Too Few, Too Little, Too Much:
Why Direct Marketers Fail . . .
And Ten Ways To Make Sure You Don't
Donald R. Libey
Libey Incorporated
Advisors and Intermediaries for the Direct Marketing
Industry
Libey Incorporated is an investment banking firm located in Philadelphia, Pennsylvania and Haddon Heights, New Jersey providing mergers & acquisition, strategic and financial planning, capital raising and venture capital placement for the catalog, direct marketing and e- commerce industry.
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Direct marketers throughout the industry must contend with increasing costs, increasing technologies, increasing customer demands, increasing regulatory pressures, and increasing margin erosion. For some, these are the seeds of failure; for others, they are the challenges of opportunity. After closely observing catalog and direct marketing businesses for many years, ten specific reasons for business failure keep reappearing. While there are many reasons why direct marketing businesses fail, these ten are often at the core of a business in trouble.
- Too few customer selling contacts
- Too few new products
- Too few new employees
- Too little variation of selling offers
- Too little economy of scale
- Too little customer talk
- Too much missing, flawed or unreliable information
- Too much money left on the table
- Too much market constriction
- Too much fulfillment
1. Too few customer selling contacts
The range is from one customer contact to twenty-six contacts annually. In general, direct marketers are not contacting their customers with compelling offers often enough. In case after case, we find another company of comparable size hiding inside the existing and undermarketed customer base. All that is necessary to materialize that company is to sell more often to existing customers in more innovative and more creative ways.
This does not mean simply sending another catalog, or another solo mailing, or making another sales call. Increasing customer selling contacts means developing access portals and interactive opportunities to demonstrate solutions to needs that have not even been identified yet. Internet and E-commerce capabilities are the first steps in interactive selling opportunity. There is no longer a question of whether a direct marketing company should be in e-commerce; it is now a question of how large you can grow this division and how best to use its capacity for streaming and flowing product sales to existing and prospective customers.
SOLUTIONS:
Define 10 new concepts and ideas for product applications and design 10 different ways--and reasons--to tell your story to your customers.
Mail your customers one more time and keep mailing one more time until the last customer mailing is less profitable than your worst prospect mailing.
Define your customer to prospect mailing ratio and determine whether you are anemic or aggressive. A 60:40 ratio of customer to prospect mailings is a rule of thumb for business to business direct marketers.
2. Too few new products
If you are not developing new product introductions at the rate of 30% per year, you are lacking new product momentum. Direct marketers classically build product breadth first then product depth. The ability to implode product development to create a high rate of new product introduction is a cardinal requirement for product strategy success.
This concept of product implosion--which we first described eight years ago-- demands the creation of numerous logically related products from existing products using differentiation, applications, sizing, bundling, and other product creation strategies. For example, a fire extinguisher becomes a series of room or application fire extinguishers such as lunch room, warehouse, boiler room, truck, computer room, waste storage area, etc. By putting six "types" of extinguishers together, a business "bundle" is created that solves all needs for fire extinguishers within a business. From there, a logical size differentiation would be created for size of rooms, numbers of employees, square feet of warehouse, etc. Additionally, the product is then made available for differing types of combustibles as well as Halon, foam, and other types of extinguishing agents. Ultimately, one need and one product have given birth to multiple needs and multiple products to service those needs. That is product implosion.
Far too many direct marketers are mailing the same old thing month after month with little or no new product excitement. This only causes the advertising to be discarded without even a cursory glance. What is needed is the ability to create the excitement expressed in the mind of the customer who says, "Wow! I wonder what's new this time?"
SOLUTIONS:
A. Set a new product introduction target for quantity and time.
B. Set up new product teams who are responsible for concept, design, sourcing and sales and profitability.
C. Create 5 innovative ways to get new product ideas from customers.
D. Put customers on the new product teams.
E. Adopt the 30% per year new product objective.
3. Too few new employees
Direct marketers tend to wait too long to adequately staff their organizations. People are hired only when the phones are not being answered, not before. The learning curve is too often ahead of rather than behind consumer and business to business marketers. The learning curve is, as a result, constantly being compensated for instead of being used to advantage.
