Direct Marketing

&
Relationship Marketing

Whither Mass Marketing?

The evolution and gradual decline
of
Mass Marketing
 Two Centuries of
Scientific & Industrial Progress
Earlier, availability of goods & services was limited
selling was unstructured and very personal

The Industrial Revolution

Mass production
Mass distribution
Selling became a profession,
a planned, structured activity
Mass marketing
Mass communications
 Mass Marketing,
supported by mass communications,
has been around for a century

but

The tools and techniques of

Mass Marketing and Mass Communications
are no longer working well
They’ve gradually become inefficient,
wasteful and ineffective
 Unlike a few decades ago,
Mass Marketing & Mass Communications
can no longer be relied upon
to positively influence
consumer behaviour and brand choice
 Reasons?

 Plethora of “me too” brands

 Mass media has become cluttered with commercials
 Audiences are fragmented
 Almost impossible to differentiate brands on tangibles
 “Meaningful” perceptual differentiation difficult
 Rise & rise of consumer power, fuelled by the Internet
 Changing and increasingly stringent metrics of
marketing accountability and performance
 Personalized Marketing has been
providing better outcomes and
higher ROI on the marketing budget
From the perspective of the
marketers
 To counter the growing power of (large) retailers
 To give consumers a better experience, which they are
demanding
 To retain control of consumer experience rather than
being subject to retailers
 Relationship building
 Obtaining full benefit from data being generated
during search, transactions, interactions etc
 Direct Marketing
Interactive system of marketing using
one or more advertising media
to effect a measurable response and / or transaction
at any location
(Direct Marketing Association, UK)

A personalized, on-going and

mutually profitable relationship
between the marketer and the consumer
 Direct Marketing permits
a measurable response to marketing activities,
typically an order from a customer

It comprises all communications & activities

to create a two-way interaction
between the brand and identified customers / prospects
with the objective of achieving brand loyalty
 Direct Marketing
 Use of direct channels to interact with, and to deliver
products to, customers without traditional marketing
distribution channels (marketing middlemen)
 Direct marketing channels: direct mail / email,
websites, telemarketing, kiosks, mobile devices,
catalogue marketing, TV advertorials… supported by
delivery mechanisms
 Print media more difficult to use

Personal Marketing & Selling

making a come back in specific situations
 Direct Marketing
Direct Marketing is about creating
a relationship, a friendship
between a business and its customers

Remember
The probability of selling to
an existing “friendly” customer
is five to ten times more
than to a new “unknown entity”
The idea is to try and own the customer’s mind…
rather than trying to own the market segment
 Think
How many people do you know
who fit the following description?

A Lufthansa flier tends

to stick to Lufthansa
A Dell laptop buyer tends
to keep buying Dell

The Taj Hotels guest

keeps returning to the Taj
 Direct Marketing
Reasons for fast growth
Increasing costs + declining efficiency of traditional
marketing channels, including the sales force
Traditional marketing communication channels exhibit
similar inefficiency with zooming costs
Customers and prospects tend to ignore mass marketing
messages, leading to high wastage – “Selective Exposure” and
“Selective Attention”
Technological advances
Digital payments
Changing values, lifestyles etc
Advantages of Direct Marketing

Consumers
 Save time, driving, parking hassles
 Can browse and transact whenever convenient
 Delivery & payment methods can be customized –
home delivery, online payments add value
 Characteristics of Direct
Marketing
Marketers
 Save costs of getting retail display space, trade mark-ups
 Selective reach, better segmentation capabilities
 Appropriate frequency and time of contact
 Easy customization / personalization of messages, offers,
delivery time, payment methods, evaluation
But
 Image factors, irritation
 Content support
Direct Marketing

Permits customization of
Product
Offer
Message
Delivery method
Payment method
Media & Activities for Direct
Marketing
 Direct mail
 Email
 Catalogues
 Television including advertorials / infomercials
 Personal selling
 Phone marketing
 Print media – difficult but possible in
specialized vehicles
Multiple Vehicle Multiple Stage Direct Marketing
Publicity about new product

Print ad with response device

Direct mail

Outward telemarketing

Sales call

On-going communications
Direct Marketing helps to create and nurture
a friendly relationship
with prospects and customers

 5-10 calls needed to sell to qualified prospects…

only one or two to existing customers
 For someone who has never bought from you,
it might take 10-15 calls – they might still not buy
 Many markets are reaching a plateau…
rather than getting new customers, competitors
attempt to grab each others’ customers
 Remember: advertising can help build brands…
it may not protect against loss of customers
 As a market approaches maturity,
it becomes more and more difficult
to get new customers…

It’s difficult to get new customers from the late majority,

while laggards are poor prospects – even more difficult

With the passage of time,

marketers must either retain existing customers
or make up for their loss…
This is even before they can grow
 Loyal Customers
 Buy more frequently compared to new customers
 Keep returning to buy larger volumes
 Are cheaper and easier to serve
 Do not get easily attracted by competitive offers
 Become brand advocates – the best sales person
any marketer can hope for
 Provide useful insights and suggestions for product
development / improvement / modification
 Thus paving the way for higher loyalty, better retention
and easier acquisition of new customers
 Customer Loyalty

The higher the loyalty, the more the brand can

Retain and grow volumes and market share
Increase profits
Enhance future earnings
Earn respect from all concerned
Feel insured against loss of customers and volumes
 Direct Marketing

Some important concepts…

Customer Lifetime Value
RFM – Recency, Frequency, Monetary Value
Pareto Principle – the 80:20 phenomenon
 Customer Lifetime Value

What is the worth of a

typical, loyal customer?

How much revenue… how much profits

can the organization hope to earn from this customer?
 Customer Lifetime Value

Net present value of the cash flows attributed to

the relationship with a customer

CLV tends to place greater emphasis on

customer service and long-term customer satisfaction
rather than on maximizing short-term sales
 Customer Lifetime Value
Steps in calculating CLV
1.Forecasting of customer lifetime in years
2.Forecasting of future revenues year-by-year,
based on assumptions about future products
purchased and price paid
3.Estimation of costs to deliver these products
4.Calculation of the net present value of these
future revenues

Forecasting accuracy and difficulty in tracking customers over time

may affect CLV calculations
Life Time Value Calculations

Factors in LTV
1.Churn rate / Retention rate
(will these remain constant?)
2.Discount rate / Cost of capital
3.Contribution margins
4.Retention costs
5.Period of relationship
 R-F-M

 Recency: when did the customer buy last?

 Frequency: the interval between successive orders
 Monetary value: the average worth of the orders
The Pareto Principle

80:20 Rule
80% of your revenues / profits come from
20% of your customers

Identify them…
Pamper them…
Retain them!
Advertising & Direct Marketing

Both are techniques of Marketing Communications

Advertising works hard to build brands
Direct Marketing helps build customer loyalty
Both are needed in today’s marketplace