You are here: Home - News -

A direct hit

by:
  • 10/03/2003
  • 0
Time is money, so targeting marketing towards the most likely market should reduce costs and produce dividends for mortgage advisers

Direct marketing does exactly what it says on the tin. It is the difference between broadcasting a company name and message to a wide audience and hoping it sticks, or picking the right customers up front and speaking to them directly.

When it is put as simply as this direct marketing seems like the most obvious choice but, of course, it is never that simple. There are advantages and disadvantages to direct marketing. By talking only to those customers a mortgage adviser wants to attract, what it does deliver is business, what it does not deliver to the same extent as, for example, a broadcast campaign is a household brand name.

Brand names generate trust and a lack of branding can be a drawback in the financial markets where purchases are often trust-based. This is most relevant where consumers are investing money (pensions, insurance, banking and so on), but also in mortgages. And direct marketing can be an important tool for mortgage brokers as a way of attracting motivated clients.

For the record, direct marketing does not just mean direct mail, although that does form the core of most direct campaigns and is what most people understand by the term. The staple media of direct marketing are direct mail and telemarketing, but it also extends to inserts, door-to-door, direct response TV and press, when used in a specific way.

Target market

Direct marketing is about three main principles: talking to a highly targeted audience defined through detailed customer knowledge, using channels which are measurable and attributable in cost-per-response or cost-per-customer terms and including a call-to-action and response mechanism in the advertising.

In theory a direct marketing campaign will allow mortgage advisers to exploit the Pareto Principle, or the 80:20 rule, which states that 80% of a company’s business comes from 20% of its customers. By understanding the needs of that key 20%, a broker can concentrate on marketing to them, making communications and sales more efficient. Even if a firm has enough existing customers it is possible to get them profiled by a data company (10,000 records is comfortable) and have an accurate analysis.

The driving force behind direct marketing is cost-efficiency and this is what makes it most attractive to companies. As a marketing principle it enables a company to check the value of advertising and make adjustments to compensate when something is not working.

Breaking new ground

Direct marketing is currently very fashionable, but to understand how it has reached its current position it needs to be examined in the wider context of advertising and marketing as a whole.

Possibly the most well-known quote in the industry is attributed to John Wanamaker, a former US department store merchant, who claimed: ‘Half the money I spend on advertising is wasted; the trouble is I don’t know which half.’

For many years the advertising world accepted that maxim. Media consisted of a limited range of options with only a few commercial channels in each medium. This left clients resigned to the idea that targeting in advertising was largely an academic exercise. However, the explosion in media and the internet has now multiplied the number of highly formed niche channels immeasurably.

Large financial companies have now embraced the concept of direct marketing and direct mail warmly. In a business dominated by numbers this accountability is desirable but there is another good reason. There are many people deemed not to be good prospects for standard mortgages due to their credit history or low income threshold. Direct mail in particular offers a way to highlight these cases so an adviser can deal with them as they please, either including them in the campaign or de-selecting them in advance if the firm does not deal with sub-prime borrowers, thereby reducing the amount of time wasted dealing with calls from people who are unsuitable. Most of the direct mail campaigns we source rely on excluding poor prospects as much as selecting good ones.

The basics of planning are no different from any other marketing or advertising activity. While it is not a science, it is a logical progression and it is all about answering the questions ‘what?’ ‘who?’ ‘where?’ ‘how?’ and ‘when?’

• What ‘ what are the objectives for the business and therefore for the campaign?

• Who ‘ who is the target market?

• Where ‘ which channels will be used?

• How ‘ what sources, formats, level of communication?

• When ‘ what is schedule?

As each of these questions are answered it should lead to the next one in turn, until a fully rounded plan is devised with a set of achievable goals.

The mix of channels depends on the goals demanded, but each one has its advantages and disadvantages ‘ although cost-per-response is usually the ultimate aim. One basic principle to bear in mind is that the more targeted a medium the more expensive it is, but also the more responsive.

