“Write to reply”, David Reed’s piece on Marketing Week’s direct marketing research (December 13) suggests that direct marketing is about average response rates, cost per sale and cost per order. But it’s not. If you plan using these measures alone, you may go very badly wrong.
The article does not distinguish between responses which are leads and those which are orders. Similarly, customers and cold prospects can respond much more differently than the article suggests. For example, if you mail an offer for a subscription magazine to rented-in or “cold” lists, you may get a one-to-two per cent response. But if you mail your existing subscribers at renewal time, you may expect 70 per cent or more.
The average cost per item quoted in the article (46p) ranges from 28p from a very high volume campaign (421,000 items per mailing) to 1.35 for a lower volume (37,000 items). This tells you that unit costs in the mail generally fall with volume (no surprise), but not how much you can afford to spend.
One-to-two per cent response may be one direct marketer’s heaven. It’s sure also to be another’s hell. To know which, you need to calculate the return on investment from customers, usually based on the lifetime value of their relationship with your brand. This determines the affordable marketing cost.
Return on investment is also the most convenient way of comparing media. The best mix of mail, inserts, off-the-page, door-drops, etc is the one which maximises the total return on marketing spend. Comparing response rates does not tell you this. Likewise, cost per response or cost per sale may conceal huge profit differences between customers responding to one medium or another or, for that matter, to one offer or another.