CHAPTER 19

What do we mean by direct, data

and digital marketing?
DEREK HOLDER

Since Lester Wunderman first coined the term book and music publishing, and other direct-to-
‘direct marketing’ in 1961, experienced marketing consumer methods over and above catalogue-
people are still arguing about what direct market- based mail order. As late as the 1980s Stan Rapp,
ing is. From those early days we have seen the a US pioneer, was still defining direct marketing
rise of new (or enhanced) methodologies bearing as a means of distribution – not a definition that
descriptions such as ‘database marketing’, ‘rela- would be widely accepted today.
tionship marketing’, ‘interactive marketing’ and There must be as many definitions of direct
‘digital marketing’. marketing as there are writers on the subject.
In this chapter we attempt to set the record Rather than adding to them, here are two which
straight and discuss the essential similarities and you may find helpful:
differences between direct marketing and these
newcomers. Direct marketing is a collection of methodologies
We look at the origins of direct marketing, its for communicating a message to individuals with
adoption by multi-channel users and how its discip- a view to obtaining a measurable, cost-effective
lines underpin all that has followed its inception. response.
We discuss the four basic principles of direct mar- FEDMA Direct Marketing, 1998
keting: targeting, interaction, control and conti-
nuity (TICC). Direct marketing is the process in which individ-
ual customers’ responses and transactions are
Finally, we introduce the direct, data and dig-
recorded… and the data used to inform the target-
ital marketer’s information system, establishing ing, execution and control of actions … that are
its context within the company-wide information designed to start, develop and prolong profitable
system. customer relationships.
McCorkell, Direct and Database Marketing, 1997

What do we mean by direct The first lesson of both these definitions is that
direct marketing is a collection of methodologies or a
marketing? process. Direct mail, with which it is often confused,
is only one medium used by many direct marketers –
The origin of what came to be called direct mar- as are the telephone, catalogues and DRTV, etc.
keting was the mail-order business: the classic The second lesson is that the primary job of
example in the US was the Sears Roebuck cata- direct marketing – as indeed of all marketing – is to
logue. Later it came to include telephone market- convey a message – a message which is intended to
ing, magazine subscription selling, continuity provoke a response.
What do we mean by direct, data and digital marketing? 373

䊉 Advertising was a surrogate for the dialogue

From mass marketing to digital which a relationship brings.
marketing 䊉 Marketing research was a surrogate for the
learning that takes place with a dialogue.
For many years, until the 1990s, marketers loosely
defined marketing as ‘identifying and satisfying Direct marketing grew rapidly in the 1980s and
customer needs at a profit’. Up to the 1950s and 1990s as it provided the missing dialogue between
1960s mass marketing and mass communication customers and company – it encouraged customers
dominated marketing practice. The technologies to respond and these responses were recorded
that drive marketing are information and commu- and measured. Coupled with the cost of com-
nication. Twentieth century mass marketing was puter storage declining exponentially, it led to the
propelled by high-speed rotary printing, high- creation of large customer databases containing
quality colour reproduction, film, radio and finally full transactional, geographical and lifestyle infor-
television broadcasting. These were the technolo- mation about their customers. This was particu-
gies of mass communication. In the 1970s and larly true in the service sector – financial services,
1980s ‘target’ marketing grew rapidly as brands travel and leisure, utilities and telecoms.
proliferated and extended to reach specific large
market segments. The information and technology
Marketing depends on information about revolution
markets and in those times decision making was
aided by sample survey-based research. This pro- The immense increase in affordable computer
vided media readership research, TV audience power now allows today’s direct marketer to hold
research, consumer panels, retail audits and ad hoc as much relevant information on every customer
surveys. Media audience research answered the as the twentieth century mass marketer held on
question, ‘Who are we reaching with our advertis- the entire market.
ing?’ Consumer panels and retail audits answered This represents nothing less than a revolution-
the question, ‘Is it working to create sales?’ ary change to the marketing opportunity. Further-
At this stage in marketing’s evolution many more, the revolution is not over: computer power
major companies were distant from the customer keeps on getting cheaper and marketing continues
(apart from those companies who practised direct to become more sophisticated. Yet the communica-
marketing). The company still controlled the key tions technology revolution created by digital
navigation tools – it decided the product, price, media may be of even greater significance.
promotion and places (distribution channels). The
company told its customers and prospects about its Communications technology and
products and services when it wanted to, through
digital marketing
which media channels it chose and dictated
where and when the customers could obtain their Digital media represent the convergence of infor-
products. mation and communications technologies.
The champions of this form of marketing Through digital media, information is transferred
were Unilever and Proctor & Gamble. They from one computer to another. The information
researched their new products, test marketed can be in the form of sounds or moving pictures.
and launched with brand advertising primarily One of the computers can be a TV receiver, a
through television. This was pre-BSkyB and the phone, a smart card or soon, a refrigerator.
100-plus channels available today, TV offered com- Now the marketer and customer each have a
panies an unparalleled reach to market as well as computer. And their computers can exchange
low CPT (cost-per-thousand). Yet still consumers information. The so-called dialogue of direct mar-
were anonymous buyers. keting can be turned into something approaching
As Alan Mitchell, the well-known columnist a real conversation in which information is
and author has written, the pillars of marketing in exchanged and acted upon in real time.
these days were branding, advertising and research It is useful to give a definition of digital
marketing. These he suggested were surrogates: marketing.
The first part of the definition illustrates the
䊉 Brands were a surrogate for a relationship range of access platforms and communication tools
between the company and the product. that form the online channels which marketers
374 The Marketing Book

