Brands take the direct route

Direct marketing is increasingly regarded as an effective way to build relationships with consumers, according to Datamonitor’s “Building customer relationships offline” report. The report shows that more consumer packaged goods (CPG) manufacturers are trying to build relationships with consumers through direct marketing.

Mass-market and conventional advertising is no longer seen as the powerful medium it once was, and manufacturers are trying to reinvent their role as managers of a brand experience. Instead of buying a product on the strength of a manufacturer’s TV campaign, consumers are now responding to manufacturers that present their product as part of a wider service proposition. This could include an interactive website or a customer care telephone line – both provide a two-way communications channel between company and consumer.

Companies are also using sampling and field marketing tools to fulfil this role. They enable consumers to try the product and encourage loyalty. Better still is the “customer club” that enable companies to build relationships with their customers – manufacturers can try out new products and the club provides a feedback channel for consumers.

Alternatively, manufacturers are devising concepts to bypass retailers and sell to consumers directly – through a website, for example, or a directly owned or franchised store, or even by introducing a service concept based around key brands.

Datamonitor attributes the growing popularity of direct marketing mainly to the fragmentation of media channels. The concern is that fragmentation could make traditional advertising less effective, making it harder for manufacturers to get their message across through mass media.

Another motivating factor in the growth of below-the-line marketing is the fact that consumers are becoming less typical. Consumers can now be segmented into more niches because their lifestyles are becoming more diverse and therefore their needs and desires are broadening. At the same time, technological advances are making direct marketing a more effective tool. It is now possible to store data more effectively and to analyse it more productively.

All this comes at a time when manufacturers are experiencing new threats to their brands, particularly from retailers’ private labels, so there is a greater need for them to strengthen brand communications and build stronger relationships with their customers. Pressure on manufacturers and retailers to differentiate their brands from competitors has never been stronger.

According to Datamonitor, direct marketing expenditure per head on the two main categories – direct mail and telemarketing – is nearly five times higher in the US than in Europe. This lead has widened since 1995 as expenditure in the US has grown at an average rate of 7.2 per cent per year compared with 3.9 per cent in Europe. The disparity is mainly because of the current weakness of the euro, which depresses growth rates for all countries apart from the UK. In euro terms the European growth rate over the period averaged at 7.5 per cent.

Within Europe there are striking differences in the uptake of direct marketing. Datamonitor’s analysis shows that expenditure is lowest in Italy where a shortage of marketing lists and a lack of commitment by manufacturers has hindered its development. Direct marketing expenditure per capita is highest in France and particularly the Netherlands where it is twice the European average. Expenditure has grown quickest in the UK, driven largely by the development of telemarketing services, such as customer care lines.

Despite the growth of newer direct marketing channels such as telemarketing and direct response advertising, Datamonitor’s research confirms that direct mail remains the largest component of direct marketing. In most countries the volume of direct mail sent is increasing quickly, fuelled by the reduction in effectiveness of above-the-line media and by a fall in the costs of direct mail. It has also received a new lease of life as a means to drive people to an Internet site.

Each piece of direct mail is a representative of the brand and as such can build or erode its image depending on the quality of the envelope and its contents. According to the UK’s Direct Mail Information Service for the retail, food, drink and household sectors, between 93 and 97 per cent of consumers who responded to an offer from a specific company say they would buy from that company again. Furthermore, the majority of this group would also buy other products from the same company.

Telemarketing expenditure is another area which is experiencing rapid growth, particularly in the Netherlands, Spain, Sweden and the UK, where companies use centres to provide customer-care lines and sell products and services.

Datamonitor concludes that direct marketing agencies expect budgets to grow at an average rate of 17.3 per cent, suggesting that the transfer of communications from traditional above-the-line channels to direct marketing will continue.