Don’t blow the budget

When deciding on the mix of media to use more often than not it comes down to cost. Most businesses will start with the activity they know will bring in business and then expand to more broadcast media if the budget allows.

If the cost of reaching 1,000 consumers vs response based on average advertising figures was tabled it could look something like the table below.

A table such as this can offer a guide, but any one of these figures is subject to great variation depending on how much the creative costs, how long it is run it for and what kind of response rates is achieved. Every campaign is different, even within financial markets. Even so, this table shows what is already known, that nine times out of 10 the most efficient response media are direct mail (and now potentially email), door drops and inserts.

It should also be highlighted that not every firm’s results or costs are like this. Sometimes inserts do badly, but at least one major health insurance company relies on them as the core of its new customer acquisition programmes. Every campaign and every client is different.

There is not one right answer and there is no substitute for experience. An existing advertising and response history is usually the best guide in terms of planning future advertising. If this is not available then a media agency can provide experience of other people’s campaigns. It is also advisable to get an agency perspective on new media, especially with the rise of channels such as email and SMS (text messaging). This is especially important as the Advertising Standards Authority has now ruled that email and text message adverts must obtain the permission of the recipient first.

At the end of the campaign it comes down to the results. Any activity of this nature has several elements which have to come together to be successful, namely: the right media (or data), the right creative, the right offers and the right consumer environment (especially with regards to seasonal and competitor activity).

It is also vital that responses, when they come in, are handled properly and converted efficiently. Too often companies put a great deal of effort and money into creating a well-thought out marketing campaign and then skimp on response handling or analysis.

It is fundamental all these are properly handled and that measurement systems are properly in place. If a campaign does not work it should be possible to find out why, and if a campaign does work the same applies.

Every missed call is a missed sales opportunity, so projected responses need to be planned to set up a response handling facility, especially if the campaign is driving people to call. Often call-handlers pick a random default code if the caller cannot say where they saw the advertising, but this does not help when trying to assess which was the most cost-effective route. There is no way to make response attribution foolproof, but separate phone numbers are the most accurate, if this is economically feasible.

A final key point is that if direct marketing is a daunting prospect then use an advertising agency. It can be a lot more cost-effective for those new to the concept.

One thing is for sure, with the economy delicately poised, cost-efficiency is likely to be at the top of everyone’s agenda for 2003.

Key points

Direct marketing allows brokers to target clients in a focused manner.

Using a mix of channels tends to be the most effective and therefore the cheapest.

A separate response unit is vital for evaluating campaigns.

Tags

There are 0 Comment(s)

You may also be interested in

Business Skills

In this section, we offer short ‘how to’ guides on harder to crack areas of business. From social media, to regulation or niche product areas, we cover it all.

Profiles

Our journalists interview key industry entrepreneurs, strategists and commentators for day-to-day market insight and a strategic view of where the industry is heading. We offer lessons for success and explore the opportunities for your business

Success in Practice

Here, we share case studies fleshing out best practice to help you decide what could work for your business. Take a look at how others approached complex tasks like launching a new mortgage lender, advising on a new product area or deciding to specialise in another. Learn from others mistakes and triumphs.

Marketwatch

Each week, we ask top mortgage and property commentators with a unique perspective to examine a key news headline, market move or regulatory or political issue.

Poll

Vote in our weekly poll here. It’s your chance to tell us what you think and be heard on the top news stories of the week. Review our archive to find out what your industry really thinks and all our coverage of the results.

Top Comments

Be part of the conversation on Mortgage Solutions. We want to hear from you. We have a tool called Disqus to tell us which stories get the most comments each week. Every Friday, the team picks the most thoughtful or opinionated contributions from our readers to enjoy again. Don’t forget to share your favourite stories from the site on social media to keep the conversation going.
Read previous post:
Sub-prime lenders to take mainstream road

Expansion: Future Mortgages and SPML launch their first products for the prime market

Close