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Direct Mail vs. Outbound – Which is Best?

For business to business high tech sales, which performs better – outbound from a database, or direct mail to the same audience? Joe Krisky, President of the Massini Group, and Diane Mayer, Business Development Manager of Saligent, Inc. reported recently on a head-to-head test they conducted for Tektronix last year. The results are quite interesting.
High tech solutions are usually purchased by buying groups in host companies, rather than simply by individuals. These groups usually include people with diverse personal backgrounds and points of view. To reach a decision, the groups meet together to discuss the merits of various competing products. In their deliberations, they look for information to make an informed choice. To compete in such a world, companies like Tektronix have to build a database that contains the names of a number of people in each target company: users, specifiers, influencers, and decision makers.
Joe Krisky worked for a couple of years advising Tektronix and helping them to build, to clean, and to populate their database with the right people. The names came from a variety of sources: D&B lists, sales force contributions, trade show attendees, and previous outbound efforts.
Large high-tech purchases are seldom bought on impulse. They are the result of a deliberative process that is often as much dependent on the fiscal and buying cycle of the purchasing company as it is on their immediate needs. Typically, the provider has to reach the group members and help them to recognize the need for the product. Once this is done, it is possible to develop their expectations about what the new offerings can do for their situation. At this point, some individuals within the buying company may acknowledge the possibilities inherent in the new products, and begin to collect evidence about what is out there. Finally they make a choice. The process takes weeks, and often months or even years. Each company is operating on their own internal time line, which is difficult for outsiders to be aware of.
Into this buying situation, introduce a high tech supplier, like Tektronix, who is interested in sales – now. What is the best way to reach the right people at the right time that have made up their minds and are ready to buy? Tektronix, like other high tech providers has a long history of well-targeted direct mail. The cost of their direct mail packages – running well over a dollar each – is far lower than the cost of outbound telemarketing, which averages $8 to $10 per call. Clearly talking directly to a potential buyer on the phone is better than sending her a direct mail piece. But how much better? How can you compare the cost of mail and phone and know that you are making the right decision?
This is where Joe Krisky’s methods helped Tektronix make important marketing decisions. Looking at the buying cycle, Joe realized that successful product launch was heavily dependent on a strong marketing database. He felt that Tektronix had to create a solutions-oriented message, which could feed buying group’s informational needs, and build a base for future programs and tactics. Simply stated, only a few companies are ready to buy at the time that they are contacted by mail or phone. The goal, therefore, has to be not only short-term success, but also long term cultivation. The target audience has to absorb information that can help to initiate their buying process, even though the decision might be months away. Joe called his database directed outbound program a “Calldown”, designed to obtain qualified sales opportunities for Tektronix inside and outside sales.
For the direct mail piece, Joe used the current control: an introductory mailer that had beaten other packages in previous tests. For Calldown, he turned to Saligent who provided several outbound callers.
The dedicated telemarketers were specially trained for this program in a one-day program. Once they had the formal training, the Saligent staff engaged in role playing with two Tektronix technical personnel. They pretended that they were on the telephone. The Saligent staff went through the script, and Tektronix account managers created scenarios that matched the type of companies that would buy the product. “What does this thing do? Why do I need it? How can I use it in my work?” The account manager for Tektronix had both inside sales and the outside sales force available to follow up on leads generated in the process. The Saligent staff had to learn the Tektronix sales structure so as to hand the calls off to the right people. They had to make decisions, based on their conversations with prospect personnel, as to whether those called were ready to buy or in a position to buy at a later time.
To measure success in this environment, Joe defined four measures of the step by step marketing tactic. They were:

  • Reach Ratio– total number of recipients of the initial offer or contact
  • Response Ratio – total number of responses completed divided by the reach
  • Qualify Ratio – total number of qualified leads divided by the response
  • Convert Ratio – total number of leads taken over by sales divided by the qualified leads
Tektronix budgeted enough for a head-to-head test of direct mail Vs outbound. The funds were divided equally between the two tactics. Here is how Joe’s analytical system scored the two approaches:
Mailer 11.2 1 4.4 1 49.28
Calldown 1 72.2 1 2.3 166.06

What this chart shows is that, for the same investment, they sent out 11.2 direct mail pieces for every attempted phone call. In terms of response, they made contact with 72 times as many people, for the same investment, using the telephone as they did with the direct mail. This needs clarification. The direct mail piece called on the recipient to call an 800 number to talk about the product. In the outbound, the caller reached someone in the target company with whom they discussed the product. Those who were reached by phone were not necessarily interested in the product, whereas almost all of those who called the 800 number were interested. That is the reason why the mail generated four times as many qualified leads per dollar spent as the outbound program. The proof of the pudding, however, was in the actual sales calls made. In this, the outbound program produced 2.3 times as many sales call appointments as the direct mail program for an equal investment of marketing funds.
The importance of referrals
Why are all these measurements necessary? Why not simply look at the conversion ratio column? This is short-term thinking. Because of the buying cycle of Tektronix customers, talking to technical people, building their awareness, stimulating their interest, developing their expectations, can have long term implications for future sales. While they were on the phone, the Saligent telemarketers asked for the names of other technical people within the same company who might want information on the new product. In a significant number of cases they were given appropriate names which were entered into the Tektronix database. These names proved valuable for future contacts and sales.
When the performance of both methods was compared based on their yield for short term success Vs long term opportunities, the differences were even more striking:
Short Term Yield Long TermYield
Mailer 1 1
Calldown 3.4 9.4
The first column is simply a summary of the last column of the previous chart: in terms of short-term sales. The Calldown program produced 3.4 times as much yield for the same investment as the mailing program. Over the long haul, however, the Calldown produced 9.4 times as much value for Tektronix as the mailer. Why? Direct mail, while productive in direct sales, seldom produces any significant future opportunities or referrals. Outbound calling is much more likely to result in productive referrals. Krisky defines short-term yields as those leads which “have a reason to buy” plus those “ready to buy” divided by the reach. Long term yields are those leads in a “position to buy” divided by the reach.
It is important to understand that both the phone and the mail program were working from the same database of active prospects. These were people who had already been canvassed, and were in their second stage towards conversion.
The Calldown tactic exceeded expectations in that:
  • The lead yield exceeded the performance of all comparable tactics
  • The cost per lead was less than all comparable tactics
  • It created significant numbers of referrals to new contacts in the targeted companies
  • It translated 1.4 to 2.0 times as much value to Tektronix as the other methods.
To me, this is not just a case study about a head to head comparison of mail Vs phone. It is also the story of about how Joe Krisky went about measuring the value of the two techniques. I have not seen his measurement methods used elsewhere. They are a useful contribution to our understanding of marketing principles.
Arthur Middleton Hughes, vice president of The Database Marketing Institute, has presented 28 seminars on database and email marketing.  Arthur has also authored several books includingStrategic Database Marketing 4th Edition (McGraw-Hill 2012). He and Andrew Kordek, chief strategist and co-founder of Trendline Interactive, are hosting a two-day Email Strategy Study Group in Fort Lauderdale  March 26-27, 2013, featuring group competition for email marketers responsible for subscriber acquisition, lifetime value, ratings and reviews, boosting their email budget, and doubling their ROI.  To learn how to attend the Study Group,click here

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