about the old-fashioned mail-order catalogue,

Digital marketing is: Sears Roebuck or Montgomery Ward, the modern-
day equivalent is companies like Amazon and
䊉 Applying: digital technologies which form
Direct Line. It is still direct to the customer but util-
online channels to market (web, e-mail,
izes the new media channels.
databases plus mobiles/wireless and
Digital media has, however, permitted two
digital TV);
further things of the utmost importance to market-
䊉 To: contribute to marketing activities aimed
ing: they have revolutionized the cost structure of
at achieving profitable acquisition and
the functions they perform, and they have altered
retention of customers (with a multi-channel
the balance of power between supplier and cus-
buying process and customer life cycle);
tomer in ways that are only gradually playing
䊉 Through developing: a planned approach to
themselves out.
improve customer knowledge (of their
Customers now can control the ‘navigation’
profiles, behaviour, value and loyalty drivers),
functions. They can build proprietary databases
then delivering integrated targeted
of their preferred suppliers, investigate products
communications and online services that
and services on the Internet at a time of their
match their individual needs.
choosing, and in return expect an unprecedented
level of customer service with goods delivered in
first-class condition within 24–48 hours.
use to build and develop relationships with cus-
tomers. The access platforms or hardware include
Direct marketing has become
PCs, PDAs, mobile phones and interactive digital
TV and these deliver content and enable inter- mainstream marketing
action through different online communication The Internet revolution is the first real progression
tools such as websites, portals, search engines, in marketing since it originated in the mid-nine-
affiliate and viral marketing, blogs, e-mail and teenth century. It has changed the balance of power
text messaging. Some also include traditional between companies and customers and created
voice telephone as part of digital marketing. many new marketplaces such as online auctions
The second part of the definition shows that like the global phenomenon of eBay. As we write
it should not be the technology that drives digital online adverting spend annually is set to overtake
marketing, but the business returns from gaining radio and poster advertising combined reaching
new customers and maintaining relationships with 10.5 per cent of all advertising spend. Google.co.uk
existing customers. It also emphasizes how digital is the most successful search engine in the world
marketing does not occur in isolation, but is most and the biggest issue many major brands are tack-
effective when it is integrated with other commu- ling today is how they get their brand up to the
nication channels such as phone, direct mail or top of the Google search ranking. Meanwhile,
face-to-face. Online channels should also be used mobile marketing is just set to explode. British
to support the whole buying process from pre-sale Airways believes the future lies in ba.com and is
to post-sale and further development of customer directing its budgets to online. The concept of real-
relationships. time one-to-one marketing is here.
The final part of the definition summarizes Direct marketing has been at the forefront
approaches to customer-centric marketing. It of this change. It has absorbed the technological
shows how it should be based on knowledge of advances faster than any other discipline. It has
customer needs developed by researching their created the ‘dialogue’ with customers. It has
characteristics, behaviour, what they value, what always been based on measurable and account-
keeps them loyal and then delivering tailored web able advertising. Today, as the disciplines of direct
and e-mail communications. advertising, branding and sales promotion begin
In many ways the above is the same as the to blur, it is direct marketing which has led this
definition of direct marketing except it is limited to change and is now considered as mainstream
digital media. This is why many direct marketers marketing. Direct marketing can build brands
see digital marketing as just adding a new front (Direct Line, MORE TH⬎N, Amazon and easyJet);
end by offering new media channels to market, it can target sales promotion, but at the same time
whereas the back end – logistics, fulfilment and collect the data and use it for future business
customer service – remains as before. If you think planning, while combined with market research
What do we mean by direct, data and digital marketing? 375

Table 19.1 The direct model

Features Benefits Examples

Online, fax, telephone Lower overheads First Direct

and mail transactions Cuts out middlemen easyJet
Catalogues and websites Faster stock turn Dell
Facilitates exporting La Redoute

it can provide powerful customer insights. It chief production job is to assemble components
continues to exemplify the rigour of measurable made elsewhere. Thus the direct model can work
and accountable marketing. And to the effective for retailers providing that it increases retailing effi-
twenty-first century marketer, it should be second ciency or makes buying easier or more attractive.
nature to think first and foremost: direct, data and Interest in the direct model has been given a
digital. huge boost by the Internet, fostering the develop-
ment of new types of direct business including:
Virtual exchanges: for example, Covisint, the
Firms that deal direct world’s largest B2B automotive marketplace; online
auctions and reverse auctions, such as eBay and
In 1994, the year Michael Dell launched his first priceline.com; and infomediaries, search services
website, the Dell Direct call centre was already and buying clubs.
receiving nearly 50 000 calls from customers daily. These entirely new types of organization are
Even then, Dell was the world’s largest direct mar- not controlled by sellers. They are either neutral
keter of computers. or working for buyers.
Like First Direct and easyJet, Dell is a pure The Internet has the potential to increase the
direct marketer, dealing with its customers through efficiency of the direct model exponentially
its websites and call centres. Home-shopping com- through a reduction in transaction costs and mate-
panies, like La Redoute, provide another example. rials sourcing costs, superior supply chain man-
The logic for dealing direct is based on effi- agement and a greatly enhanced ability to tailor
ciency – stripping out overheads or unproductive the product to the buyer’s specification. In princi-
running costs. Such costs can include bricks-and- ple it is immaterial whether access is achieved
mortar outlets, sales forces, dealer margins, large through a PC, iTV or a mobile phone. In practice
stockholdings and so on. The direct model works the ‘front end’ can affect the quantity and quality
for both business-to-consumer (B2C) and business- of the information that can be exchanged.
to-business (B2B) applications. In fact, Dell’s cus- To the customer, the direct model is not
tomers range from large corporations, such as always the answer. Many people prefer to go to the
Barclays Bank, to individuals ordering from home. shops or send for a sales representative. Others
A particular advantage of the direct model is that it will use the Internet as an information source, but
can reduce the cost of international expansion complete their transaction through a traditional
(Table 19.1). channel. In fact our channel preferences are likely
A point to note is that it is not only producers to depend on what we are buying, as the chart at
of goods or services that conform to the direct Figure 19.1 demonstrates. As a result, many com-
model. First Direct, easyJet and Dell are all produc- panies find multi-channel marketing pays.
ers. But La Redoute is a pure retailer, not making
any of the clothes or other items that it sells. The
insurance company, Direct Line, is a producer. Multi-channel marketing
But direct insurance brokers, sourcing policies from
a large number of insurers, are not producers. Multi-channel marketers also use direct market-
Furthermore, Dell may sell software and ing. GUS is a multi-channel retailer selling through
peripherals that it does not produce. In fact Dell’s websites and its retail stores, including Argos.
 Toiletries/cosmetics (64%)

Car accessories (44%)

Mobile phone content (47%)

Bought
Computer games (61%)
Researched
Sports equipment (53%)

Car hire (66%)

Food/grocery shopping (63%)

Financial products (49%)

Home furnishings (44%)

Music downloads (54%)

Mobile phones (34%)

Cars (13%)

DVDs (72%)

Properties (12%)

Clothes (68%)

CDs (72%)

Concert/festival tickets (74%)

Insurance (62%)

Books (76%)

Theatre/cinema tickets (71%)

Electrical goods (63%)

Travel tickets (76%)

Holidays (56%)

0 10 20 30 40 50 60 70 80 90 100
%

Figure 19.1 Percentae of all UK Internet users researching or buying products online. Conversion rates shown in brackets
Source: Mediascope Europe, Media Consumptions Study 2005, European Interactive Advertising Association (EIAA).
What do we mean by direct, data and digital marketing? 377

