Lecture 12 Part 2

Cost Per Thousand (CPM).On a cost-per-thousand basis, Direct Marketing is far more expensive than other forms of advertising. The previous lecture on Internet Marketing listed some of the CPM prices for various media, and there is no comparison between them and Direct Marketing. Furthermore, with postage rising on a fairly regular basis, the CPM figure keeps rising as well.
Costs of Production. Consider that a catalog may cost more than $1 to print in four colors. Then, add up to 50 cents for bulk mailing. For 1000 exposures, the cost would be over $1500, which is 80 to 100 times as expensive as newspaper advertising.

But that's not all. Production costs for a catalog can run into many thousands of dollars. Photography, models, typesetting, and layout are not cheap. In addition, the priuce of paper has nearly doubled in the past two years, adding even more expense.

As stated above, though, in spite of extraordinary expenses, Direct Marketing is still seen as a very effective use of funds.

Short Life of Databases. A database is only as good as the freshness of its data. It is estimated that between 15- and 20-percent of American households change addresses each year. Thus, a database can be outdated before it is even used. Direct Marketing is nearly always sent via bulk mail (because it is cheaper), but bulk mail is not forwarded, meaning it gets delivered to the labeled address regardless of who is living there. Unless the recipient makes a purchase, the Marketer has wasted the cost of printing and mailing, as well as the cost-per-name of the database.
The Throw-Away Problem. Direct Marketing delivered by mail is often considered to be "junk mail," and hence winds up in the trash, frequently without even being perused. For this reason, many Direct Marketers are willing to incur the expense of catalogs because consumers are more likely to view the catalogs as "keepers," meaning they will put them in the magazine rack for a while, and refer to them more than once. A letter, on the other hand, is not worth keeping, nor are the "envelope stuffers" that come with credit card bills.
Customer Apprehension. Many consumers are still apprehensive about buying things through the mail, over the phone, or on the Internet. Concerns about security as well as fears about getting the wrong size, or even damaged merchandise, keep many people from purchasing from nonstore retailers. Much of this apprehension is baseless, because virtually anything can be delivered via the different couriers and truck lines. And if something does need to be returned, for whatever reason, it is not infeasible to do so. Still, the fear of receiving unacceptable merchandise, as well no desire to have to deal with returns, keep people from shopping in this manner. Furthermore, until Marketers can fully convince people that their credit card numbers are safe, shopping via the Internet will only be a novelty for the few (currently one-third of Internet users) who have bravely submitted their orders online.
Customer Sensory Deprivation. With nearly every form of Direct Marketing, consumers are deprived of their five senses. They cannot see the product in front of them, and cannot view it from multiple angles; they cannot feel the product; they cannot taste the product (if it is edible); they cannot hear the product (if it is audible); and they cannot smell the product. Furthermore, they cannot try on the product for fit, nor can they see how the product would look on them, or in their home. In other words, much is left to the imagination of the consumer. The best photography, TV demonstration, or written description do not compare to the ability to utilize one's senses in direct contact with the product.
Low Response Rates. One of the biggest hazards of Direct Marketing is the very low response rate. Given the short life of databases, as well as the throw-away problem, it is not unlikely to achieve even a one-percent response rate.

But while this may sound terribly depressing, one-percent could still prove to be quite profitable, especially if the base is large enough. For example, one-percent of one million is still 10,000, and if each person orders $100, the revenues would be $1,000,000. Furthermore, if great care has been taken in selecting the recipients of the mailings, the response rate can be improved upon, as well as the amount spent per purchase.

In spite of these frequently low rates, DMs are undaunted, and remain willing to continue their quest.

The Future of Direct Marketing

The future of Direct Marketing is very positive. Given the increasingly hectic nature of American lives, people will welcome with open arms shopping alternatives that do not take as much time as more traditional methods. They will also embrace the fact that shopping can be done from the comfort of their home at any hour of the day, and, in many cases, through the technological convenience of the Internet.

This does not mean, however, that all forms of Direct Marketing will flourish. Of the various methods discussed in this lecture, Catalog Marketing, TV Direct Response, and Internet Marketing seem poised to make the biggest gains in the years to come.

As for the market share of Direct Marketing versus traditional retailing, it is doubtful that the former could ever be much more than the forecasted one-third. Too many types of products require in-person shopping. Furthermore, most people actually like to shop at one time or another, because it is a social activity. Finally, some products, like groceries, which certainly could be purchased via the Internet, are often best bought personally because consumers can't thump melons or squeeze the Charmin through their modems.

In other words, traditional retailers are fairly safe from being overtaken by the DMs, but they must certainly be aware of the inroads they are making. Even 15- to 20-percent of the market is a sizeable chunk percentage-wise and revenue-wise for retailers to be able to absorb. The inherent advantages of Direct Marketing outweigh the disadvantages in many cases, allowing the DMs to continue to nibble away at traditional retailers' dominance. Direct Marketing will continue to be a strong complement to traditional retailing, but never a real substitute.

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