It seems that almost every day the post offers an invitation from a financial services company to take out a loan or change credit cards. Many go further than the promise of zero interest on balance transfers, giving away watches, sports bags or MP3 players. Despite the incentives, however, almost all of this direct mail goes straight into the bin, so why do they keep coming?
The simple answer is that the senders don’t care. Falling response rates can be countered by mailing more often. It’s all about volume. It doesn’t matter that the lion’s share ends up the bin, as long as some doesn’t.
Peter Webb is chairman of Response Direct Publishing, which produces consumer card decks and response-based media. He defends frequent mailings. “No one objects to newspapers containing hundreds of different ads or if the same ads appear repeatedly. However, if the same approach is taken with direct mail, sections of the DM community frown on the mass mailers,” he says.
Webb insists that what is not of interest one day can suddenly become a high priority the next. He adds: “You may have been happy with your bank for several years, but a mistake on your statement, or a long queue at the branch makes a good offer appealing. Suddenly you become a hot prospect.”
That’s all very well, says David Barragry, senior business development manager at DM company Swetenhams, but eventually this policy will lead to “letterbox wear-out”. He suggests that targeting will have to become more discriminating to prevent response rates from tailing off. He says that if you only target promiscuous customers with promises of free debt for six months, y
ou shouldn’t be surprised when six months down the line they jump at the next offer from someone else.
Barragry says that Swetenhams applies the rules of customer relationship management (CRM) to its prospect list – what it calls prospect relationship management – and he suggests that mailers need more than just names and addresses to do their job properly. Transactional information on previous responsiveness is ideal, he suggests, as is knowledge of the prospect’s profile, which allows incentives to be targeted.
Another factor that will work against blanket mailings is the loss of the electoral roll as a source of names. New legislation allows voters to opt out of the version of the electoral list that is available to marketers. However, the Direct Marketing Association (DMA) believes that the move will have the opposite of the desired effect – far from reducing the amount of unwanted mail people receive, it will lead to more wrongly addressed mail. And a recent survey of DMA members concluded that the change in the law might cost the industry about &£240m a year. DMA chairman Jenny Moseley says: “No one cold mails from the electoral roll. It is used for list cleaning and to validate rented lists. It’s more like a suppression file than an acquisition one.”
It seems that the best way to improve response rates is to improve targeting and list segmentation. For the large financial institutions, which already have extensive customer databases, the best approach is to capitalise on this by using the detailed information they already hold to make specific, tailored offers to customers.
“The more you cross-sell products, the harder it is for customers to move,” says Professor Derek Holder, managing director of the Institute of Direct Marketing (IDM). He adds: “If someone has four accounts with you, the likelihood of their leaving is one in a hundred. If they have one account, it’s even.”
Holder believes there are three sorts of bonds that tie customers to a company: financial, social and emotional. However, the big banks have a poor record on nurturing emotional ties. He says names like Lloyds TSB or Barclays merely represent credibility and safety. They do not engender the same sort of loyalty as Tesco, for instance, or financial brands such as Egg or First Direct.
DM agency Conduit director Lee Waite, agrees that making more of an effort with existing customers is the first step. He says: “The real solution stems from CRM. First, understand who your customers are in terms of their financial profile, astuteness, attitudes and lifestyle. Your offer can then be tailored to your customers’ desires.”
This approach can also bear fruit for those with only small databases of existing customers. Once the best customers have been identified, it is possible to search external lists for lookalike prospects, which should result in smaller mailings that produce a better return.
An effective way to encourage emotional ties to a brand is to be strongly differentiated and backed up by an integrated approach to marketing. However, few financial brands seem to appreciate this, suggests Lucian Camp, chairman of financial specialist agency CCHM.
He says: “The DM industry is dominated by commoditised credit card and personal loan activity, with only the vaguest sense of any brand differentiation. Recent brand initiatives by a couple of big players seem to mark a return to the old-style ‘disintegrated’ approach: it’s difficult to see how Barclays’ Samuel Jackson campaign, or Lloyds TSB’s John Thompson/Joely Richardson stuff could provide a basis for a genuinely brand-minded through-the-line approach.”
Barry Woodcraft, creative director of DM specialists FFwd, is also scathing about most financial direct marketing, suggesting it insults the recipient’s intelligence. He says: “Most of the major credit card
companies seem to work to the same
formula – multiple messages crammed into a C5 envelope, with little imagination or originality.”
However, he adds: “DM is the sexiest medium in which to work; creatives have touch, feel, sound, shape and texture to work with. So where are all the brave marketing directors? One that I know of is working for Internet bank Smile, the only bank to send me a mailing that actually made me smile. The envelope had impact, a single-minded proposition and promised me no bumpf. When I opened it, there was nothing in it. How refreshing.”
But such activity is rare. Publicis planner Jonathan Gadd thinks that too many providers ignore creativity and resonant branding in favour of volume sales and short-term gain.
He says: “In 2001, the financial services sector spent &£1.4bn on DM. Yet last year in a study of 89 UK banks and building societies, 21 brands failed to fulfil an information request in any medium at all, and only 16 were deemed to have delivered a direct and satisfactory answer.”
Stopping the leaks
He believes that this creates an image of a leaking bucket, with money being continually poured in. He believes that call centre employees that cannot cope have a detrimental effect on a brand.
He thinks that the problem lies in taking a short-term strategy. “If you’ve only got a 12-month target for return on investment (ROI), then you have to focus on volume acquisition,” he adds.
By using this strategy, he says you can reduce costs. However, he warns that this can become a vicious circle, which reinforces the idea that the DM industry is a commodity-driven market that encourages consumers to switch brands. This, in turn, results in a shorter lifetime for a campaign and can result in an even greater need to reduce costs.
He says: “Take credit cards. Companies like MBNA or Capital One may be generating a reasonable ROI, but do they really expect us to like their brands having mailed us monthly for two years, even though we’re not interested?”
So letterbox wear-out seems to be a real threat. Is it time for mailers to move to new media for their campaigns?
Not really, says Richard Hartson, group account director at Target Direct – an agency specialising in charity and financial DM. There is a place for new media, but it’s generally as a back up, since it is not yet sufficiently trusted or widespread.
He adds: “E-mail presents us with a young, developing channel that should be considered as part of the mix for fulfilment, information gathering and general enquiry. It will never replace traditional direct mail, but its role in reinforcing the message and supporting a campaign will increase as consumer confidence increases.”
An end to junk mail?
He believes that more financially aware customers may be happy to use the Internet to buy financial products, without receiving direct mail or telemarketing support, but that most consumers will use more traditional methods such as press ads or mail.
There is also some question about the intrusiveness of e-mail and SMS communications. If junk mail is seen as an intrusion, then junk text messages are seen as far more of an invasion of personal space. Not only do recipients have unwanted messages clogging up their mailboxes, but they also have to pay to retrieve them.
It seems there is still no replacement for volume direct mailings. No other medium can provide as efficiently the “mass” in mass marketing, so we’re stuck with growing piles of financial offers dropping onto our doormats. But if mailers can start taking a longer-term view and using more creative approaches to better-targeted segments, they may appeal more to our current needs – or at least make us smile before we put them in the bin.