In India, direct marketing is fast catching up as an instrument for promoting goods and services. What is direct marketing (DM)? What are its different forms? Why is it becoming so popular? To know more, read the following article.
When Shoppers’ Stop sends you a mailer detailing its latest season stock, what it is indulging in is direct marketing. In simpler terms, direct marketing means, sending a promotional message directly to consumers, rather than via a mass medium. Instead of putting up an advertisement on television, when a mailer is sent directly, a direct communication has been established with the customer.
Forms of Direct Marketing
Direct response advertising may be communicated in many forms: email, snail mail, telephone, print, computer or any other interactive medium.
Direct marketing may lead to any one of the following three responses from the customer:-
- Inquiry (A credit card company calls you up and you make an inquiry about the interest rate)
- Order (You place a order after reading a mailer sent by Shopper’s Stop)
- Contribution (The local politician sent you an appeal requesting you to vote for him and you did so)
Need for Direct Marketing
With the rapidly escalating advertising spends, be it on television or radio by the various companies; customers have almost reached their saturation limits with respect to this traditional form of advertising. Many of them have also started distrusting the claims made by companies.
Direct marketing has become extremely popular due to the cost advantage. The typical spend on television by high power brands like Lux or Ariel is in the range of Rs. 50-100 crores every year. There is no way to objectively evaluate the return on investment. Every time an advertisement is aired, marketers are not able to quantify, how much of the spend actually gets noticed and propels the customer to make the purchase. Viewers are in the entertainment mode when they watch television and given the high profile advertising these days, it is not clear which advertisements actually register in the minds of viewers. An excess of 20 channels further accentuates this dilemma as marketers have to grapple with the tough task of deciding the channel on which to air their advertisement.
In such a scenario, the concept of direct marketing is an extremely lucrative option. When a credit card company say ICICI sends you a mailer, the cost to the company is less than Rs. 1/-. If the conversion rate is even 1 in every 100 which is a very pessimistic figure, the company has spent less than Rs. 100/- on getting the mindspace of that one customer. Given a budget of 50 crores, ICICI can actually send more than 50 crore mailers and can hope to get more than 50 lakh prospective customers to buy the product.
Thus, direct marketing is a very cost effective means of reaching the target audience.
In a developed country like the US, direct marketing has another advantage. Let us assume that a company thinks of a new product offering. In India, the company would have to advertise on television and this allows the competition to immediately catch up. However, when the new product mix is offered to customers through mail, it takes some time for the competition to learn of it and react.
But then the obvious question is why do companies not switch exclusively to direct marketing?
One of the reasons for companies not switching to direct marketing is the non-availability of data. In developed countries like the US, every citizen has a social security number through which they can be recognised. Databases are also available which contain the records of all US citizens with their contact numbers and addresses. This kind of information is not available in India and hence companies find it hard to contact the targeted group of customers in entirety.
To secure access to such data, companies sponsor events, wherein besides informing target customers about their products, they also get the database of all visitors to the fair from the organisers to further their direct marketing initiatives.
The size and geography of our country prevents companies from getting thorough information about the customers. In a country such as ours, where a majority of people reside in the rural areas, getting this information is quite a struggle.
Direct Marketing Media:
Direct marketing operates through the following media:-
- The telephone
This is probably one of the best media for direct marketing. Instead of depending upon a mailer or a television advertisement to convince the prospective customer, the company representative directly interacts with them and tries to clarify all doubts and apprehensions that they may have.
Kiosks are not very popular in India but work very well in the western world. When you make a call at a ZIP Phone Booth or an ICICI ATM machine, you are faced with a little more than just advertisements of different companies. Any further information you require is available on clicking a few buttons.
Most email users are faced with the ubiquitous junk mail. But when direct marketing companies send you junk mail, its effectiveness is questionable, but it is definitely cost effective. An issue that is raised is the customer irritation at unsolicited mail and the consequent negative publicity it may generate.
This means of direct advertising is very regularly used. Banks, shopping malls and other similar businesses send mailers informing you of their latest product offerings.
Potential in India
The potential for direct marketing in a country such as ours is huge. The only concern remains getting information about the various customers in order to contact them.
Companies need to make substantial investments in getting databases of target customers and once the data is in, they must cash on it by contacting the customers, offering them current products, taking feedback on the products and making necessary changes to meet their expectations.
