QUESTION: I am thinking about using direct mail to drive prospective customers to my call center or to my website to order my products. Do you have any advice?
ANSWER: Many people think that the direct mail channel is dead or dying. We beg to differ. A quick check of our mailbox finds multiple pieces of direct mail every day. This wouldn’t be the case if the channel weren’t still profitable.
Direct mail can be an incredibly powerful marketing tool. It can also be a black hole into which you pour money without a return on your investment. Below are five tips to help make sure you are on the right side of the ledger.
1. Identify your mailing list. If you’re going to use direct mail, you must have a list of names and addresses. There are many sources. If you’re offering a credit product, the credit bureaus are an excellent source of names. However, there are rules about the types of offer you must make and the penalties for noncompliance can be severe — know and follow the rules. Beyond that, there are literally hundreds of vertical lists that can be purchased. Make sure that the people you send mail to are in your target demographic. Selecting the right list is a critical first step.
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2. Test and learn. Direct mail should be a never-ending cycle of testing and learning. Dimensions you’ll want to test include:
Market segments: Blindly mailing a list of names is not likely to be fruitful. You’ll want to identify segments of the list that you expect to perform better than others based on the specific offer you are making. When you buy a list, it might lack the data you need to do effective segmentation. There are services such as Epsilon that will allow you to append additional information to the lists you purchase to enable segmentation. For example, you might have name and address, but want to add income or net worth to improve targeting.
Offers: Test offers that are substantively different. For example, if you reduce the price by 10%, does volume increase enough to cover the lost margin? Remember, one offer might be more profitable with a particular segment; another offer might win in a different segment.
Creatives: Does a stealth envelop (one in which it isn’t possible to tell what is inside) deliver better results than one that highlights the offer on the outside? You should continuously test your current champion against new challengers. The performance of champions will degrade over time. Ultimately, you should have a group of proven winners that you rotate in and out, testing new challengers at each step.
Cadence: How often do you plan to mail? Because you are driving response to a call center, you’ll want to create a relatively smooth volume of calls. Response models can be built that will allow you to predict call volumes based on a particular mail-drop strategy. You’ll want to test re-mail strategies. How long should you wait after you have mailed a nonresponder to mail the person again?
While testing, choose your sample size carefully. Testing a sample that is very large can be expensive. After all, the fact that you are testing means that performance is unproven. On the other hand, if your sample size is too small, results might not be statistically meaningful. You’ll need to strike a balance.
3. Analyze results. If you are going to learn from your testing, you’ll need to analyze the results carefully. Make sure you understand the full economics of your testing. It is great to have a high gross response rate, but you’ll need to understand your close rate and the amount of money you make from each closed sale. Consider all of your costs, not just your mail costs. We suggest building a profitability model to ensure that your direct mail program is profitable when all costs are considered.
4. Roll out. Once you have identified segments that are clearly profitable, you’ll want to roll out with the maximum volume you can handle operationally. This is why you need to be sure that you fully understand the economics and that your understanding is based on statistically significant differences. You might go from dropping 10,000 pieces of mail in a test cell to rolling out with 2 million pieces. If you thought you were going to make 5 cents per piece mailed, but instead you lose 5 cents per piece mailed, the results could be devastating.
5. Work with an expert. There are many pitfalls. We strongly advise you not to go it alone. Work with someone who knows what to do and what not to do. The money you spend on good advice will be worth every penny. Once you learn the ropes, you might find that there are pieces of the process you will want to take over. There will also likely be parts of the process that you will continue to outsource.
In the right industry, a well-managed direct-mail program can be profitable. Unfortunately, a mismanaged rollout can bankrupt your company. The tips above will help you stay on the positive side of the ledger.
Doug and Polly White have an ownership stake in Gather, a company that designs and operates collaborative workspaces. Polly’s focus is on human resources and people management. Doug’s areas of expertise are business strategy, operations and finance.