays of
demographic and psychographic information. Direct marketers typically buy and test a
sample before buying more names from the same list.
OFFER ELEMENTS Nash sees the offer strategy as consisting of five elementsthe product,
the offer, the medium, the distribution method, and the creative strategy.
9
Fortunately, all of
these elements can be tested.
In addition to these elements, the direct-mail marketer has to decide on five components
of the mailing itself: the outside envelope, sales letter, circular, reply form, and reply enve-lope. Here
are some findings:
1. The outside envelope will be more effective if it contains an illustration, preferably in
color, or a catchy reason to open the envelope, such as the announcement of a contest, premium, or
benefit. Envelopes are more effective when they contain a colorful com-memorative stamp, when the
address is hand-typed or handwritten, and when the enve-lope differs in size or shape from standard
envelopes.
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2. The sales letter should use a personal salutation and start with a headline in bold type.
The letter should be printed on good-quality paper and be brief. A computer-typed let-ter usually
outperforms a printed letter, and the presence of a pithy P.S. increases the
response rate, as does the signature of someone whose title is important.
3. In most cases, a colorful circular accompanying the letter will increase the response rate
by more than its cost.
4. Direct mailers should feature a toll-free number and also send recipients to their Web
site. Coupons should be printed out at the Web site.
5. The inclusion of a postage-free reply envelope will dramatically increase the response rate.
Direct mail should be followed up by an e-mail, which is less expensive and less intrusive
than a telemarketing call.
TESTING ELEMENTS One of the great advantages of direct marketing is the ability to test,
under real marketplace conditions, different elements of an offer strategy, such as products,
product features, copy platform, mailer type, envelope, prices, or mailing lists.
Direct marketers must remember that response rates typically understate a campaign's
long-term impact. Suppose only 2 percent of the recipients who receive a direct-mail piece
advertising Samsonite luggage place an older. A much larger percentage became aware of
the product (direct mail has high readership), and some percentage may have formed an
intention to buy at a later date (either by mail or at a retail outlet). Furthermore, some of
them may mention Samsonite luggage to others as a result of the direct-mail piece. To derive
a more comprehensive estimate of the promotion's impact, some companies are measuring
the impact of direct marketing on awareness, intention to buy, and word of mouth.
MEASURING CAMPAIGN SUCCESS: LIFETIME VALUE By adding up the planned cam-paign costs, the
direct marketer can figure out in advance the needed break-even response
rate. This rate must be net of returned merchandise and bad debts. Returned merchandise
can kill an otherwise effective campaign. The direct marketer needs to analyze the main
causes of returned merchandise (late shipment, defective merchandise, damage in transit,
not as advertised, incorrect order fulfillment).
By carefully analyzing past campaigns, direct marketers can steadily improve performance.
Even when a specific campaign fails to break even in the short run, it can still be profitable in
the long run if customer lifetime is factored in (see Chapter 5). A customer's ultimate value is
not revealed by a purchase response to a particular mailing. Rather, it is the expected profit
made on all future purchases net of customer acquisition and maintenance costs. For an aver-age
customer, one would calculate the average customer longevity, average customer annual
expenditure, and average gross margin, minus the average cost of customer acquisition and
maintenance (properly discounted for the opportunity cost of money).
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Catalog Marketing
In catalog marketing, companies may send full-line merchandise catalogs, specialty consumer
catalogs, and business catalogs, usually in print form but also sometimes as CDs, videos, or
online. JCPenney and Spiegel send general merchandise catalogs. Victoria's Secret and Saks
Fifth Avenue send specialty clothing catalogs to the upper-middle-class market. Through their
catalogs, Avon sells cosmetics, W R. Grace sells cheese, and IKEA sells furniture. Many of these
direct marketers have found that combining catalogs and Web sites can be an effective way to
sell. Thousands of small businesses also issue specialty catalogs. Large businesses such as
Grainger, Merck, and others send catalogs to business prospects and customers.
Catalogs are a huge businessabout 71 percent of Americans shop from home using cat-alogs by
phone, mail, and Internet. They spent an average of $149 per catalog order in 2002.
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The success of a catalog business depends on the company's ability to manage its customer
lists carefully so that there is little duplication or bad debts, to control its inventory carefully,
to offer quality merchandise so that returns are low, and to project a distinctive image. Some
companies distinguish their catalogs by adding literary or information features, sending
swatches of materials, operating a special hot line to answer questions, sending gifts to their
best customers, and donating a percentage of the profits to good causes.
Global consumers in Asia and Europe are catching on to the catalog craze. In the 1990s,
U.S. catalog companies such as L.L. Bean, Lands' End, Eddie Bauer, and Patagonia began
setting up operations in Japanand with great success. In just a few years foreign catalogs
mostly from the United States and a few from Europehave won 5 percent of the $20 billion
Japanese mail-order catalog market. A full 90 percent of L.L. Bean's international sales come
from Japan. Consumer catalog companies such as Tiffany & Co., Patagonia, Eddie Bauer, and
Lands' End are also entering Europe.
