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Accountability in advertising and marketing is becoming increasingly important, given the proliferation of media options and limited resources available to small and medium enterprises.
More so, when the markets have not been in the best of health for the past two years. Before approving a budget request, more and more companies will demand a return on investment (ROI).
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In this scenario, we may need to add some new marketing skills to our arsenal. A true understanding of direct-response advertising and the skills it requires will be essential.
How could a tool associated only with direct mail be so critical? Direct-response advertising is much more than direct mail, it is separate from general advertising and can be used in all media.
Understanding when and how to use it is key. Direct-response advertising is an overall approach to marketing, where the goal is immediate action and information about the action is tracked, recorded, and analysed, hopefully in a database, to improve relevance to customers.
Looking at this definition, we can see that many of our current campaigns are direct-response efforts, for example, TV, newspaper, or magazine campaigns that drive response to a specific number or email ID.
Benefits of direct-response advertising include accountable marketing expenditures through tracking that can determine exactly how funds are spent.
The direct response allows you to maximise your results by focusing on products, markets, media and offers that deliver the strongest results.
Most of us are most familiar with general or image advertising. Image advertising should be used when our primary objectives are building awareness, introducing something, creating an image, building a brand, or establishing a positioning.
Direct-response advertising should be used when our primary objectives include generating leads or sales. Because image advertising and direct-response advertising are used to accomplish very different objectives, they use different techniques.
Image advertising strives for attitude change and should trigger name recognition. It incorporates strong branding elements, emotion, fantasy, imagery, and repetition.
Direct-response advertising seeks behavioural change and should generate immediate action by using a specific offer, product information and reason. The objectives are quantifiable and may include sales, new accounts, or new customers.
The number of calls, the number of information requests, or the number of leads is not the objective in a direct-response campaign. You could have fabulous store traffic, mail out thousands of information packets, and generate a flood of phone calls and still have a highly ineffective programme if these never turn into new accounts or closed sales.
Budgets for direct-response advertising also start with objectives and then work backward to determine how many households or potential clients must be reached.
A case in point: For a lead generation programme, we might set a campaign objective of 10,000 sales, determine the average close ratio (leads to sales) to be 25 percent and determine the number of qualified leads needed to generate 10,000 sales (40,000 responses). Then determine how much it will cost to bring in 40,000 qualified leads. That equals our budget.
If the past response is 5 percent, then 800,000 pieces need to be mailed out to yield 40000 qualified leads. For print, if the past response is 2 percent, then a reach of 2 million is needed to yield 40000 qualified leads.
We then price an 800,000-piece direct mail campaign or a print campaign that reaches two million readers. If we can't run a campaign that mails these many pieces or reaches this many readers due to budget constraints, then our objectives need to be modified.
It is critical to run these numbers before a campaign begins to ensure that management understands the economics of the promotion.
Marketing expenses revolve around gross margin per sale. Usually, the maximum we can afford to spend equals the expected gross profit the customer accounts will generate. This assumes we are willing to bring in customers or generate sales to break even, with the hope we can cross-sell additional revenue-generating products or services, or begin to earn revenue on the account after the first sale.
If we have to do better than break-even, then the maximum we can afford to spend is less than the gross profit per sale.
To compute the complete expected profit picture per customer, two pieces of information are needed: gross profit per product, or account, per year, and the average length of time each type of account or customer stays with us.
These two measures allow us to compute the lifetime values of accounts. It may be worth bringing in customers at the break-even point or a loss, if, over time, the profit potential is good.
Once we know the maximum amount we can spend to bring in new sales or customers, we can use cost benchmarks in planning a direct-response campaign.
If we know we have brought in new sales or customers at Rs xx a sale, then the cost-effectiveness of every promotional vehicle can be measured against that benchmark.
If backing into our budget based on the objectives, cost benchmarks, gross profit, average time as a customer, and lifetime value measures are not essential components of our marketing plans now, they should be.
Successful marketers will make better use of the powerful tools of direct-response advertising. For maximising results through careful testing, providing accountable advertising expenditures and ensuring profitable programmes by more attention to the numbers, direct-response advertising remains unbeatable.