The Growth of Direct Marketing

Sales through traditional direct marketing channels (catalogues, direct mail and telemarketing) have been growing rapidly. A recent survey on worldwide

Internet (the Net) A vast global computer network that enables computers, with the right software and a modem (a telecommunications device that sends data across telephone lines), to be linked together so that cheir users can obtain or share information and interact with other users.

marketing expenditure suggests not only that direct marketing has been a huge and growing activity in the past five years, but that the annual rate of growth in spending on conventional direct marketing channels (e.g. direct mail) will continue to outstrip that for mass-marketing channels in the next five years."

While direct marketing through traditional channels is growing rapidly, online marketing is growing explosively. The creation of the 'information superhighway' or Internet promises to revolutionize commerce. According to a reeent survey by the US company Network Wizards, there were some 9,472,000 computer eonncctions to the Internet worldwide in 1996, up from 4,852,000 in January 1995. The number of Internet connections is doubling each year. Internet penetration statistics produced by the Reseaux IP liuropeens (RIPE) Network Co-ordination Centre's DNS Hostcotmt ( show that there are currently over 3 million computers connected to the Internet in Europe. Although there is no accurate count of the actual number of users of the Internet, whieh is estimated to be around 30-5 million, or higher, user penetration is rising and the trend is forecast to continue over the next few years.3 Previously dominated by technically oriented, young, male users, the Internet is now attracting more females and more users in the 25-35 age group. While still some way from becoming the dominant promotion medium for businesses and other organizations, its use is growing and few companies can ignore its potential as a cost-effective global marketing tool. For example, the Internet search company Yahoo! had limited resources whieh precluded the use of mass advertising to promote its brand name. Instead it made use of the global reach of the Internet. Yahoo! grew out of a list of favourite Web sites maintained by two Stanford University students. Although theirs was one of hundreds of similar Web navigation services, at the time, it attracted many newcomers to the Internet with its contemporary style and catchy name, while also providing a service that users regarded as a friendly 'home base" among the confusion of the Web. Yahoo! relied on strategically placed 'hyperlinks' on other Web sites, such as the home page of Netscape Communications, the world's leading supplier of Web browser software, to attract users at minimal cost. And then, it relied on users to spread the word to attract new users to the service. Only recently has Yahoo! begun to advertise on TV and radio to encourage 'near surfers' who are not yet online, but are interested in "taking the plunge', to use its services. An estimated 5 million computer users go to Yahoo!'s pages every day. At a market capitalization of $2.3 billion, Yahoo! is currently the most highly valued Internet company.4

Over 100,00 companies around the world have launched Web sites during the past year and the number is rising. In business-to-business marketing alone, annual revenues on the Internet amount to $600 million, and that number could go as high as «S*66 billion by the year 2000.; We will examine online marketing in greater detail later in this chapter.

What are the factors that are driving the growth in direct marketing? In the consumer market, the extraordinary growth of direct marketing is a response to the new marketing realities discussed in previous chapters. Market 'demassifi-eation' has resulted in an ever-increasing number of market niches with distinct preferences. Direct marketing allows sellers to focus efficiently on these micro-markets with oilers that better match specific consumer needs.

Fragmentation of the television audience - and the increasing cost of reaching consumers en masse - is another driver. The soaring value of commercial slots in a diminishing number of TV programmes that pull in the big audiences means that many advertisers, under pressure to show a return on advertising investment, are turning to direct marketing methods.

Other trends have also fuelled the rapid growth of direct marketing in the consumer market. Higher costs of driving, traffic congestion, parking headaches.

Customer Databases and Direct Mtxrketmg • 953

Mass marketing versus One-to-One


MASS MARKETIKC, one-to-one marketing

Average customer Customer anonymity

Individual customer Customer profile Customized market offering Customized production Individualized distribution Individualized message Individualized incentives Two-way messages Economies of scope Share of customer Profitable customers Customer retention

Standard product Mass production Mass distribution Mass advertising Mass promotion One-way message

Economies of scale

Share of market All customers

Customer attraction

Source: Adapted from Don Peppers and Martha Rogers, The One-to-One Future (New York: Doubleday/Otirreney, 1993).

lack of time, a shortage of retail sales help and long queues at checkout counters all encourage at-home shopping. Consumers are responding favourably to direet marketers' freephone numbers, their willingness to accept telephone orders 24 hours a day. seven days a week, and their growing commitment to customer service. The growth of 24-hour and 48-hour delivery via express carriers such as Federal Express. UPLS, DHL and others has made direct shopping fast and easy, Finally, the growth of affordable computer power and customer databases has enabled direct marketers to single out the best prospects for any product they wish to sell.

Direct marketing has also grown rapidly in business-to-business marketing, partly in response to the ever-increasing costs of reaching business markets through the sales force. When personal sales calls cost several hundred pounds per contact, they should be made only when necessary and to high-potential customers and prospects. Lower cost-per-contact media - such as telemarketing, direet mail and the newer electronic media - often prove more cost-effective in reaching and selling to more prospects and customers/'

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