Business marketers are making inroads as well. Sales to foreign (mainly European) mar-kets have driven
earnings increases at Viking Office Products and computer and network
equipment cataloger Black Box Corporation. Viking has had success in Europe because,
unlike the United States, Europe has fewer superstores and is very receptive to mail order.
Black Box owes much of its international growth to its customer service policies, which are
unmatched in Europe.
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By putting their entire catalogs online, catalog companies have bet-ter access to global consumers than
ever before, and save considerable printing and mailing
costs in the process.
Telemarketing
Telemarketing is the use of the telephone and call centers to attract prospects, sell to exist-ing
customers, and provide service by taking orders and answering questions. Telemarketing
helps companies increase revenue, reduce selling costs, and improve customer satisfaction.
Companies use call centers for inbound telemarketing (receiving calls from customers) and
outbound telemarketing (initiating calls to prospects and customers). In fact, companies
carry out four types of telemarketing:
a Telesales. Taking orders from catalogs or ads and also doing outbound calling. They can
cross-sell the company's other products, upgrade orders, introduce new products, open new
accounts, and reactivate former accounts
s Telecoverage. Calling customers to maintain and nurture key account relationships and
give more attention to neglected accounts.
a Teleprospecting. Generating and qualifying new leads for closure by another sales channel.
E Customer service and technical support. Answering service and technical questions.
Although telemarketing has become a major direct-marketing tool, its sometimes intrusive
nature led to the establishment by the Federal Trade Commission of a National Do Not Call
Registry in October 2003 so that consumers could indicate if they did not want telemarketers
to call them at home. Only political organizations, charities, telephone surveyors, or compa-nies with
existing relationships with consumers were exempt.
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Telemarketing is increasingly used in business as well as consumer marketing. Raleigh
Bicycles uses telemarketing to reduce the amount of personal selling needed for contacting
its dealers. In the first year, sales force travel costs were reduced by 50 percent and sales in a
single quarter went up 34 percent. Telemarketing, as it improves with the use of video-phones, will
increasingly replace, though never eliminate, more expensive field sales calls.
An increasing number of salespeople have made five- and six-figure sales without ever meet-ing the
customer face-to-face. Effective telemarketing depends on choosing the right tele-marketers, training
them well, and providing performance incentives. Here is an example of
successful telemarketing.
Other Media for Direct-Response Marketing
Direct marketers use all the major media to make offers to potential buyers. Newspapers
and magazines carry abundant print ads offering books, articles of clothing, appliances,
vacations, and other goods and services that individuals can order by dialing a toll-free
number. Radio ads present offers to listeners 24 hours a day.
TELEVISION Television is used by direct marketers in several ways:
1. Direct-response advertising -Some companies prepare 30- and 60-minute infomercials
that attempt to combine the sell of commercials with the draw of educational informa-tion and
entertainment. Infomercials can be seen as a cross between a sales call and a
television ad and cost roughly $250,000 to $500,000 to make. A number of people have
become famous with late-night channel switchers (e.g., Tony Robbins, Victoria Principal,
and Kathy Smith). Increasingly, companies selling products that are complicated, tech-nologically
advanced, or simply require a great deal of explanation are turning to
infomercials (Callaway Golf, Carnival Cruises, Mercedes, Microsoft, Philips Electronics,
Universal Studios, and even the online job search site, Monster.com).
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They share the product's story and benefits with millions of additional prospects at a cost-per-lead or
cost-per-order that usually matches or beats direct mail or print ads.
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2. At-home shopping channels - Some television channels are dedicated to selling goods
and services. On Home Shopping Network (HSN), which broadcasts 24 hours a day, the
program's hosts offer bargain prices on such products as clothing, jewelry, lamps, col-lectible dolls, and
power tools. Viewers call in orders on a toll-free number and receive
delivery within 48 hours. Millions of adults watch home shopping programs, and close to
half of them buy merchandise.
3. Videotext and interactive TV- The consumer's TV set is linked with a seller's catalog by
cable or telephone lines. Consumers can place orders via a special keyboard device con-nected to the
system. Much research is now going on to combine TV, telephones, and
computers into interactive TV
KIOSK MARKETING A kiosk is a small building or structure that might house a selling or
information unit. The name describes newsstands, refreshment stands, and free-standing
carts whose vendors sell watches, costume jewelry, and other items. The carts appear in bus
and rail stations and along aisles in a mall. The term also covers computer-linked vending
machines and "customer-order-placing machines" in stores, airports, and other locations.
All of these are direct-selling tools. Some marketers have adapted the self-service feature of
kiosks to their businesses. Continental Airlines found that 66 percent of its U.S. passengers
checked themselves in via kiosks with a mean check-in time of only 66 seconds with bags
and 30 seconds without bags. McDonald's found that customers who used its kiosks to order
spent 30 percent more per order.
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