Articles - Written by Arthur Hughes - 195 Comments
The Importance of the List
The Importance of Recognition
|At a formal presentation to a prospective client, one of the interviewers asked us what he thought was a very difficult question: “Which is more important: the audience you select for your message, or the content of the message?” I guess he anticipated that he would receive a “Well, on the one hand…and on the other hand…” type of response, but that is not what he got.
“The list is everything”, I told him. “Without the right list, you are just wasting your marketing dollars. The right list is ten times as important as whatever you put in the envelope, or whatever offer you put in the script for your outbound telemarketers.”
What are the best kind of lists? There is an easy answer to that one too: lists of responders. Age, income, presence of children, home value, zip code, cluster code – all these things are wonderful, but they pale in significance when compared to one key question: “Has this person a history of purchasing things through the mail or over the phone?” Look at it this way: more than 50% of all families will not buy by mail (or phone). That being the case, a mail responsive list will outpull any other type of list by a factor of at least 2 to 1.
To be successful in direct marketing, you really have to get your hands on lists of responders – responders to offers similar to yours. Such lists are not easy to come by. Your competitors are unlikely to rent you their list – and their list is just what you want. One possibility: partner with someone who has a non-competing companion product. A few years ago we had a customer who was marketing baby food to new mothers. We suggested to him that he might want to join forces with Kodak, marketing both baby food and film to the same audience. It worked, like gangbusters. The new mothers were proven responders: they had redeemed a coupon for baby food.
Sometimes the list you are looking for is right in your own backyard. The best acquisition comes from word of mouth – from your current customers. Before you spend money looking outside, find a way to get your current customers to recommend you to their friends and relatives. A list of customer’s friends is often better than a list of proven outside responders. But, both are better than people for whom you have no response history data.
Next to responders, your best lists can often be found in people who are undergoing a change of life. New movers are at the top of my list. Anyone who is moving is going to need new furniture, drapes, carpet, paint, of course. But such people usually are looking for a new bank, and insurance for their home, their car, their health and their life. They will looking for a doctor, a dentist, and shopping for new clothes for themselves and their children. New mover lists are available in all areas. The trick is to get your hands on them and act on them very rapidly. Crucial spending decisions are made within a few weeks of the move. Don’t dawdle.
Other change of life times include retirement and educational shifts. You can get lists of people who are about to turn 65, for example. Children going to college makes a drastic change in the living situation in most households. Target homes with high school seniors.
Even when you know of people who are undergoing a lifestyle change, you may want to make the most use of your marketing dollars by further targeting. One clue to the best responders can be found in penetration ratios. Let me explain how you go about this.
The Globe and Mail in Toronto telemarketed people all over Canada with outbound subscription offers. It was expensive and wasteful. Then they got a new circulation director who experimented with penetration ratios. He appended cluster codes to all the profitable subscribers in his database. Compusearch in Canada has divided all Canadian households into 62 different lifestyle clusters which can be applied by postal walk – a system similar to our Zip plus four. From Compusearch he was able to get information on the number of households in each cluster and postal walk. He could then determine what percentage of the people in each cluster took the Globe and Mail. What he discovered was very valuable. He learned that there were only 20 lifestyle cluster groups where the penetration ratio (percentage of the households taking the paper) exceeded 10%. Armed with that information, he was able to eliminate about 60% of Canadian households from his telemarketing program. He saved three million dollars per year in his circulation building program – while continuing to build readership at a steady rate.
The best book on the market concerning lists is The Complete Direct Mail List Handbook, by Ed Burnett, published by Prentice Hall in 1988. If you are serious about direct marketing, you must get your hands on this classic. I swear by it myself. I love it. In this book, Ed Burnett demolishes a number of common myths about lists. His comments are worth repeating. Here are some common superstitions about lists which are absolutely false:
Even after you find some lists that work for you, your homework is not over. Testing is always necessary to be sure that you are doing the most profitable thing. Your goal is, normally, to acquire customers, not just to make single sales. What is an acquired customer? It is someone who is an identified repeat buyer; someone who thinks of you as his supplier. The goal of acquisition it to create customers, not one time buyers.
To measure your effectiveness, therefore, you must have a database so that you can track the second and third sale to each customer. In addition, however, you keep track of the original source of the name. You would be amazed at what you can learn from this type of tracking. Lists that seem to be doing very well for you can be shown, upon further analysis, to be doing less well than other lists that seem, on the surface, to be less exciting. Let me give you a practical example.
We did a campaign for a marketer of premium pet food which came by UPS once a month direct to the customer’s door. To be profitable, customers had to keep buying for six months or more. A single sale seldom repaid the cost of acquisition. For this reason, we kept track of these repeat buyers based on how we acquired them in the first place. After a few months, we measured the response rate per dollar spent for three media: TV, Pet Magazine Ads and Direct Mail Lists. Which was better? TV won in a walk. We generated more sales per dollar spent with TV. But then, after a year, we measured our database to see which media generated the most customers who lasted into Year2, per dollar spent on acquisition. The result was a eye opener. The respondents to the direct mail list produced many more customers who were still active in Year2 – per dollar spent on acquisition – than either TV or Pet Magazine Ads. Our list of direct mail respondents really paid off.
What this means is that the true measure of the worth of a list is not simply it’s ability to produce immediate results. Long term profitability is often a better measure. What we discovered is this: the second sale represents acquisition. The second sale is very difficult to accomplish. Customer files seldom yield more than a 5% response rate (which, however, is usually quite profitable). If you mail one time buyers five times, therefore, at a maximum response rate of 5%, you will rarely accomplish more than a 25% overall acquisition rate. Conclusion: 75% of first time buyers cannot be acquired.
Database marketing is fascinating. It is fun to do. It is rewarding to explore. The more you dig into it, you will come to appreciate the importance of the list!
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