Target Practice

Tactical advertising objectives still take precedence over strategic aims for most retailers who use direct mail. However, preconceptions about the role of direct mail are changing, and most users are becoming less inclined to pigeonhole direct mail into purely short-term and tactical functions, according to a new study published by the Direct Mail Information Service (DMIS). Evidence of increasingly sophisticated attitudes towards direct mail, among the 101 major retailers questioned in the research, may be music to the ears of direct marketing agencies, but attitudes expressed are unlikely to be representative of the sector. To participate, companies had to be committed users of direct mail, defined as spending at least £40,000 a year on the medium and having used it for a minimum of two years. Only 16 per cent of all large retail companies met these criteria. This suggests that the majority of retailers have yet to be convinced of the benefits of making direct mail a major component of the media mix. The DMIS report is one in a series of studies assessing commitment and changing perceptions of direct mail among big advertisers. One motive for the report was to test the so-called “revolution in relationship marketing” and to assess the implications of this for retailers’ use of direct mail. Although only a minority of retailers saw direct mail as an effective tool for brand building, the research shows that the status of direct mail is increasing – at least among major advertisers that regularly use the medium. More than half the respondents saw direct mail as having the ability to increase customer loyalty and 72 per cent acknowledged it as being a fundamental tool for developing personal customer relationships. Not all the news is good. Perceived benefits of direct mail may be rising, but retailers often lack the marketing strategies to put them into effect. One example is media integration, which many retailers are failing to address, despite agreement that direct mail works best when it is part of a fully integrated communications strategy. Exploiting the strategic potential of direct mail is equally contradictory. While the majority of retailers conceded the ability of direct mail to deliver long-term objectives, such as customer relationship building, only a minority tracked whether this was happening in practice. Advertising objectives employed in the last two campaigns undertaken by the survey participants were weighted towards short-term goals, such as promoting short-term sales and enhancing product awareness. Strategic objectives, where employed, were more commonly ranked as being of secondary, rather than primary importance. On the plus side, the study identified a number of areas in which direct mail is gaining ground. Almost half the sample had spent more on below-the-line advertising over the past two years, and in 15 per cent of cases this had been at the expense of above-the-line budgets. However, the overall swing in budgets from above to below the line was fairly marginal, and reckoned at no more than three per cent of total advertising spend when applied to the sector as a whole. Greater accountability is the biggest factor that motivates retailers to switch budget from above- to below-the-line media. However, this benefit was most apparent in campaigns that had tactical objectives. When campaigns had strategic aims, most retailers still applied tactical response mechanisms to evaluate success, instead of using measures that were specifically designed to assess the longer-term impact of advertising activity. When no response mechanism was employed, as was the case in 16 per cent of campaigns, many retailers were unable to say whether or not their objectives had been met. Long-term impact Measuring short-term response rates to direct mail, through devices such as voucher redemption, is simpler than tracking the long-term impact of a communication on customer behaviour through control groups. But the issue cannot be ducked if direct mail is to continue expanding into the more strategic aspects of marketing, such as customer loyalty – and retain its unique ability to show the financial return to the business. “Measuring the long-term impact of direct mail on propensity to spend can be tricky, but unless the measurements are set up properly most of the benefit is lost,” says Homebase relationship marketing manager Cliff Hudson. Direct mail is also favoured because of its ability to target particular customer segments while retaining generic brand values. However, many retailers struggle to capitalise on this potential. More than half the respondents viewed targeting customers as a key challenge, and almost a quarter considered targeting prospects to be a prime objective. The implication that retailers are struggling to implement effective direct mail strategies is at odds with the reputation of major users of the medium, such as Tesco and Boots. However, as the DMIS study points out, many retailers are relative novices at using direct mail. One in five respondents had only acquired a marketing database within the past two years. A significant number saw the accuracy of rented lists and updating internal databases as key challenges – suggesting that they are still preoccupied with basic issues of data quality. Inadequate customer data is a barrier to effective targeting. But too much data can pose problems for stores that have invested in EPOS-based loyalty cards. Making sense of data requires careful sampling and a proper segmentation framework. Customer profiles Cost and improving the return on marketing investment were also big issues for the retailers included in the DMIS study – although it was unclear whether the respondents who cited cost as a major challenge were concerned with absolute cost, or improving cost effectiveness. Whichever point of view was taken, there is no doubt that more precise targeting increases the database costs of direct mail, although the savings from lower volumes of print and postage should outweigh the extra costs incurred up-front. Whether all retailers are in a position to reap these economies is another matter. “The main change is that retailers, such as Boots, are taking a higher volume of names from list providers, and then apply rigorous screening techniques to select those that match the profile of their customer type,” says Brian Williamson, strategic planning director at list provider HLB. However, even experienced users of direct mail admit they still have much to learn. Selfridges marketing manager Karen Patterson says: “Direct mail is taking a much bigger share of the advertising budget, because it allows us to focus on different segments of our customer base, but we are only just beginning to use techniques such as predictive modelling.” Customer needs Inadequate customer knowledge and weak database skills are not the only factors that inhibit the growth of direct mail. A substantial number of retailers, including some that have all the necessary IT skills, have yet to be convinced that direct mail is the most appropriate medium for communicating targeted marketing offers to consumers. Jason Steinberg, a spokesperson for Sainsbury’s, says: “Customers who sign up for our pets and under-fives clubs receive relevant mailings and from time to time we mail information on local promotions. But we are not convinced that customers want more offers through the letterbox.” Just how much direct mail consumers will accept, even if it is accurately targeted, is debatable. However, what is increasingly accepted, even by the most committed retail users of direct mail, is that no single medium holds the key to successful customer relationships. Boots relationship marketing manager Jeremy Colston says: “Our experience is that customers respond well to direct mail, as long as it is relevant to them – but we are conscious of the risk of overload, and the opportunity for making use of new direct media, such as the Internet and store-based interactive terminals.” New electronic media, including interactive terminals, Web TV and handheld scanning devices will clearly have an impact on direct mail strategies. At this stage, however, it is difficult to assess how significant this will be – not least because so little is known about consumer acceptance of the new media. What is increasingly clear, however, is that the most effective direct marketing strategies will combine different sorts of media, which shows that different customers differ in their perception of what makes an effective communication strategy. “The big challenge for the future, is to find out which media individuals prefer and talk to them in the way that they want,” says Colston.

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