Celebrating 25 Years of Change
By Alicia Orr Suman
Spring 1978. The first issue of ZIP magazine hit the mail. And on the cover of that predecessor to this magazine were the faces of men and women—"Some Leaders in the Direct Marketing Field," stated the headline.
The features listed in the Table of Contents of that premier issue (right) have an eerie resemblance to the subjects we now cover 25 years later:
• What Is the Future of the Postal Service?
• Personal Privacy in an Information Society
• Facsimile Machines, For the Office of the Future
• Computer Networks: The New Information Robots
• Alternate Delivery: Post-Mortem for the USPS?
• How Can They Sell My Name?
Many of the above-mentioned articles have a foundation in technology. While this is not an article about technology, there's no doubt that technology undeniably has been the linchpin of change in the direct marketing industry in the past 25 years. Indeed, it has touched every facet of the field.
Consider just a few developments: the personal computer; database modeling and analytics; the predictive dialer and interactive voice response; digital photography; desktop publishing; and of course, the Internet.
Mike Hail, special vice president of Yankelovich and the founder of the IRent America file, puts it succinctly: "I hesitate to say that technology is the foundation for all of my comments, but sometimes it feels true. The presence of [marketing] information is possible due to the incredible increase in storage capacity for each dollar of capital expenditure."
Russell Kern, president, Kern Direct, concurs, adding that in the last 25 years, "The computer has been the greatest change-agent in our industry. From punch cards, to mag tape, to FTP sites for data exchanges, data continues to be the single most important aspect of the business. And our ability to manage and manipulate it continues to increase and get simpler and cheaper."
So as we did in that first issue a quarter century ago, we turn to some of the industry's leaders for insights into what has changed, what has remained constant, and what strategies we should be employing to ensure the continued success of direct marketing.
The Birth of the Marketing Database
Looking back 25 years, Jock Bickert, CEO of Looking Glass, recalls: "The term 'database' wasn't even used then. There were compiled lists from companies like Polk and Metromail, but they were very narrow in their usage. There was no direct response information. Also missing was any demographic information other than the very basics."
Bickert founded National Demographics & Lifestyles (NDL) in 1975 to provide these type of data to consumer-products manufacturers. "NDL's Lifestyle Selector database paved the way for other database products like InfoBase."
He continues, "Another thing that arose was the idea that we could overlay our data to a mailer's list and be able to profile the names on that list. Also, at that point, there was a growing trend in the statistical application of data and response modeling."
Catalog consultant Jack Schmid, president of J. Schmid & Associates, agrees. "The development of the co-op database—The Lifestyle Selector concept, and then Tony White's Abacus that grew out of it—was one of the most significant developments of the last quarter century. The ability to find new customers, to profile existing ones, to take your gift recipients and go in and model them, then find the 40 percent to 50 percent who will exceed breakeven is a big breakthrough for catalogers. And it continues to work exceedingly well."
Since that time, the sophistication of database marketing has increased enormously with innovations in software such as the neural network. There are great possibilities for marketers who tap into the technology to manipulate and analyze data. But in many industry segments, database marketing is not being used to its full potential.
Future strategy: As Bickert says, "For the last six or seven years, we've been saying it's not enough to identify your subgroups; you must tailor your marketing. But still a lot of companies aren't doing it. I think it was Lester Wunderman who back in the early 1990s said that we spend hundreds of thousands of dollars to identify key segments, and then we send everyone the same message. What a waste."
The Bifurcation of Outbound Telemarketing
Consultant Liz Kislik, president of Liz Kislik Associates, recalls that when she started working in the telemarketing industry in 1977 as a rep, "Consumers used to love getting outbound calls. That a big company cared enough to call them was a thrill."
At CCI, where she worked for Murray Roman, Kislik says, "I learned [outbound telemarketing] as a marketing medium. Today, too many people think of outbound as an operations function."
Outbound's early success also has led to its downfall, Kislik asserts. Thanks to call center technology and an expanding list universe, Kislik says, "It became easy to do it [outbound telemarketing] in a sloppy way. Before, when you did list selection you could only go so far and still have your program be profitable." Now, she says, marketers can dig deeper into a file to where it's no longer smart marketing.
Herschell Gordon Lewis, the famed copywriter, agrees. "Telemarketing was such a hot item in the '70s, and it has slowly sunk into the sea due to negative publicity ... and that's helped to propel e-mail marketing."
Kislik concludes, "I see it as bifurcating. The short-sighted companies that persist in 'grinded-out' telemarketing are tainting the industry. But there will always be companies that do it well and are sophisticated. It's not a cheap medium, but it can have a positive impact when it's done right."
Future Strategy: The key to overcoming the stigma associated with outbound telemarketing, whether you're using the phone for sales or service, is to be customer-focused, Kislik suggests. "The continued viability of telemarketing is dependent on us being customer-focused instead of cost-focused. No marketer should be planning any application—inbound or outbound—before thinking of customer value."
Another important factor, Kislik points out, is that marketers go to extremes on branding and image in their advertising and marketing. "But are they making sure that carries over to the call center?"
