Fueling the Little Engine That Could
Summer Gould’s recent useful article, “How Direct Mail Is Your Little Engine That Could,” is a helpful reminder for those of us who like to believe we are always at the leading edge of technology-driven marketing. In our compulsion to always be in the fast lane, it’s easy to forget that once upon a time, direct mail was our principal medium of marketing communications and not incidentally, made some of its best practitioners millionaires.
That said, it is also worth recognizing that while the little engine can chug along and “snail mail” gives us the opportunity to put varied and interesting messages into the hands of potential consumers, that little engine needs a good deal of fuel and that fuel is increasingly expensive. According to Ms. Gould: “The average prospect needs to see your mail piece seven to 10 times before buying from you. So a well-planned direct mail program includes multiple drops with various mailers and postcards.”
That’s an expensive statement and raises the question: How much fuel do we need to get the little engine up and over the hill to bring us an order? Perhaps Gould is being too pessimistic. Seven to 10 mailings to get a purchase is almost certain to be wildly expensive and not economic unless your product is very, very expensive.
One way of looking at this is to calculate the cost-per-order (CPO) at different response rates and numbers of mailings to reach the desired response. In this case, 44 sales. Using Bizo and Epsilon data, the DMA’s benchmark says that “direct mail achieves a 4.4 percent response rate.” While that is a higher average return than is informed by my experience, let’s go with it, anyway.
As we can see, direct mail at a 4.4 percent response rate, for every thousand mailed at a total cost of $1,000 per thousand, the marketer would have 44 orders on a single mailing, each costing $22.73. Assuming he could afford to spend 25 percent of his revenue for marketing, he would need at least a $91 or higher product price to justify just a single mailing. Each one thousand mailing would cost the marketer about $1,000. Whether we like it or not, that’s the cost of the little engine’s fuel. And if he had to mail the prospect three times to get the same 44 orders, his order cost would rise to $68.18 which would suggest that his product selling price would have to exceed $250.
On a CPM basis, as we know, email is likely to be only approximately 1/10 as expensive. Email costs are so varied that it is difficult to establish meaningful comparisons, but $10 per thousand emails sent is as good a rule of thumb as any. Using as our baseline industry average open and “clickthrough” rates, we see that to achieve that same 44 sales, converting clickthroughs to sales at 70 percent, it would be necessary to email 10 times. Even so, the total bottom-line cost would be only just under $100.
In this head-to-head comparison, on the basis of pure cost and response, the little engine would have been overwhelmingly beaten by email. The risk:reward ratios certainly favor email.
As we all know, CPO is only one variable. Of high importance is the comparative ease and speed of email, the ability to test quickly and accurately with small quantities and best of all, the ready availability of comprehensive data permitting large quantities to be analyzed and segmented quickly and easily. But as the figures demonstrate, just opting for email because it is much “cheaper per thousand” doesn’t address the key marketing economic issue: How much do we have to pay for an order and can we afford it? Looking at the entire smorgasbord of media from this perspective is essential.
While marketing costs per thousand and response percentages follow more or less predictable patterns, how much any product or service, single sale, continuing sale or subscription can afford to acquire a new customer depends totally on its own economics; how much the marketer is prepared to risk and how soon he expects to get his investment back.
Direct mail may well be the little engine of choice for many good reasons. But before taking a ride on it, it would be prudent to compare its costs and risks to other media.
Peter J. Rosenwald is an expat American living and working in Brazil; founder and first CEO of Wunderman Worldwide, International Division of Wunderman agency) and first chairman of Saatchi & Saatchi Direct Worldwide; strategist and senior executive in charge of building subscription and data-driven marketing for Editora Abril, Latin America's leading magazine publisher; founder of Consult Partners, active strategic marketing consultancy working in Brazil, U.S. and U.K. International keynote speaker on data-driven marketing and author of "Accountable Marketing" (Thomson), "Profiting From the Magic of Marketing Metrics" (Direct Marketing IQ), and "GringoView" blog author for Brazilian Huffington Post. With an international perspective, my blog's purpose is to share my maverick views of this business I've spent the last half-century working in, enjoying and observing.