Tesco is a multi-channel retailer, although its example – but in most cases the pricing is the
website sales are dwarfed by its store-based sales. same and the inventory is much the same.
Producers, too, may use multiple sales channels. Next believes that its catalogue and website
GM (Vauxhall) and Ford sell (a few) cars directly assist shop sales and vice versa. By offering cus-
to private motorists on the web. IBM sells direct tomers the widest possible choice of ways to browse
and through dealers. British Airways sells direct and buy they maximize the return on their mar-
and through agents. Magazine publishers, such as keting investment.
The Economist and Reader’s Digest, sell both through
newsagents and through direct subscription.
Charities raise funds through direct mail, through
charity shops, through events and through street Direct marketing is more than
collections. Today, many charities are looking to selling direct
online techniques such as viral marketing.
Some companies have spawned direct brands. All of the companies we have named use direct or
Prudential insurance launched egg as a direct digital marketing; not just when they are selling
brand. First Direct is, of course, a subsidiary of through their mailings, catalogues and websites.
HSBC. Direct Line is owned by the Royal Bank of Direct marketing has come to mean more than
Scotland. just selling direct.
Home-shopping catalogues have diversified
both to website trading and to high street retailing – Any company that uses direct response advertising,
Lakeland and Past Times are examples. Next is an online or offline, and maintains a customer data-
example of a high street retailer spawning a home- base, is using direct marketing.
shopping business.
For most of these companies, the logic of Tesco would remain a major direct marketer if it
stripping out costs by conforming exclusively to a scrapped its website tomorrow. Tesco maintains a
direct model does not work. They do better by huge customer database (Clubcard) and tailors
offering customers a wider choice of ways to deal offers to its customers, through personalized direct
with them. In a few cases differential pricing may mail, based on their past purchasing behaviour
be used – magazine subscription is a prime (Table 19.2).

Table 19.2 Tesco Clubcard

History, operation and scale
Tested October 1993, launched nationally February 1995
Card applications in store, communications in store and direct mail
Over 200 million product purchases a day by over 10 million customers
Customer information and applications
Customer data:
Visit patterns Spend levels
Departmental usage Types of purchases
Coupon users/non-users Profile/geographic data
Broad customer typologies:
Loyalists Infrequent customers
Regulars New customers
Applications include:
Recruitment Lapsed and win back
Clubcard plus (savings card) Helpline
Local marketing
378 The Marketing Book

Magnetic strip cards like Clubcard enable In fact the use of profile, preference and
retailers to link customer identities with purchases purchase data in real time was pioneered in call
and use the data to offer the customer rewards centre software before the World Wide Web was
offers, events and services which, to all intents and used for marketing. An early example was (still is)
purposes, are tailored to the customer’s needs and car insurance quotations. The quote given to the
preferences. Although more than 10 million Club- caller is driven by the answers to scripted ques-
card statements are mailed quarterly, there are tions. A later example is add-on offers triggered
nearly nine million variations to these mailings by home-shopping orders (e.g. matching acces-
reflecting customers’ different shopping patterns. sories). In this case, no questions are asked to
Even though the vast majority of Clubcard prompt the offer – it is driven by the content of
members visit Tesco to do their shopping, this is still the customer’s order.
termed direct marketing because the programme is Again, the nature of the actions is not speci-
based on the collection of shop visit and purchase fied – they could include:
data and careful analysis of individual customer
preferences. The activity may also be termed rela- 䊉 Restricting a mailed invitation to the best
tionship marketing or even loyalty marketing. Of customers.
these terms, direct marketing is the most meaning- 䊉 Targeting new customers who match the profile
ful, being capable of precise definition. of the best established customers.
䊉 Personalizing a website to make relevant offers to
previous visitors.The purpose of the actions is
clearly specified.
Direct, data and digital marketing
. . . that are designed to start, develop and prolong
Let us look again, a little more closely, at profitable customer relationships.
McCorkell’s definition of direct marketing:
This part of the definition excludes no business
Direct marketing is the process in which individ- with expectations of success. However, the idea
ual customers’ responses and transactions are that customer data collection and analysis is the
recorded . . .
key to success was peculiar to direct marketing –
although management consultancies and Customer
McCorkell’s definition does not specify the media
Relationship Management (CRM) software vend-
through which customers’ responses and transac-
ors now also claim ownership of it.
tions are invited or received. In fact a customer
might spot a bargain on a website, make further
enquiries by telephone and complete the transac-
tion at a dealership. If the item purchased were a Direct marketing and Pareto’s
second-hand car, such a scenario would be very Principle
likely.
In this definition, customers’ responses are
recorded. If the car dealership did not bother to do If Thomas Jefferson (. . . all men are created equal)
this, then the process would not qualify as direct was the hero of mass marketing, Vilfredo Pareto
marketing. On the other hand, the form of response is the hero of direct marketing. Pareto’s Principle
is not specified – for example, the data could (of the distribution of incomes) was that 80 per
include clickstream data as readily as phone calls or cent would end up in 20 per cent of pockets how-
posted coupons. ever society attempted to regulate matters. To
Pareto, whether all men are created equal or not,
. . . and the data used to inform the targeting, exe- they certainly do not end up that way.
cution and control of actions . . . So it is with customers. Every direct marketer
knows that some customers are much more valu-
Note that the definition does not specify any inter- able than others. Every astute direct marketer
val between recording the data and using it. It may knows who the valuable ones are. The really
often apply to data stored on a customer database smart direct marketer has a system for forecasting
and used months later (as in the Tesco Clubcard who the valuable ones are going to be.
example) but it can equally apply to data used in Why is this so important? Let us consider two
real time during a telephone call or website visit. examples.
What do we mean by direct, data and digital marketing? 379

Figure 19.2 shows a real-life example of segmen- Figure 19.2 displays the result of applying a
tation of charity donors based on their response statistical model called CHAID (Chi-squared
to the last appeal made to them. automatic interaction detector). This is also some-
times called tree segmentation. Here we are using
CHAID to analyse the results of our last mailed
Customers who cost money appeal. We want CHAID to tell us how to recog-
nize the differences between our most generous
Typically, 75 per cent of new customers gained donors and our less generous donors. In particu-
by a home-shopping business will have lapsed lar, we would like to know who – if anyone – not
without providing enough business to recover to mail next time around.
the cost of recruiting them. All of the profit will CHAID splits the mailing base (all donors)
be contributed by the remaining 25 per cent. into two, by picking out the most important of all
If the company learns which are the best the discriminatory variables that distinguish the
sources of good customers, it can work to best donors from the others. This variable turns out
reduce the 75 per cent of loss-making intake. to be the number of previous gifts. The 36 per cent
If it fails to learn, the 75 per cent will become who have sent us two or more previous donations
80 or 85 per cent, ensuring that the company contributed 65 per cent of the money. This result is
loses money. shown near the top of Figure 19.1.
Again, typically, a bank will lose money Looking further down, we can see that
on at least 80 per cent of its private customer CHAID keeps on dividing each segment into two,
base at any one time. By devoting special like an amoeba in a petri dish; each time it takes the
attention to the remaining 20 per cent, it can most significant of the remaining discriminatory
expect to satisfy more of them and so keep variables. What CHAID is answering each time is:
their custom. If it fails to differentiate between
its good (and potentially good) customers and
its loss-making customers, it is the good cus- Of all the differences between the more generous
tomers who are most likely to defect. and less generous donors in this segment, which
is the most important single difference?

