Monday, September 26, 2011

Lesson #99: The Basics of Direct Mail Marketing

Posted By: George Deeb - 9/26/2011


& Comment

With the invention of email and mobile marketing, I assumed the direct mail marketing business would slowly die on the vine, given the heavy expense of producing and mailing the marketing materials. That may ultimately become its fate, as younger users, who prefer electronic media, get older. But, today, particularly for an older demographic, direct mail is still heavily used, particularly by catalog retailers, tour operators and vendors of local services. Today's lesson will summarize the basics of direct mail marketing.

The key things that drive the success of a direct mail campaign are: (i) the cost to produce and mail the piece; (ii) the type/quality/customization of the marketing piece; (iii) the quality/targeting of the mailing list; (iv) the quality of the offer; and (v) proper conversion tracking on the backend. I will address each of these points below.

The cost of the marketing piece has six components: (a) the cost of the list; (b) the cost of design; (c) the cost of printing; (d) the cost of shipping; (e) the size of the mailing; and (f) the cost of the offer, if any. If you are mailing your inhouse mailing list, there is no cost of mailing to your own names. But, if you are renting a mailing list from the major services like Experian, or dropping to a targeted media partner's list like Forbes Magazine, there are typically fees of $25-$50 per 1,000 names pulled to access such list (which can certainly add up the more names you pull). The cost of design will be cheaper by using your on-staff creative designer than using an agency, which can cost 15% more for the hourly time invested in the piece. Design costs can certainly add up depending on whether you are dropping a one-side post card or a 100 page catalog.

Printing costs can wildly vary based on where you have the piece printed and how big the piece is. One of the cheapest places for printing is South Korea, even after including the overseas shipping costs. So, depending on the size of your run, consider both domestic and overseas options, via the assistance of printing management companies. And, the per piece printing costs can vary from $0.10 per peice for simple postcards to $2.00 per piece for fancy catalogs (understanding per unit prices will be lower for higher volume runs than lower volume runs). A typical test run would not be less than 5,000-10,000 pieces, since the conversion rate on direct mail is only like 0.2%, on average. Dropping any fewer pieces is unlikely to deliver any conversions. And, on the high end, mailings can get into the millions depending on your budget and the size of your target market (e.g,. marketing toothbrushes that appeal to 100% of market; or Kenya safaris that appeal to 10% of market).

In addition, variables like four-color printing on thick page stock, will cost more than black and white postcards on thin page stock, so plan accordingly in your budgets. But, don't cheap out here. You are trying to break through the clutter of junk mail going to the mail box that most likely gets tossed unnoticed (hence the low conversion rates). So, an eye-popping creative will get their attention better than a bland creative. And, where possible, digital printers now have the flexibility to customize the printing to the recipient level. They can swap-in a person's name into the creative, or swap-in a man's photo for male recipients vs. woman's photo for female recipients. So, ask about these customization options with your printers.

And, don't forget, you are going to have to pay the U.S. Postal Service to get these pieces to the homes of your target recipients. Postage rates can vary significantly (from $0.15 to $2.00) based on the size of the piece, and whether or not they are pre-sorted. So, don't forget to include the postage costs in your budgeting process, and use a mailing service to assist you here with the pre-sorting process to help lower your postage costs.

Given the huge expense of direct mail, I am always a fan of doing more with less with your creatives. Dropping a postcard with a 50%-off offer, with more details available on the website, is more cost effective than dropping a multi-page piece detailing the offer by mail. Think of it as using the piece to get recipients to "self select" themselves into wanting to learn more. Tour operators are pros at this. They don't use 100 page catalogs for new customer acquisitions, given the heavy expense. Instead, they send a post card asking the recipient to profile themselves in terms of their desired trips and activities. And, then, they drop targeted catalogs to such recipients after they get their postcards replies back.

More important than anything is making sure your mailing is targeted to users that are actually interested in your products. As an example, at iExplore we had a lot more luck direct mailing the National Geographic list, than we had direct mailing the Gourmet Magazine list, even though they both served similar high-end demographics. And, as another example, if you are selling a new computer networking product, that is going to get a much higher response from CTO's than CEO's, and better yet, a list of systems network adminstrators would perform better yet. And, as another example, if you are a Nursery School looking for new students for your school in Winnetka, IL, limit your direct mailings to zip code 60093, the most logical direct marketing area (DMA) to pull students from. You can do sophisticated PRISM analyses to help you identify which zip codes are most appropriate to market your product or services (e.g., which zip codes have the highest average income). The better the targeting, the better your ROI. Period.

And, don't forget, mailing lists go stale at a rate of 20% per year with people moving to new addresses. So, make sure you are dropping to a freshly updated list to make sure your mailing gets to your desired recipient. I would avoid any lists older than one year old.

The quality of the offer is also important. And, what you think may be exciting to consumers, may not be. So, do a few small tests with variable offers to see which one performs best, before dropping to a much broader list. But, in all cases, I am a huge fan of: (a) some special offer; and (b) a deadline to redeem such offer, to create a sense of urgency. So, at iExplore, we would not send a generic "learn more about iExplore" mailing. We would send a specific and meaningful offer like, "save $1,000 on any new booking made within 30 days" (which can materially increase the cost of the overall direct mailing including the other costs above, so make sure you have enough margin to work with here to cover all costs, including the offer).

And, if you are a catalog marketer. Think of each quarter page of your catalog as a unique piece of real estate. You want to slot merchandise in each quarter page that converts at the same high level. If you have any slow sellers, swap them out for higher producers. Each inch of real estate matters in optimization the ROI from your expensive direct mail efforts.

And, underlying all of this is proper conversion tracking on the backend. There is a reason all catalogers ask you to read them the six digit tracking code in the pink box on the back of the catalog. They want to know what piece you are calling from, and see if the buyer is the same person the catalog was sent to, or if a new person not on the original list is calling, who borrowed the catalog from a friend. But, most importantly, they are adding up all the sales/profits from the direct mail piece, to compare it to their total costs of the piece for calculating the ROI from that initiative. Then, they are able to fine tune and tweak future pieces with the learnings therefrom. The best direct mailers are the ones that have done it for years and have optimized accordingly with each iteration (e.g., so not necessary the best tactic for startups with limited budgets).

Direct mail is a very big topic that deserves more space than allocated in this short lesson. But, frankly, as a startup, your marketing dollars may be more efficiently spent in other areas (e.g., search engine marketing, emailings, social media). So, make sure you have fully exhausted your higher ROI tactics before getting into the expensive world of direct mail.

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