Exhibit 14-6 VNU

provides lists for purchase

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LIST KBftBltracr.L til J pit

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iwmim has led to increased effectiveness. The most commonly used lists are of individuals who have already purchased direct-mail products.

The importance of the list has led to a business of its own. It has been estimated that there are over 38 billion names on lists, and many companies have found it profitable to sell the names of purchasers of their products and/or services to list firms. Companies like A. B. Zeller and VNU Business Media (Exhibit 14-6) provide such lists on a national level, and in most metropolitan areas there are firms providing the same service locally.

While direct mail continues to be a favorite medium of many advertisers, and projections are that the market will continue to grow, this medium has been seriously threatened by the Internet. Between 1996 and 2001 direct-mail expenditures rose at the rate of 6.15 percent per year while Internet expenditures increased at the rate of 95 percent.18 Interestingly, the Internet is both a threat and an opportunity, as Internet companies have increased their expenditures in direct mail to drive potential customers to their sites. For example, AOL frequently mails disks with free time to induce trial of its Internet service. Nevertheless, the direct-mail business has experienced lower response rates from customers than in the past and has seen many advertisers shift dollars from this medium to the Net.19 Many companies, particularly in the business-to-business market, have shifted from print to online catalogs, and legal problems have also hurt the industry.

Catalogs Major participants in the direct-marketing business include catalog companies. The number of catalogs mailed and the number of catalog shoppers have increased significantly since 1984, with sales growing by an average of 11.4 percent each year between 1996 and 2001. Catalog sales are expected to reach $16.3 billion in 2006.20

Many companies use catalogs in conjunction with their more traditional sales and promotional strategies. For example, companies like Pottery Barn, Nordstrom, and JCPenney sell directly through catalogs but also use them to inform consumers of product offerings available in the stores. Some companies (for example, Fingerhut and Alloy) rely solely on catalog sales. Others that started out exclusively as catalog com panies have branched into retail outlets, among them The Sharper Image, Lands' End, and Banana Republic. L.L. Bean recently opened a superstore on the East Coast. As you can see by the following examples, the products being offered through this medium have reached new heights as well:

• The 2002 Neiman Marcus Christmas catalog was used to introduce the 2004 Cadillac XLR—MFRP $85,000. Cadillac produced only 101 of the "Neiman-Marcus XLRs—99 for sale through the catalog, 2 for charity. They sold out in 14 minutes! (Exhibit 14-7)

• Victoria's Secret featured a $1 million Miracle Bra in its Christmas catalog. Modeled by supermodel Claudia Schiffer, the bra contained over 100 carats of real diamonds as well as hundreds of semiprecious stones.

• Saks' Holding Co., a division of Saks Fifth Avenue, offered a pair of Mercedes-Benz convertibles in a catalog, with bidding to start at $50,000.

• Hammacher Schlemmer featured a $43,000 taxicab and a $34,000 train set in its Christmas catalog.

• The Sharper Image offered a $375,000 silver saddle in its catalog (though it didn't sell any).

In addition to the traditional hard copies, catalogs are now available on the Internet for both consumer and business-to-business customers. In some instances in the consumer market the catalog merchandise is available in retail stores as well. In others, the catalog and retail divisions are treated as separate entities. For example, if you purchase through the Eddie Bauer catalog, you can exchange or return the merchandise to the retail stores. Victoria's Secret products must be returned to the catalog department. At the Gap, the catalog is used to supplement the inventory in stock, and phone orders for different sizes and so on can be made from the store and shipped for free.

Broadcast Media The success of direct marketing in the broadcast industry has been truly remarkable; over 77 percent of the U.S. population report that they have viewed a direct-response appeal on TV.21 Direct-response TV is estimated to have generated more than $79.3 billion in sales in 2002—with projections of $108.2 billion by 2006. However, forecasts are for slower growth in the next few years, averaging 8.8 percent through 2007.22

Two broadcast media are available to direct marketers: television and radio. While radio was used quite extensively in the 1950s, its use and effectiveness have dwindled substantially in recent years. Thus, the majority of direct-marketing broadcast advertising now occurs on TV, which receives the bulk of our attention here. It should be pointed out, however, that the two-step approach is still very common on the radio, particularly with local companies.

Direct marketing in the broadcast industry involves both direct-response advertising and support advertising. In direct-response advertising, the product or service is offered and a sales response is solicited, through either the one- or two-step approach previously discussed. Examples include ads for magazine subscriptions, CDs and tapes, and tips on football or basketball betting. Toll-free phone numbers are included so that the receiver can immediately call to order. Support advertising is designed to do exactly that—support other forms of advertising. Ads for Publishers Clearing House or Reader's Digest or other companies telling you to look in your mailbox for a sweepstakes entry are examples of support advertising.

Direct-response TV encompasses a number of media, including direct-response TV spots like those just mentioned, infomercials, and home shopping shows (teleshop-ping). And as noted in Chapter 10, Internet TV has recently been introduced.

Infomercials The lower cost of commercials on cable and satellite channels has led advertisers to a new form of advertising. An infomercial is a long commercial that ranges from 30 to 60 minutes. Many infomercials are produced by the advertisers and

Exhibit 14-7 Neiman-Marcus is one of many successful catalog companies

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