ALL DONORS MAILED

100% mailing quantity
100% cash received

Number of prior gifts

One gift Two or more
64% quantity 36% quantity
35% cash 65% cash

No gift in last 12 months Gift in last 12 months £1–£49 value £50+ value
53.5% quantity 10.5% quantity 26.0% quantity 10.0% quantity
22.5% cash 12.5% cash 33.0% cash 32.0% cash

Last gift in same season Last gift in other season Worst NTs* Best NTs*
13.5% quantity 40.0% quantity 8.5% quantity 1.5% quantity
11.0% cash 11.5% cash 24.0% cash 8.0% cash

Worst regions Best regions

1.0% quantity 0.5% quantity
2.5% cash 5.5% cash

Figure 19.2 Real-life example of segmentation of charity donors

McCorkell, Direct and Database Marketing, 1997
* NT: geo-demographic neighbourhood type.
380 The Marketing Book

Looking at the left-hand side of the model, we see

that the least generous 40 per cent of donors con- Targeting Control
tributed only 11.5 per cent of the cash received.
The model demonstrates that 88.5 per cent of the
cash could have been raised from 60 per cent of
Interaction
the donors by not mailing single gift donors who
had been inactive for over 12 months and who
last gave at a different time of the year. Continuity
If we assume it cost £1 in mailing expense to
raise £4 in cash, the overall result from 100 000
donors would be £400 000 raised at a cost of
£100 000. However, the least responsive 40 000
would have cost £40 000 to mail and brought in
only £46 000 cash. We might decide to send an Figure 19.3 Targeting, interaction, control and
appeal to these donors only once a year, at continuity
Christmas time, when they are most likely to
respond. Meanwhile, the other 60 000 donors sent customer behaviour which may be generally right
back £354 000 – almost £6 for every £1 of expense. but will often be wrong in an individual case.
Sending our appeal to these donors only Successful direct marketing practice depends
would improve our income to expense ratio by on four elements. These are: targeting, interaction,
almost 50 per cent. control and continuity.
The direct marketer looks for solutions by
listening to what the data says. As always in Targeting, interaction, control
direct marketing, actions speak loudest. What
people do matters more than their demographic,
and continuity
socio-economic or lifestyle profile. You will see from Figure 19.3 that the four elem-
ents of successful direct marketing can be looked
B2B ⫽ Pareto ⫻ Pareto at either as one triangle or alternatively as four tri-
angles inside another one. Interaction is in the centre.
However strongly Pareto’s Principle applies to
Interaction includes the stimuli we marketers cre-
B2C marketing, the B2B scene is Pareto squared,
ate in the hope of producing a response from the
one company having ten thousand times the
people in our target market. Their response is also
purchasing power of another. So companies dif-
included in the interaction triangle. In all cases we
ferentiate between larger (corporate) customers
will attempt to attribute a response to the correct
and smaller customers. Frequently call centres or
stimulus. Thus the results of our activities form the
contact centres deal with smaller business cus-
core of our information system and enable us to
tomers while field sales teams deal with larger
become progressively more efficient at targeting,
customers.
control and continuity. That is because we are learn-
ing by experience.
Interaction takes centre stage in direct mar-
Principles of direct, data and digital keting’s information system.
Targeting refers to our decisions on who will
marketing:TICC receive our message and includes our media selec-
tion: TV, banner ads, print advertising, direct mail,
Direct marketing and its information systems focus telemarketing, e-mail and so on. We may be target-
on what the customer or prospect does. To put it ing our established customers, identified prospects
another way, data about past behaviour is used to or a much larger audience of ‘suspects’. In all of
predict future behaviour. This data is processed these cases our targeting decisions will generally
on an individual basis and can be analysed and outweigh in importance decisions about what to
acted upon on an individual basis, even if the offer and how to frame our message. By examining
number of customers reaches millions. This does the results of our previous attempts to target cor-
not render marketing research obsolete but, if rectly, we can keep on refining our future targeting.
we can rely only on marketing research informa- All targeting is dependent on accurate data –
tion, we are forced to make assumptions about whether it be external data such as circulation or
What do we mean by direct, data and digital marketing? 381

So why refer to new media direct marketing

Customer interactions as anything but direct marketing?
These may not just be orders. They may be There are two reasons. Firstly, digital market-
returns (of unwanted goods), queries, com- ing has already developed a language of its own
plaints, requests, suggestions, questionnaire because most of its pioneers never connected what
responses and so on. they were doing with direct marketing. The think-
ing went, ‘Here is a new medium, so we must
invent a new way of marketing for it’. Most of
those who did are no longer in business, whereas
audience figures, or internal data about individual those who applied direct marketing principles and
persons’ characteristics and buying habits. expertise to the new media have done much better.
Control is the management of our marketing. To work effectively, the new media require the
It includes setting objectives, planning at the same disciplines that work in all direct marketing.
strategic and operational levels, budgeting and The advertising agency creative asks, ‘How
assessment of results. The process is cyclical, can I make this brand famous?’
future planning being informed by past results. The direct marketer asks, ‘How can I make
Interaction is at the heart of direct marketing. my next offer irresistible?’
The completeness and accuracy of our data within There is no need to guess who will pull most
the interaction triangle will be crucial to the exer- customers in. We know from the results.
cise of control. Interaction quantifies the effects of If you can remember them still, contrast the
our marketing. big dotcom spenders from 1998 and 1999 with
Continuity is about retaining customers, the 1995 vintage cash burner, Amazon. The later
cross-selling other products to them and uptrad- entrants enriched the TV companies in senseless
ing them. In the vast majority of business enter- bids to make their names famous with ill-targeted
prises, the bulk of profit arises from dealings with and fatuous advertising that suggested no good
established customers. reason to visit their websites.
Our painstaking care in recording interactions Now what do you remember about Amazon?
enables us to communicate with customers, recog- Here is a guess:
nizing their interest and showing appreciation of
their custom. The special challenge of e-commerce 䊉 Any book or CD you want
and of contact centre management is to respond to 䊉 Fast delivery
customers in real time. 䊉 40 per cent off
All four of the TICC elements are critical. What you remember is what Amazon offers. And
Direct marketing is not direct marketing unless what more could you want? Well, if you are really
they are all in place. Sometimes it is not possible to demanding, Amazon also gives you reviews, an
data capture the identity of every customer and easy site to negotiate, personalized (tailor-made)
sometimes it is necessary to record the transactions suggestions on what you might like to read next
of a sample of customers only. These conditions and easy ordering, etc.
apply in FMCG (fast moving consumer goods) Like the ‘make my brand famous’ dotcoms
markets. Nevertheless, if the four TICC elements who blew millions on untargeted TV, Amazon’s
are in place, it is possible to employ direct market- high spending days are behind it. With a still-
ing methods in these markets. growing business but a huge debt burden to
carry, Amazon relies primarily on its affiliate mar-
keting network to pull in new customers. You can
visit amazon.co.uk to find out how to become an
What distinguishes digital marketing? affiliate.
The affiliate marketing programme is all
Digital marketing is essentially direct marketing online, so less audience wastage. Many dotcoms
through new media. The intention of direct mar- have learned to their backers’ cost that buying
keting has always been interaction, if only in solici- brand awareness on TV is not an affordable way
ting and receiving enquiries and orders by post to drive prospective customers to their websites:
and fulfilling these requests. Indeed, we have just even now, many TV viewers lack access to the
discussed interaction as one of the four essential Internet. Furthermore, affiliate programmes allow
elements of direct marketing. payment by results.
382 The Marketing Book