In India most sectors dealing with consumer goods are likely to take to DM, the nature of using direct marketing will also vary with the image the company wants to portray. For instance a company like Mercedes would not use direct marketing to advertise its cars on kiosks the way Hyundai does. Hyundai uses kiosks since their cars have the potential to be the first cars, which people would buy and hence their target audience is a huge subset of the Indian population.
The top three industries likely to reap maximum benefits from direct marketing: –
- Retail industry: Direct marketing is an ideal medium for the retail industry. The reason being the need of the retail industry to keep the customers informed of the latest offerings, which they have to make. For this, the database can be generated through loyalty programs, in which they procure the contact details of their regular customers and keep in touch with them through telephone or mailers.
- Financial services: With the increasing awareness of financial service products, companies may want to take first mover advantage by using direct marketing and then hooking on to the customers by offering them different products.
- Banks: In India, since the disposable income of the people is constantly on the rise, a number of banks offer credit cards and other loans. These services are very competitive and have different offerings at different times of the year. Hence, these banking services can also greatly exploit the advantages of direct marketing.
Media Spend Strategies:
Direct marketing does not make other forms of marketing void. If a new bank; say, Bank X has to enter India and sell credit cards; we cannot expect the bank to initially adopt direct marketing. The customers only seriously look at your offering if your brand name exists in the market. However, for you to build that trust among customers, television is the starting point. Television advertisements portray the seriousness with which the company is looking at the Indian market. If the customer sees Bank X’s credit cards advertisements on television, then he will think that the company is big and hence will then seriously look at the direct marketing claims made by the company.
Thus, direct marketing must supplement the other marketing initiatives taken by the company.
While several economic advantages have been sighted, several direct marketing efforts tend to fail because: –
- People get customers through direct marketing but do not know how to retain them, and hence lose them blaming it on direct marketing
- Marketers are not serious about direct marketing. Some marketers who are not convinced of this method, do not put in the required effort thus leading to poor results
- This method though cheaper, will get only individuals convinced. Hence, for a company / industry which is looking at getting thousands of customers in the first month, this means of marketing is not suitable. You would rather switch to television marketing which though more expensive is much faster in reaching the audience
- Direct marketing requires constant maintenance of communication with the customer because it sets an expectation in the customer’s mind that he will always be informed of any new offer
To sum up, we see that the advantages of direct marketing are enormous and very cost effective, provided the company believes in it and takes this marketing initiative very seriously. To sum it all, whether any company takes it seriously or not, direct marketing is here to stay.
There are two types of segmentation variables:
The basic criteria for segmenting a market are customer needs. To find the needs of customers in a market, it is necessary to undertake market research.
Profilers are the descriptive, measurable customer characteristics (such as location, age, nationality, gender, income) that can be used to inform a segmentation exercise.
The most common profilers used in customer segmentation include the following:
- Region of the country
- Urban or rural
- Age, sex, family size
- Income, occupation, education
- Religion, race, nationality
- Social class
- Lifestyle type
- Personality type
- Product usage – e.g. light, medium ,heavy users
- Brand loyalty: none, medium, high
- Type of user (e.g. with meals, special occasions)
1. Better matching of customer needs: Customer needs differ. Creating separate offers for each segment makes sense and provides customers with a better solution
2. Enhanced profits for business: Customers have different disposable income. They are, therefore, different in how sensitive they are to price. By segmenting markets, businesses can raise average prices and subsequently enhance profits
3.Better opportunities for growth: Market segmentation can build sales. For example, customers can be encouraged to “trade-up” after being introduced to a particular product with an introductory, lower-priced product
4. Retain more customers: Customer circumstances change, for example they grow older, form families, change jobs or get promoted, change their buying patterns. By marketing products that appeal to customers at different stages of their life (“life-cycle”), a business can retain customers who might otherwise switch to competing products and brands
5.Target marketing communications: Businesses need to deliver their marketing message to a relevant customer audience. If the target market is too broad, there is a strong risk that (1) the key customers are missed and (2) the cost of communicating to customers becomes too high / unprofitable. By segmenting markets, the target customer can be reached more often and at lower cost
6.Gain share of the market segment: Unless a business has a strong or leading share of a market, it is unlikely to be maximising its profitability. Minor brands suffer from lack of scale economies in production and marketing, pressures from distributors and limited space on the shelves.
Through careful segmentation and targeting, businesses can often achieve competitive production and marketing costs and become the preferred choice of customers and distributors. In other words, segmentation offers the opportunity for smaller firms to compete with bigger ones.