Too few middle managers are being developed and too few senior managers are being prepared for succession. This is partly as a result of mobility in the industry, but mostly as a result of politics and territoriality. As an industry, direct marketers tend to be conservative and cautious, traits that have worked well up to now. The years ahead, however, are likely to be explosive, daring and risky, traits that we have not traditionally managed well. The ability to attract people who think differently and who have a different frame of vision is likely one of the most beneficial personnel strategies that can be adopted today. You will need fresh eyes and fresh minds increasingly as you begin to navigate the interactive opportunities of the future. Staff today to be where you want to be over the next two years. Pull your businesses ahead instead of pushing them from behind as we have always done.
A business plan to grow the company cannot be considered complete without a business plan to grow the employees, both in quality and quantity. Knowing when you move to a senior vice president instead of a vice president is essential for success. There are very real "knotholes" in business to business direct marketing that are related to sales and staffing. The first knothole is around $10 million; the second at $20 million; the third at $40 million; the fifth at $60 million; the sixth at $100 million and at each successive $50 million increase thereafter. At each of these knotholes, the company has to be virtually totally redefined and reorganized. This requires people and policy as well as corporate vision. This is the reality of corporate culture and results in either its growing success or its agonizing demise.
SOLUTIONS:
A. Begin discussions with talented individuals one or two years before you need them.
B. Staff at the next level of response and effectiveness.
C. Develop a strong core management team and outsource additional talent.
D. Import knowledge. It is no longer feasible to grow all talent internally.
E. Be willing to change your corporate culture.
>4. Too little variation of selling offers
Just keep cranking out the same old stuff. Rest on the laurels of controls and profitable offers without any consideration for the necessity for change. Keep looking just like you looked last year, five years ago, even longer. Don't run the risk of having your customers think you are new and exciting. Above all, don't -- whatever you do -- don't come up with a new and unique selling proposition.
The world walks right by "familiar" without seeing or hearing it; the world stops to investigate and evaluate "newness" and is receptive to fresh sounds and visions. In example after example, we see the same selling offers repeated year after year with pretty much the same results: adequate but eroding response and margin. At what point are you out of business without knowing that you are dead?
Want to do magic? Then you have to adhere to the Primary Rules of Magicians: 1) Never, ever repeat a trick; 2) Never, ever reveal how the trick is done. Magic is never seeing the same offer twice. Magic is never seeing the same advertising material twice. Magic is always expecting the next trick to be better and more exciting than the last one. That is marketing!
It is said that some 250 types of offers exist; there may be easily twice that number. For the direct marketer, these are your repertoire. If you are not using all 250 offers to stimulate your customers -- past and future -- you are not harvesting the sales that are possible.
Too little promotion exists anymore. We are promotion wimps. Why are we afraid to promote and to merchandise? Merchandising is becoming a lost art in business to business direct marketing. We just plug along, selling another 200 plastic bags, another 500 invoices, another dozen cotton gloves. What happened to the P.T. Barnum soul that exists in every selling situation: "This way to the egress!"
SOLUTIONS:
A. Study the art of offers. Learn from the successes of others. Read and listen to direct response marketing and merchandising as if it were great music. Concentrate on the unique selling proposition.
B. Ask your colleagues to create ten new offers this year that have not been tested and test them.
C. Ask those same colleagues to create ten new promotion concepts that you have never done and test them.
D. Ask your colleagues to describe and create ten merchandising ideas that have never been attempted by your company and test them.
5. Too little economy of scale
The business has grown, but the economy of scale of the suppliers hasn't. Too many direct marketers are losing valuable cost, time and efficiency advantages because they have stayed with smaller suppliers too long.
There is a normal progression of economies of scale. The printer you started with ten years ago may no longer be the best printer for your business today. If you are still buying ink on paper, you may be seriously behind in the competitiveness that comes with adequate utilization of economies of scale. Your printer must be a design house, a digital pre-press expert, a photographer, a list processing house, a mailer, and a trucking and shipping mail consolidation operation. Then, after all of those economies are met, your printer should also print.
Fulfillment is also an economy of scale advantage. Outsourcing and decentralization may be necessary to meet your customers' time demands. The old centralized, one location warehousing operation may be woefully inadequate. The economies of scale from a decentralized shipping operation have to be considered.
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