may depend on how successful Buy.com is in sat-

Affiliate marketing programmes isfying customers and encouraging them to come
Affiliates place links on their websites to drive back for more.
traffic to the merchant. They are rewarded by
commission payments – usually a percentage
of sales. Premium affiliate sites (including
Direct and digital marketing and
portals such as MSN) demand a tenancy fee lifetime value
as well as commission. The experienced direct marketer begins by mak-
A similar idea was pioneered in direct ing a calculation of how much he or she can
marketing under the name of affinity group afford to pay to acquire a new customer and this
marketing. Direct marketers also pioneered sets the target acquisition cost. The direct mar-
PPI (payment per inquiry) deals with media keter then tracks the newly acquired customers to
owners many years ago. see if they are contributing the same amount of
business as expected. The forecast of their life-
time value (LTV) will be adjusted on the basis of
their first and second purchases.
The case of Buy.com
Buy.com launched on TV in the UK with a Lifetime value (LTV) – The lifetime value of a
massive TV campaign. But before being new customer is the net present value of all future
bought by the John Lewis Partnership, Buy. contributions to profit and overhead from that
com was already using online promotion only. customer.
Buy.com reported that customer acquisition
costs had fallen to £40. Is Buy.com paying too much and, if so, can it
But 38 per cent of site traffic (October reduce its costs? Time will tell.
2000) was from Buy.com’s affiliate marketing If only 38 per cent of Buy.com site visitors
programme. The cost of acquiring customers have clicked through from affiliate sites, where
from the volume affiliate programme (i.e. the have the others come from? Some will have come
part of the programme in which no tenancy through recommendation or idle surfing. Many
fees are paid) was only £5. may have come from banners, interstitials, site
Facts from e.BUSINESS, February 2001 registrations or keywords. All these terms apply
strictly to digital media and describe opportuni-
ties that are exclusive to online marketing.
You will remember that one reason why digi-
Accurate targeting is one of the four elements of
tal marketing is distinguished from other direct
successful direct marketing.
marketing is that it has developed its own vocab-
The lessons learned by Buy.com from costly
ulary, being widely regarded as an activity that is
experience illustrate the importance of interaction,
distinct from direct marketing.
the second TICC element, as the chief supplier of
Another reason why digital marketing
actionable marketing information. The classic
deserves its own title is that the new media scene
direct marketing method is to buy this experience
is technologically very different and offers the
quickly and cheaply through testing the most sen-
marketer challenges and opportunities that are
sible-looking alternatives. It is only because direct
without parallel. The impact of these changes is
marketers record and analyse the results of inter-
likely to transform marketing completely.
action that low cost testing is possible.
After its expensive TV experience, Buy.com
started to exercise rigorous control of its customer
acquisition costs. Control is the third TICC element. 10 ways in which digital marketing is
Initially a company may not yet know how
much it can afford to pay to acquire a new cus- different
tomer. The return on its new customer investment
will be learned through continuity (the fourth 1 The challenge of 24/7. A trading website is always
TICC element) of customers’ business. Forty open.There is no downtime to restock, correct
pounds may be a reasonable price to pay for a programming errors or repair broken links to
new customer but it may well be too high. A lot other business systems.
What do we mean by direct, data and digital marketing? 383

2 Marketing in real time. A website deals with

customers in real time, raising expectations of Lands’ End: the cyber model
instant query resolution, immediate response to A home-shopping company for nearly 30
requests and even faster delivery. Furthermore years and the world’s most experienced
customer interaction data is being gathered Internet clothing retailer, Lands’ End has
continuously. found another way to make its website more
3 Personalization. Personalization of a website is very like a shop. You can have your own personal
different from personalized print. It must be based cyber model try on the garments that interest
on a variety of data sources (e.g. clickstream, you to ensure they will fit.
personal data and previous purchases) and used Lands’ End will mail you its catalogue
within a single site visit if appropriate. even if you buy from their website. Some
4 Data volumes and integration. A website can collect people prefer to browse in a printed cata-
much higher volumes of data of different types logue and shop online; others enjoy the inter-
than can be collected from other reception active website but order by phone. See point
points. (This poses a systems integration problem 10 under ‘10 ways in which digital marketing
and a potentially crippling data volume problem, is different’.
sometimes referred to as data overload.)
5 Many-to-many communications. Customers do not
phone call centres just for a chat. But the Internet
is different. It is open, democratic and even to occupy selling space and disappoint customers
revolutionary.The plus side may be viral marketing. who try to order them. On the other hand,
The downside could be flaming (abusive replies). stock-outs can be deleted from websites almost
6 Comparison shopping. Never was comparison as readily as the goods disappear from stores.
shopping so easy.The pricing policy may need to 2 The direct marketer can measure the sales
be changed for digital marketing.A new brand? performance of each page and position in the
7 Global reach. The reach of the website is wide but catalogue. But the lessons cannot be applied until
logistical or legal constraints may apply. It may be the next printing. Furthermore, the cataloguer
necessary to restrict orders geographically. cannot follow the customer’s route through the
8 Keeping in touch. Unlike direct mail, e-mail can be catalogue, making it harder to explain the sales
time sensitive, especially when sent to a business performance of individual items.
address. But, because e-mailing is so cheap, it is The website designer can use clickstream data
tempting to overuse it. It is easy to measure the to track customers’ journeys through the site and
response but not so easy to measure customers can relate these patterns to sales.Then the site
lost through irrelevant e-mailing. layout can be altered to optimize performance.
9 Low transaction costs. The cost of handling online The store can make similar adjustments although
orders and information requests, as well as of the data will rarely be so accurate or so complete.
e-mail solicitation, is much lower.This may permit
lower ticket or lower margin transactions.
However, credit card payment queries will be high
A last word about digital jargon
and delivery costs will remain the same, wherever Viral marketing is the turbocharged Internet ver-
physical products that are not electronically sion of the direct marketers’ referral programme
transmissible are involved. or MGM (member-get-member) scheme. As cus-
10 A website is more like a shop than a catalogue. tomers congregate in newsgroups or chat by e-mail,
Unlike a catalogue, a website cannot be sent to a recommendations can spread like a forest fire.
list of prospective customers. Like a shop, it must Personalization has a similar meaning in
wait for them to call in. Unlike a high street shop, both direct and digital marketing but the possibil-
it is not visible to passers-by. It needs promotion. ities are more exciting in a dynamic environment
than in print.
Can you think of any other ways in which a web- Cookies are the small text files stored on your
site is more like a shop than a catalogue? Here are computer to enable the website to recognize it
two ideas: when you call again and record your clickstream.
This enables personalization. However, unless you
1 Out-of-stock items (stock-outs) cannot be register separately, the website will think that all
deleted from a printed catalogue.They continue users of your computer are the same person.
384 The Marketing Book