Understanding how consumers “see” the firm, brand, or product relative to competitors is important It is helpful to check whether the desired product positioning has been achieved or not
Data Collection & Profile Analysis
There are a variety of ways to collect perception data, including:
1. Rating Scale (ex. L’Oreal used a 1-10 scale to indicate the extent to which consumers agreed with statements such as “Plentitude is technologically advanced”; where 1 = completely disagree and 10 = completely agree.
2. Semantic Differential Scale – a variant of the rating scale, the semantic differential scale has five or seven points with polar adjectives at either end of the spectrum (ex. Barco Projectors are:
Unreliable ______ ______ ______ ______ ______ Reliable
Poor Value ______ ______ ______ ______ ______ Good Value)
Perception Data – What people see
Preference Data – What people like
When analyzing perception data, we are more willing to live with an assumption of homogeneity in responses across consumers (i.e. two people are both likely to perceive Volvo as a safe car, but our desires for a safe car might be very different)
If one suspects that perception data varies across groups, then the data can be broken out and analyzed by specific groups (i.e. Inexperience users vs. Experienced users; Young vs. Old)
If one suspects that perception data is the same across all respondents, then the data can be averaged. Once averaged, the data can be visually represented in a Profile Analysis or Snake Plot).
Snake plots work best when the number of brands/products compared is small (2-3).
a market-oriented strategy that establishes a profitable and sustainable market position for the firm against all forces that determine industry competition by continuously creating and developing a competitive advantage from the potential sources that exist in a firm’s value chain.
The key elements are:
- Market-oriented: the strategy is based upon the needs and wants of the marketplace.
- Establishes a profitable market position: the end goal of the strategy is tomake a profit in the for-profit sector or to meet alternative metrics such as in the not-for-profit sector. In the latter case for example, a road safety campaign based on a particular marketing strategy might ‘make a profit’ if there is a decline in road injuries and deaths attributed to it.
- Establishes a sustainable market position: marketing strategy is not about one-off transactions. The aim is to reach a point where an organization finds a place in the market that fits its available marketing resources.
- Forces that determine industry competition: these are all the complex mix of ingredients that create the marketing ‘whirlwind’, such as government regulation, global competition, or the extent of buyers’ knowledge and understanding of a particular market.
- Continuously creating and developing a competitive advantage: few (if any) organizations can just rest on their laurels, so the idea is to find a spot where, if need be, the primary challenges can be tackled. Not all organizations have to do this on a continuous basis of course, but if it had to, an organization with a sound competitive marketing strategy would be able to. A simple example: you might make the best tomato ketchup in the best-recognized glass bottles, but if the market moves towards plastic ‘squeezy’ bottles you need to be able to adapt.
- Potential sources that exist in a firm’s value chain: competitive marketing strategy relates to what value any organization wants to create using its available marketing resources.
The Howard Sheth Model of Buying Behaviour serves two purposes:
1. It indicates how complex the whole question of consumer behaviour is.
2. It provides the framework for including various concepts like learning, perception, attitudes, etc., which play a role in influencing consumer behaviour.
Inputs: In the Howard Sheth theory, the most significant stimulus affecting the buying behaviour are the information cues about the characteristics of the product. These cues may be significant if it comes to the buyer from the product itself when he is involved in a shopping activity. A similar set of cues, which are symbolic in nature, may also act as information sources. Both these significative and symbolic information cues represent the firms marketing efforts. The broad or product characteristics acting as information cues are quality, price, distinctiveness, service and availability.
There are impersonal sources like mass media communications and advertising, over which the firm has no control. However, the information sources also include sales and service personnel who can add and help the marketing efforts of the firm. The third source is social information cues which could affect buying behaviour towards the product or brand and these include family, friends or other members of the group with whom buyer comes into contact or to which he aspires to be in. The social source is personal and the company marketer has no control over this source.
Perceptual Constructs: This refers to all the complex states or psychological processes (perception) and how the individual deals with the information cues received from various sources. It can be seen that all information available is not attended to (attention) and may not always be crystal clear in its meanings
(ambiguity). Although the individual may be engaged in an overt search for information, sometimes he/she may be bombarded with unwanted information. Moreover, any information cues to which the individual may attend may be distorted (perceptual bias) as result of his own frame of reference.
Learning Constructs: The second set of hypothetical constructs in the Howard Sheth model of buying behaviour are more complex and numerous. ‘Motives’ refers to the goals the individual attempts to achieve
through his/her buying behaviour. These goals are derived from the various drives (needs), which may be acting as a cue for his/her motive.