Enter the PC
The incorporation of massive computing power has revolutionized the way direct marketers operate. Explains Pete Bather, vice president of marketing, The Company Store catalog, "It has allowed us to manage the increased complexities of our business very efficiently. I am astounded every day at our abilities to leverage data to make good business decisions."
As an analyst at Fingerhut in the early 1980s, Bather recalls, "We had one PC for the department. I remember taking stacks of papers home with me to perform break-even calculations using a 10 key. Today my marketing staff at The Company Store can do 50 times what I could do 20 years ago."
As a result, he adds, "We make much better, informed decisions today. Clearly, sophisticated database marketing has had a great impact on mailing decisions and has increased response rates significantly."
However, Bather suggests that the biggest benefit of the computer is in the simple, PC-based, decision-
support tools. "My team can produce P&Ls, multiple scenarios, slice-and-dice test results etc., with simple Excel spreadsheets instantly—work that 20 years ago would have taken me a month."
Kislik agrees that in many ways computers have made things easier. But she cautions, "At the same time we've lost something important that we had in those early days."
She explains: "I was a supervisor in the pre-computer age. When we sorted papers by hand, there was a visceral quality to the job. You'd see the orders, the undeliverables. Now you read a report, a tidy little spreadsheet. The quality of learning from the process is no longer there."
The benefits of the PC are that you can process huge quantities of information very quickly. Plus, you can manipulate data and see results much faster. But there's a potential pitfall to using computers, and that is to expect the computer to do the thinking instead of the processing.
Future Strategy: Before buying a pre-formed system or even having one built for you, think about what you really need. What information would help you make smarter marketing decisions and ultimately help your business become more profitable?
The Internet—All That It Is and Isn't
There's no denying the dramatic impact the Internet has had on direct marketing since the mid-1990s. It enables customer communication for a much lower cost than through the mail or by the phone. Particularly in the catalog industry, "It helped regenerate customers in this mature market," says Schmid.
On the flip side, "We've seen the failure of the pure-play netalog. So, no, the 'Net is not going to kill the print catalog," Schmid asserts.
Herschell Gordon Lewis says that in its early days the Internet was enormously unsophisticated about the use of information and targeting. "There was a real arrogance, and few of the providers had any direct marketing knowledge. About a year ago, providers started to realize direct marketing's importance to the 'Net."
Bill Dean, president of the catalog consulting firm W.A. Dean & Associates, says that the limiting factor of the Web is bandwidth. "It's still a technological issue. Seventy percent to 80 percent of us are still on a 56K dial-up modem. Maybe in five years we might see an explosion in e-commerce when the technology catches up."
Another challenge with Web cataloging, Dean says, is that 50 percent of the people who shop from a Web catalog once never shop your Web catalog again. "We need to get more of the one-time people to shop again online. It's a share-of-wallet issue."
Bather notes that the most dramatic change direct marketers have faced is the need to navigate in multiple channels. "Most companies have had to learn how to deal with the added complexity of selling in some combination of catalogs, Internet and retail stores," he says. "Optimization of the channels in total becomes very difficult."
Many companies assumed when they put up their sites that customers would do self service, and then they could cut back drastically on their call centers, says Kislik. In many cases, the opposite has happened. "It requires systems and integration."
Future Strategy: Marketers need to learn to work with the technology by forcing themselves to play customer and not leave it to the tech experts. This is the only way to ensure that the technology you put in front of the customer works and that it makes sense.
Proactive on Privacy
The debut issue of ZIP magazine reported: "List users find themselves in a unique position in 1978. They have been challenged by a Commission of the United States government to prove that through voluntary action they can address and alleviate the concerns of individuals about the rental of their names and the receipt of unsolicited mail."
Says Dean, "We need to be more mindful of the consumer's privacy, because the world is becoming more invasive. We need to use more sensitivity and learn to work within that environment."
The debate between "targeting" and privacy will continue to rage, suggests Mike Hail. "A set of rules will be established, and I doubt that self regulation will be the choice."
In telemarketing, privacy encompasses a different set of problems. Kislik explains, "Much of what happened with privacy and telemarketing came out of the annoyance factor. People were getting more stress at work, and at home they were being bombarded with more media messages, when what they wanted was to do what Faith Popcorn called 'nesting' at home. Those calls really became an intrusion."
Future Strategy: Privacy is an ongoing battle to be fought with care. "We, the direct marketers, must learn to create a more emotionally satisfying connection for our customers," Hail says.
Interestingly enough, he adds, "the development of a clear consumer profile based on deep databases is the path to this understanding—what does the consumer want, when do they want it and which channel is their preference. If we do not respond, then the consumer will continue to invent more barriers to our messages—answering machines, do-not-call lists or possibly the death bell for customer acquisition: no unrequested solicitations.
"If we don't convince consumers," Hail continues, "that we do wish to acknowledge their preferences and will restrain our commercial message flow, then we may forfeit all control in this area."