Permission marketing is a significant concept . . . customers’ responses are recorded . . .

that underpins online CRM. Permission marketing
is a term coined by Seth Godin to apply to e-mail
marketing. It is best summarized in his book Response
(Godin, 1999). Customers agree (opt in) to be
involved in an organization’s marketing activities, Measurement
usually as a result of an incentive. It is now a legal
requirement enforced by the UK Privacy and
. . . and the data
Electronic Communications Regulations 2003 that
used to inform
there must be a proactive agreement to receive actions . . .
electronic communications (see the detailed guide-
lines from the UK Information Commissioner at Continuity
http://makeashorterlink.com/?X26862EA6, and
also Chapter 12.2 below). This core principle of
permission marketing is now a legal requirement . . . designed to start and prolong
throughout the EU. Unfortunately it has done lit- customer relationships
tle to reduce the flood of unwanted e-mails (spam) Figure 19.4 Direct marketing is the process in
which largely originate from outside the EU. which . . .

expenditures. Reply coupons and telephone

Data: the direct and digital numbers included codes to identify the source of
responses. Cost-per-response (CPR) and cost-
marketer’s information system per-sale (CPS) were and still are useful measures.
Now measurement is extended to individual cus-
It is essential that the direct and digital marketing tomers’ activity. Because each customer is identi-
information system includes customer history fied, their buying behaviour can be tracked over
data. The minimum history required is a history of time. This enables the eventual return on market-
the customer’s transactions. Often this will be sum- ing investments to be measured and forecasting to
marized, showing us little more than the value of be improved.
each transaction, the product or the merchandise Continuity: It is the aim of every competent
category and when it occurred. direct marketer who seeks to maximize the gearing
Without this minimum amount of data, we on the customer acquisition investment by doing
cannot practise efficient direct marketing because: more business with the customer for a longer
period.
Direct marketing is the process in which . . . indi-
vidual customers’ responses and transactions are
recorded . . . and the data used to inform the tar- The customer marketing database
geting, execution and control of actions . . . that are
designed to start, develop and prolong profitable An electronic library is needed to receive fresh
customer relationships. data, keep it and make it accessible, so as to main-
tain the continuous learning loop that character-
Figure 19.4 makes the point graphically. izes direct marketing.
The components of response, measurement This is the customer marketing database sys-
and continuity are common to all direct marketing tem. It brings together information from a variety
activity: of sources and links the information to customers
Response: A response is needed to acquire a (Figure 19.5).
customer and to begin compiling data relating to The database enables marketing costs to be
that customer. It is very unusual to hear of a direct reduced. This is achieved through using informa-
marketing initiative that does not have response as tion derived from:
a key stage in the communication programme.
Measurement: It has always been central to 䊉 the cost, number and value of new customers
direct marketing. Before cheap computing power obtained by source;
became available, it was already possible to record 䊉 the results of contacts with established
and measure the immediate results of marketing customers.
What do we mean by direct, data and digital marketing? 385

Who?
Reduced
marketing
costs Why? How much?

Superior
Database business
information forecasting

Where? What?
More business
per customer

When?

Figure 19.5 The customer marketing database Figure 19.6 The customer marketing database
answers six questions

For example, it may cost twice as much to acquire 䊉 Associations (i.e. same household or company as
customers from advertising in The Economist as in another customer)
The Times. But the database may reveal that Econo- 䊉 Credit status (if relevant)
mist readers buy more and stay longer, increasing
their LTV and making them more profitable.
What?
More business per customer is achieved
through using customer purchase histories, lead- 䊉 Order or enquiry
ing to: 䊉 Items ordered
䊉 Product category
䊉 better identification and segmentation of 䊉 In stock/out of stock
customers;
䊉 greater personalization and more relevant offers. Where?
䊉 Sales channel
For example, customers giving high value 䊉 Branch or media code
orders and paying promptly may receive special
treatment. Offers may reflect customers’ specific The system should allocate a unique reference
interests. number (URN) or alphanumeric code to each
Superior business forecasting is achieved by customer. This enables customer queries to be
analysing campaign and customer history data, answered all the more quickly, the URN guiding
using past performance as a guide to future per- service and sales staff to the customer record or
formance. Because the errors in past activities need transaction details.
not be repeated, efficiency should be subject to con- The system will recognize whether an order
tinuous improvement. is a repeat order from an established customer or
a first order from a new customer.
The database answers six questions
How much?
At its simplest, the database is the heart of an infor-
mation system that answers the six simple ques- 䊉 The price of each item
tions shown in Figure 19.6 every time interaction 䊉 Gross order value
occurs. 䊉 Fewer out-of-stocks
䊉 Fewer returns

Who? When?
䊉 Name and contact data 䊉 When last instruction/order received
䊉 Status (e.g. customer or prospect) 䊉 When last instruction/order fulfilled
386 The Marketing Book

Real-time data Pareto and the database: American car

Websites and contact centres can, with rental market
the right software, respond to purchase data 䊉 20 per cent of American adults rent a car at
in real time. When a customer puts a least once a year;
Manchester United Annual in the shopping 䊉 Only 5 per cent rent a car more than once;
basket this may trigger the offer of Ryan 䊉 0.2 per cent rent a car 10 or more times;
Gigg’s autobiography. 䊉 This 0.2 per cent represents one in a
Opportunistic marketing of this sort will hundred customers;
be used in combination with offers or other 䊉 One in a hundred customers provide car
special treatments that are driven by previ- rental companies with one quarter (25 per
ously captured data. cent) of their business.