More closely related to the buyers intention in his attitude towards the product/brand. Whether he/she formed a positive attitude towards the product/brand. Other learning constructs include ‘brand comprehension’ i.e.,
knowledge/awareness about the brand characteristic features that forms the basis for the buyers evoked set of alternatives; choice criteria, and the confidence the individual has about his/ her brand comprehension, attitudes, or intentions. Finally, the Howard Sheth model includes a construct, ‘satisfaction’. This refers to ‘feedback’ mechanism, i.e., the post purchase and post use evaluation of the output of the process.
Output: The purchase decision is the output. If after using the product, the consumer is satisfied with it, this will reinforce his positive attitude and purchase intent about the product and brand. Also, the positive attitude makes the consumer more attentive to the product/brand’s stimuli and further increases his brand comprehension.
If the consumer is dissatisfied with experience of using the product/brand, it will trigger off a reaction of negative attitude, low attention to the product stimuli. Poor brand comprehension and negative intention to purchase.
Exogenous or external Variables: Howard Sheth model theory also includes a number of variables, which are not explained but have a bearing on some or all of the constructs discussed above and indirectly
influences the output or consumer response.
1. Social and organizational setting: Man is basically a social animal. Because of his interactions with various groups and society, they look to each other for guidance regarding what to buy, how to buy/dress, etc.
2. Social class: In order to conform to the norms of the social class to which he/she belongs, the individual will be engaged in a behaviour, which will be acceptable to the social class to which it belongs.
3. Culture: refers to the shared, somewhat consistent pattern of behaviour of a group of people. Each culture has a set of beliefs, values, etc. So the pattern of buyer behaviour will be based on a pattern of behaviour shared in a specific subset of a larger culture-a subculture trait.
4. Purchasing power/ Financial status: The money/income available for purchasing goods and services during some specific time period also plays a role in influencing the consumption pattern and thereby his buying behaviour.
i. Information processing: this component comprises the consumer’s selective exposure, attention, comprehension and retention of stimuli relating to a product or brand received from marketing and non-marketing sources. As a marketer, the first step is to ensure that a consumer is exposed to your message or stimuli, pays attention to it, understands what it is all about and also remembers it.
- Stored information and past experience about the product/brand which serves as a memory for comparing different alternatives;
- Evaluative criteria which the consumer uses in judging the alternatives;
- General and specific attitudes which influence the purchase decision;
- Basic personality traits, which influence how the consumer is likely to respond to various alternatives.
- Problem recognition
- Internal search and evaluation
- External search and evaluation
- Purchase processes
- Decision outcomes
If the purchase decision is such that it requires extensive problem solving, the consumer would go through all the above five stages. In case of limited problem solving or routinised response behaviour, some of the intervening stages may be skipped and the consumer may directly reach the purchase decision.
iv. Environmental Influences: The environmental factors that may influence the consumer’s purchase decision are income, culture, family, social class and physical situations. Depending on the specific product under consideration, these factors may have a favorable or unfavorable influence on the purchase decision.
1. E-commerce (in B2C) should necessarily focus on value benefits. Value, in this context, could be the additional price discount, which is offered by the e-store. Retailing, the world over, is banking on the aspect of price (Wal-Mart, KMart
and other large retailers). Amazon.com‘s prices are 30 to 40 per cent lower than the prices offered in brick and mortar stores. Hence, there is a need to combine
information oriented non-transactional programmes with the low-price strategies.
2. Excitement in the form of exclusive launches may be required to keep online customers coming back to the
store. Fabmart recently had an exclusive launch on the Net.
3. Studies show that if customer retention is increased by five per cent, profits go up by 25-30 per cent. An allied finding in research studies is that new customers cost about 20-40 per cent more than that compared to traditional retail outlets but repeat consumers spend twice as much in the second and third year than what they spend in the first six months (in certain categories). Perhaps, thats why e-stores expand their product categories even at the cost of focus. (Amazon.com deals with categories such as books, music, grocery and gift items and has the infrastructure to deal with 16 million stock keeping units.) Repeat consumers are also known to spread the word of mouse through referrals. CRM, in this context, has to show great care in segmenting customers and offerings, which are customised to these micro-niches. Micro-niches could emerge as a result of diversity in preferences across categories. Yet again, the lifetime value of customers selected for relationships becomes critical, apart from the technological infrastructure required for tracking the preferences of these customers after winning their through interactive ways.
CRM could be a very useful marketing tool if marketers are able to integrate conceptual thinking and sophisticated technology.