Telemarketers need to think before they call, Kislik suggests. "Is this call really important? Is there really a benefit to the consumer?"
Make sure there really is a match between the list and the offer, regardless of the medium used. Privacy regulation could really hurt the list business—and mailers as a result. "I'm a little troubled by the list business's lack of involvement in government affairs," say Brian Kurtz, executive vice president of publisher Boardroom. "Anything we can do to help the industry—lobbying, being active in The DMA [Direct Marketing Association] councils—we should be doing."
Time for a Second Look at Alternate Media
Alternative print media, such as package inserts, co-op mailings, free-standing inserts (FSIs) and statement stuffers first became popular in the 1970s, according to Leon Henry, president of Leon Henry Inc. But during the high-growth 1990s, these less-than-glamorous media were abandoned by many marketers who were busy testing new media.
Henry, one of the first to broker alternate media, says, "The insert or alternative print media has continued its merry way as a distinct medium." Unfortunately, he says, alternate media remains "under the radar" for too many mailers.
"Alternative media have gotten short shrift," affirms Jack Schmid. "People are running out of names; you can only get so far renting names."
Dean adds, "Look at the big catalogs; they're all using alternate media. They have realized you can't just keep mailing the same names and expect to grow."
In the publishing market, Boardroom has had long-standing success using alternate media to generate new names. "Package inserts, statement stuffers, space ads—all have worked for us," says Kurtz.
Future Strategy: As Schmid points out, "I don't think we're going to see another 1990s; we're likely to see a much more modest rate of growth. So the question is, how do you grow your company, or sustain growth in a mature market? One area catalogers should be looking to for new business is alternate media. It's time to go back and look at package inserts, space ads and FSIs."
Kurtz's advice to other mailers: "Go back and retest the ones [alternate media] you haven't used for a while."
E-mail vs. Post
When it comes to postage costs, marketers have long lamented that they have little control over this huge line item on their mailing budgets. "Postage has been a constant drain," says Kurtz. "We, as mailers, are basically held prisoner by the Postal Service." He adds, "Postal rates go right to the bottom line."
Hail believes a major trend taking place in the direct marketing industry is the move of more communications to e-mail. "The constant increases in postal [rates] will drive us to the e-mail format. We need to communicate with our customers, and the economics push us to the electronic version."
Herschell Gordon Lewis goes so far as to suggest, "E-mail is becoming the dominant marketing medium."
Schmid also says he's witnessing more mail being replaced by e-mail campaigns. "E-mail may result in lower mail volume. The whole postal system is going to have to change as a result of e-mail," Schmid asserts.
Future Strategy: While mail very likely will remain the primary delivery mechanism for many direct marketers' messages, other options should not be ignored.
"Test and see how many mail efforts you may be able to eliminate by using e-mail campaigns in between," suggests Schmid. "A cataloger may go from 12 mailings to nine times a year, and do an e-mail in between each."
Lewis was one of the first to use different copy platforms for different messages to different segments. "But even today, too many direct marketers are not taking advantage of database technology [in their creative execution]. In three, four or five years, the industry will catch up," he predicts.
Another trend impacting creative direction, says Lewis: "There's a new set of parameters we're all having to work under—the increasing informality of communication, the need for increasingly emphatic persuasion. Subtlety is out. Consumers want proof. There's a lot of skepticism."
Copywriter Ken Schneider suggests mailers continue to test the tried-and-true creative elements. "Strong outers, strong headlines, consumer benefits, Johnson boxes, involvement devices—we know from testing that these will still work. We should be constantly revisiting old controls for ideas to test."
The personalization that direct marketers today take for granted did not exist in the 1970s. Technology has allowed us to consider one-to-one marketing, claims Hail.
Schmid agrees that the application of database management techniques to creative still is important. A big change to catalog creative, Schmid adds, has been an evolutionary one, and that's the whole improvement of the creative production process. "Direct to plate [printing], digital photography, personalized covers, the ability to do personalized letters and dot whacks—production capabilities have grown to enable us to better communicate with customers through the catalog and direct mail media."
Future Strategy: Don't abandon tried-and-true techniques just because there's a newfangled way of doing something. Invariably, a benefit headline will bring more response than a flat, 'This is what it is' headline," asserts Lewis.
And as Russell Kern points out, sometimes marketers lose respect for the hard copy response. "Believe it or not, the good old fashion BRC [business reply card] remains important. People still want to drop something in the mail, because it's quick, simple and easy."
The good news is the world's eyes have been opened to direct marketing. "We're no longer the poor stepchild," says Lewis. "We've become mainstream."
However, don't expect direct marketing to become any easier. In fact, marketing has become more difficult in the past 25 years. Increased market competition means a consumer has thousands of choices.
As Mike Hail explains, "Consumers are seeking control of their shopping experience. They feel targeted, message-saturated and dissatisfied with the current marketing environment."
Technology can provide helpful tools for getting the job done, but it won't do the job for you. That requires people and marketing practitioners who understand the foundations of direct response and can apply them to the complex world of the 21st century.