Facts from The One-to-One Future,

Peppers & Rogers
Why?
䊉 Response/non-response to last promotion
䊉 Identifying code of promotion causing response
䊉 gives continuous information which is
Not every system will contain transactional automatically updated with each new transaction;
data because it will not always be available. For 䊉 reports upon, and analyses, marketing campaigns
example, Lever Brothers would not have full and tactics;
transaction data for every Persil buyer, but would 䊉 facilitates controlled tests of alternatives
have promotional responses recorded on their (e.g. product and price comparisons);
database. 䊉 provides back data (historical data) which helps
B2B customer marketing data is often more the process of predicting the future behaviour of
extensive and complex. A company may have a each and every customer.
number of identities (branches, departments and
divisions) and a good many individual buyers or Correctly used, a transactional customer database
decision makers. A business customer may also use gives a running commentary on the marketer’s
multi-channels to secure supplies of different items. ability to serve the needs of customers, highlight-
Purchases are increasingly likely to be automated, ing opportunities to increase efficiency.
using EDI, Internet exchanges or an extranet. At one time car rental advertising was almost
untargeted. But the direct marketer differentiates
between customers and non-customers, then
Advantages of the database between casual customers and regular customers
and finally between regular customers and fre-
A database exploiting transactional information quent customers. The example of the American
tells the marketer everything about customers’ car rental market shows why.
purchases updated with each new response (and The top 25 per cent of customers are those
non-response). who rent a car more than once. But within this
For example, the transactional database: exclusive group, 1 in 25 of them rents a car 10 times
or more in a year. This group, amounting to one in
䊉 includes all customers, not just a sample or cross a hundred customers (0.2 per cent of adults) is
section; worth 25 times as much as the average customer.
䊉 gives customer value data: Recency, Frequency, These extremely valuable customers provide car
Monetary Value (RFM) of purchases culminating in rental companies with a quarter of their business.
the LTV of each customer; It would be cheaper to telephone these cus-
䊉 tells us about new customers: what they tomers personally to thank them than it would to
responded to and, perhaps, which creative reach them all once with a TV commercial.
treatment appealed to them; Recognizing the value of these ‘super cus-
䊉 tells us about lost, lapsed and inactive customers; tomers’, car rental firms offered loyal users free
䊉 tells us about who buys which products and rentals at weekends. But frequent business trav-
responds to which types of incentive or message; ellers want time with their families. When this idea
What do we mean by direct, data and digital marketing? 387

Sales
The customer marketing database serves
two functions: Accounts Marketing

1 It provides management information.

2 It facilitates one-to-one customer Credit control Data warehouse Buying
communications outbound and inbound.
Stock control Distribution

failed, National Car Rental came up with a better Customer service

idea. Targeting the tired, stressed and status- Figure 19.7 The data warehouse
conscious business traveller, their answer was the
Emerald Club, having its own aisle in National’s
car lot at the airport. Members could pick any car in The whole customer
the Emerald Aisle and drive off, pausing only to
have their card ‘swiped’ at the checkout. As well as having a current account and a sav-
National’s database enabled them to: ings account, a bank customer may deal with
the home loan division, the life and general
䊉 recognize how much more valuable their best insurance divisions, the credit card division
customers were than others; and the personal investment management
䊉 discover how much business was at risk if these division. Since the average customer holds
customers were lost (it would take 33 average only 1.2 accounts, such a customer would be
new customers to replace one lost top very valuable to the bank. Yet, before the cre-
customer); ation of an enterprise-wide CRM system, the
䊉 recognize the circumstances of these customers, bank would not have recognized all of these
that is, frequent business travellers; different relationships as being with the same
䊉 send Emerald cards to the right customers. customer.

Notice that the database is used to provide both

management information and the means of com-
customer service, stock control and credit control,
municating to customers.
we can see these might all provide information
The customer marketing database not only
for the marketing database.
facilitates outbound communications but enables
Because some of these functions were seen as
customers to be recognized when they telephone
completely separate in many large businesses, and
or visit the website. The contact centre agent
may have become computerized at different
(operator) can call up the customer’s transaction
times, their systems are unlikely to be fully com-
record on screen so that the customer does not
patible. They will certainly not be compatible with
have to repeat information that the company
e-commerce systems. Old systems are referred to
should already know.
as legacy systems.
However, if essential details, such as file for-
mats, are harmonized, it is possible to store data
Data, CRM and eCRM that would otherwise simply be archived, in a
data warehouse. Now, the data can be processed
In recent years, many large companies have been in such a way that it can be analysed by a compe-
dealing with the problem of integrating data from tent person, using a PC.
a multiplicity of management information sys- The process of retrieving and analysing data
tems. The ideal solution of bringing together all from a data warehouse is called data mining. Data
relevant customer information into one customer mining is often used in businesses with masses of
marketing database system was not available to transactional data, such as banks and airlines.
these companies. The systems they used in differ- The idea of the data warehouse is to bring sys-
ent parts of the business were incompatible. tems together to form an enterprise-wide manage-
Looking at the captions in Figure 19.7: ment information system. In theory at least, this
accounts, sales, marketing, buying, distribution, permits a CRM system to be employed. The idea
388 The Marketing Book

behind CRM is that the whole of a customer’s some customers are disloyal. The true explanation
dealings with the company can be put together. may lie elsewhere. Perhaps the disloyal customers
Such systems are devised by outside software ordered goods that were out-of-stock or had to
vendors and may need extensive adaptation. return defective items.
In practice, company divisions or departments Meanwhile, the sharp reduction in data stor-
(including marketing) may find their needs better age and retrieval costs has encouraged firms to
served by data marts. These are fed by the data keep more raw data for analysis instead of sum-
warehouse but contain only information that is marizing it and archiving old data. This is a major
relevant to the departmental interest and are benefit of data warehousing.
designed to make the data easier to interrogate and
analyse.
CRM and database marketing
Integrating eCRM Although enterprise-wide CRM systems may have
grown out of database marketing (some would
When the company’s front office is a website, the say call centre operations), they have become dis-
volume of data being collected, processed and tanced from the marketing function.
managed is very large. Some data, for example
DNS (domain name system) and clickstream data, 䊉 CRM systems are essentially operational whereas
is peculiar to digital marketing. The latter, particu- marketing database systems can exploit data that
larly, can overwhelm a system unless it is summar- is downloaded from operational systems without
ized. It is not necessary to keep this information for disturbing them. Marketing database needs may be
individual customers as long as customer prefer- supplied by a data mart within a CRM system.
ences, either declared or implicit through transac- 䊉 The CRM system is generally seen as the software
tional behaviour, are recorded. that automates the front office.The front office
includes the call or contact centre, the website
and any other point of interaction between the
When human interaction is by e-mail or chat, company and its customers. Front office functions
there is a full, self-generated digital record include service as well as sales.
of the contact – unlike a phone call or field 䊉 The impetus for the adoption of CRM has not
sales visit. This record may be used to auto- necessarily been increased customer knowledge,
generate e-marketing contacts. but cost cutting. Cost cutting is achieved by
increasing productivity of customer-facing staff
and by diverting transactions down completely
automated routes.
Summary data 䊉 The CRM system may work in tandem with an
ERP (Enterprise Resource Planning) system that
The transactional database needs historical data. handles the back office functions.The emphasis is
Otherwise there can be no record of a customer’s on operational efficiency.
business relationship with the company. Usually,
the data used to portray a customer history (or the
results of a promotion) is summarized, so that it
does not occupy too much space (memory) in the
CRM and relationship marketing
system. The very name ‘customer relationship manage-
While this is very sensible because it saves ment’ implies that customers are a resource that
costs, the problem is that essential detail is some- can be managed, like the supply chain and sales
times lost. Generally speaking, the number, value staff. Although CRM feeds off customer data, it
and dates of a customer’s transactions will be is essentially neutral. It may be customer focused
retained but the merchandise categories and, cer- in a marketing sense or it may be enterprise
tainly, the actual products purchased will often be focused, being employed to seek ways to save on
lost for all except the most recent transaction. customer service. It all depends who is extracting
Furthermore, companies are usually bad at keep- actionable data and for what purpose. However,
ing customer service records. A marketing ana- the fact that a common information system is
lyst can waste hours or days looking at customer being used throughout the organization is clearly
purchase profiles, seeking an explanation for why advantageous.
What do we mean by direct, data and digital marketing? 389

The customer as relationship manager their website from Dell, removing the
necessity to buy, monitor and maintain
Two features that are apparent in all forms of servers. In this way Dell generates revenue
interactive marketing are transparency and by solving a known problem, not merely by
customer empowerment. The US software selling hardware.
producer, MicroMarketing, has devised soft- 䊉 Through opening up its order book on the
ware that enables customers to pull informa- extranet, Dell is able to make suppliers
tion out of data warehouses in order to responsible for maintaining just-in-time parts
complete transactions by web or phone. This deliveries. Suppliers can also meet on the
looks like the way of the future. extranet and collaborate to solve mutual
problems. Superior supply chain management
has given Dell a competitive edge.
CRM should not be confused with Relationship
Marketing, which is the title of an influential
book first published in 1991. Its author was Regis
McKenna, a marketing consultant known widely Who is loyal; who is not
for his work with Apple Computers.
McKenna believes that marketing is every- The database can often reveal whether a cus-
thing and doing marketing is everyone’s job. tomer’s purchase pattern indicates loyal or
The key elements of McKenna’s notion are: disloyal purchase behaviour. However, it can-
not report directly on customers’ use of com-
䊉 Select a specific market segment and dominate petitive offerings. This can only be done on a
through a superior understanding of customers’ sample basis, using marketing research. Note:
product and service needs. Integrate customers The sample for this research can be taken
into the design process. from the database.
䊉 Use monitoring, analysis and feedback to maintain
‘dynamic positioning’ that is always appropriate to
the marketing environment.
䊉 Develop partnerships with suppliers, vendors and
users to help maintain a competitive edge. Limitations of the customer
Note that this concept of relationship marketing is
information system
also quite distinct from direct marketing, although
direct marketers may be ideally placed to exploit it, The database is inward looking to the extent that
especially in an e-commerce environment. One it refers only to those customers that a business
example of a direct and digital marketer apparently already has on its books.
following McKenna’s strategy to the letter is Dell. Although it is possible to import external data
to profile customers and compare them with the
market at large, this is not a substitute for market-
Relationship marketing in action ing research.
The database, however good, remains intro-
䊉 Dell sets out to develop and dominate the
spective.
direct distribution segment of the PC
It does not admit or report upon external
market, a segment which (by value) consists
influences. Disturbance to plans and forecasts
primarily of business buyers.
may result from environmental influences, for
䊉 Dell customers ‘build’ their own computers
example the economic situation, environmental
on ordering from the Dell website. In
concerns or other newsworthy preoccupations
practice, Dell believes they ‘uptrade
which affect purchase behaviour.
themselves’ – specifying a higher
Worse, it does not report on customers’ use
performance machine than they could be
of competitors or on the success or otherwise of
‘sold’ by a salesperson. By inviting customers’
competitive initiatives. Share of customer (or
comments and suggestions and responding
share of wallet) is a key success measure in direct
accordingly, Dell is also able to keep
marketing.
innovating in a relevant way. For example,
Unless marketers are in a monopolistic situa-
DellHost allows customers to rent space for
tion and have absolutely no competitors (and
390 The Marketing Book

who is ever in that position?) they need to be fully ‘conquest sales’ (sales made to competitors’ cus-
alert to competitive influences. Competition and tomers) Toyota’s understanding of the value of
disruption may come not only from direct com- customer retention was and is central to the disci-
petitors, but also from indirect competitors. pline of direct and digital marketing.
Quantitative market research is required by all A competitor of Toyota estimated that it cost
marketers, direct or otherwise. Qualitative research five times as much to make a conquest sale as
is also needed because the database can only reveal a repeat sale. Collecting and acting on informa-
what customers are buying or not buying. It can- tion like this is the hallmark of successful direct
not say why, or suggest alternative new product marketing.
avenues with much confidence. Data analysis relies
on back data (customer history) to predict future
behaviour. While this is generally the best guide,
it is certainly not infallible. Circumstances and Summary
attitudes may change, causing sudden shifts in
demand. As we enter 2007 whilst the term ‘direct marketing’
may still carry many prejudices and misunder-
The database and research: standings, the skill sets that direct marketers have
honed over the years are even more vital to major
the last word businesses today. Direct marketing is still the
In their report The Machine that Changed the World, most accountable form of marketing. Its concepts
Womack, Jones and Roos made clear how Toyota such as LTV help to determine the value of cus-
researched consumer preferences: tomer relationships and are as important as brand
equity. Direct marketers are also better versed at
Toyota was determined never to lose a former managing the customer journey, understanding
buyer . . . it could minimise the chance of this hap- the touch points and building a one-to-one dia-
pening by using data on its consumer database to logue with customers. Equally, direct marketers
predict what Toyota buyers would want to do understand profiling and customer value seg-
next . . . unlike mass producers who conduct evalu-
mentation better than general marketers as it is
ation clinics and other survey research on ran-
domly selected buyers . . . Toyota went directly to
based on the empirical customer data they main-
its existing customers in planning new products . . . tain. Building, maintaining and utilizing customer
Established customers were treated as members of databases are at the heart of direct marketing’s
the Toyota family. strengths. While digital media has finally made
one-to-one communications in real time possible.
In one generation Toyota went from small producer As Sir Martin Sorrell has quoted that direct and
to world’s number one in the automotive market. interactive marketing will be over 50 per cent of
Clearly, if a manufacturer has 5 per cent of his global business income in the next 5 years.
the market and a 70 per cent loyalty rate, it is Direct marketing has come of age. It is increasingly
more sensible for it to learn what its customers difficult to differentiate direct marketing from mar-
want than what other manufacturers’ customers keting. As Mike Tildesley, Marketing Director of
want. Yet few of Toyota’s competitors accepted Direct Line, has said, ‘Direct marketing is market-
this obvious truth. ing – what’s the difference’. In his case everything
Toyota’s success is a triumph for good market- Mike does is direct marketing, from building the
ing, not simply a testament to Japanese technology. brand to servicing the customers via UK contact
While other manufacturers were obsessed with centres.