Direct response marketing and testing

How to assess the effectiveness of advertising/marketing programs, particularly direct response marketing - 1998

by Robert Hoffman

So far in this column weíve looked at Unique Selling Propositions and lead generating systems. One common element between the two concepts is specificity: in terms of what youíre offering, whom youíre offering it to, and what benefits it will bring to the user. Direct marketing brings that same kind of specificity to the results you obtain with every advertising or promotional expenditure.

Decades of business textbooks have taught most of us responsible for sales a form of advertising known as "institutional." The sole purpose of institutional advertising is to improve the awareness and reputation of the advertiser. In an institutional advertisement, there is no specific call to action on the part of the reader or viewer. A worst-case example is the series of absolutely bizarre television commercials for the Infiniti automobile. The screen never even shows a car.

Itís assumed that over a period of time, with a great deal of repetition, the expenditures for these advertisements will pay off in the form of increased sales. But the advertiser has no way of knowing whether the marketing is working, or whether there might be a more effective means to reach sales goals.

Most major corporations fall prey to institutional advertising. They have deep pockets, and the advertising typically is developed by large advertising agencies that are not directly responsible for the outcome of their efforts. It is virtually impossible to test the effectiveness of these kinds of ads in any scientific way.

Most businesses simply canít afford the luxury of guessing how well a particular promotion is paying back. A team of engineers might continually refine a machine to improve performance, integrate new features, and reduce manufacturing costs, all while maintaining a quality product. Likewise, the direct marketer is able to constantly test and adjust, modify, or entirely scrap different marketing elements. The ability to do this is based entirely on the ability to track performance via a direct response mechanism.

The value of direct response
A direct response mechanism is a call to action--the element of an advertisement that tells the audience what to do next. In a printed advertisement, the mechanism could be an 800 number for requesting literature. In a sales call, it might be an invitation to see a new product demonstration. A website ad might prompt the viewer to e-mail for a free sample. The key is that there is a way to capture the contactís name, address, business name, and telephone number. With this basic information you can keep track of the total responses to any given promotion or communication. Other statistics to keep track of are size of average sale, frequency of purchase, and average life of customer.

Letís say youíre comparing two media in which you advertise. For the past six months youíve captured and recorded all the information just mentioned. Medium A produces 10 leads per $1,000 spent, while Medium B produces only six leads per $1,000. Before you draw any conclusion from these figures, though, you should consider other issues. You may find that the average dollar amount of sales per lead is much higher with Medium B, or that Medium B buyers are long term customers. With this information, you can decide whether to change a poorly performing medium, or increase your presence in a more successful medium.

How to make the change
Shifting to direct response marketing doesn't require that the scrap current companyís marketing materials be scrapped. I suggest starting simply, by adding a call to action in advertisements, as I described earlier. Pay attention to the results and carefully record the data for future reference. This data will serve as a baseline to test other marketing options against, helping you develop strategies to improve your marketing plan.

The most important variables to test (that is, make changes to and then note results) include the media youíre advertising in, the wording of your advertisement or sales presentation, the mailing lists youíre working with, and your product or service price. Itís best to test only one variable at a time so it is obvious where changes originate.

How much to spend; how much to expect

Briefly, I'll introduce a tool that can be used, along with testing, to determine an affordable amount to spend, per customer, on marketing. Known as marginal net worth theory, or total customer value, it is the total revenue base an "average" customer can be expected to produce throughout that customerís relationship with your company.

After collecting enough data about customers through these testing techniques, and accruing some evidence of how long a customer will continue to patronize your business, the lifetime income flow from a customer can be calculated. Organized growth can be planned, based on goals and timetables.

I will be dealing with this concept in more detail in future articles. My next piece will be the first of a two-part article on putting together, from scratch, a basic marketing plan that works. Whether trying to get a new business up and running or unhappy with the results of current efforts, the information should be useful.

Robert A.Hoffman is an independent marketing consultant specializing in direct marketing and asset redeployment techniques. He can be reached at e-mail: