Market Penetration and Building A Business

Market Penetration and Building a Business

Some time ago, I wrote a blog making some comparisons between direct mail and email as marketing tools. (October 2011 on this site).

A couple of recent articles prompted me to revisit it. One was a fastMAP/DMA survey comparing direct mail and email, the other a Marketing Week headline on the same article. I don’t want to repeat the fastMAP research here – I’m sure they’d love to share it – and the Marketing Week headline of “Direct Mail should be defined as an accompaniment not an alternative to email” is just so wrong on any count you could mention that I don’t really want to go any further on that either.

What I did want to discuss is one key difference between direct mail and email beyond open rates, response rates and ROI, and that is market penetration and brand awareness.

If you have a broad consumer market, or even a business one, with hundreds of thousands or millions of potential customers, then email becomes the more obvious course for acquisition – direct mail can be simply unaffordable for most, and the volumes on email still have the potential to deliver significant new business and better ROI.

But what if the real target market is measured in hundreds or the low thousands – which is true of many B2B products and services and quite a few selective consumer ones too. Even if email can still show a better cost per response and ROI, who can afford to ignore over 90% of their potential marketplace? In a market of say 5000 potential customers, and regardless of response rates, if 90% of recipients don’t look at an email then you have no impact at all on 4500 potential customers; and if 90% of recipients of a direct mail piece do look at the piece, then if done properly, you are having some sort of positive impact on 4500 potential customers.

Nobody wants to lose money on current activity – lose too much and you don’t have a future – but we all need to build businesses over time. It’s the triumph of effectiveness over efficiency. I remember the great Victor Ross, Chairman of Readers Digest in the UK in its heyday (and subsequently a non-executive director of a company I co-owned) constantly saying you always needed to consider the 90% who didn’t respond as they were tomorrow’s customers. And yes, they did get 10% response rates in those days, and much higher on customer mailings, but maybe it was because they always had an eye on tomorrow. And the number of re-mail campaigns that achieved response rates nearly as high as the first one are legion, particularly when integrated with other media – mainly TV and press in those days, but properly integrated nonetheless.

Essentially, it should be about building a business over time rather than the immediacy of short term goals. And I know all the arguments about ignoring the short term and not having a long term. We used to measure net present value on customer acquisition programmes over at least 2 years, but that’s 30 years ago. I can remember a Chicago mail order guru saying 20 years ago that if you didn’t get payback within a year you wouldn’t have a business left – but we seem to have moved to next month at times.

So the purpose of any direct marketing activity should of course be to provide a positive ROI, but it should also leave a positive footprint within the target market so that future ROI is enhanced. And my point is that if a channel is not opened or read by 90% of recipients, it can’t possibly achieve this goal. To put it bluntly, direct mail can achieve high levels of market penetration and email cannot. And in small tightly defined markets, it is entirely affordable to look on it as a repeat medium. In fact, it is necessary to capitalise on the values it has, even if it’s just twice a year.

Finally, going back to where we started and a mention of online research, it is so easy these days to research not just the approach likely to produce the best response, and then test it properly; it is also easy to research the residual impact in non-responders of different approaches, or the latent goodwill that can be generated in a marketplace for future campaigns to capitalise on.

Michael Howe

July 2013