The New Direct Marketing Management Structure: Evolving Trends From The E-Com Revolution
by Don Libey

The E-Commerce Revolution is rapidly changing the structural dynamics of direct marketing management.

New structural models are forming in response to the changes in customer priorities, staffing core competencies, reporting hierarchies, recruiting and employee retention factors and the irrevocable and incessant pressures of technological expansion and sophistication.

The Retrospective View

This period was characterized by strong, individualistic entrepreneurs possessing proprietary knowledge about both niche markets and direct marketing techniques. In both the consumer and business to business arenas, dominating entrepreneur/owners pioneered and mastered the fundamentals of what is now nostalgically called “mail order marketing.” Often a seat-of-the-pants style of management, the balance between growth and profitability was maintained by the masters through close management of cash flow, inventories and prospecting. The hallmarks of this era of direct marketing were high response rates, high margins, high number of inventory turns, low overhead and low advertising costs resulting in above average levels of profitability. The predominant management structure was marketing-focused. Operations and fulfillment were “back office” functions and were viewed as organizational liabilities rather than assets, and technology had a very minor, indeed near-insignificant, role. The kings and queens of direct marketing were the copywriters, the designers and the list experts.

The 1980s dawned with the “electronic revolution” in creative services.

The first electronically produced catalogs appeared and the pre-press world changed virtually overnight. Suddenly, visionary printers such as Quad/Graphics recognized that the future was one of “front ends” and “back ends” and that the middle “ink on paper” part of the process was rapidly becoming the past.

Simultaneously, advancements in co-mailing and carrier route sortation technologies pushed the technological envelope and ushered in the era of “mailing smarter” or as it is referred to, the Database Era.

Suddenly, regression analyses, RFM segmentations and decile scoring emerged as the mantras of the direct marketing future. Analytics and numbers became all-important; the master entrepreneurs began to fade into the background, and the CPA/MBA manager began to emerge and to establish the second distinct management model, the professional management era. With professional managers came the investors hungry for opportunity.

Soon, large corporations entered what had always been a relatively arcane industry essentially off the radar scope. Within a few years, catalog and direct marketing organizations were actually going public; IPOs sprouted here and there. The kings and queens of direct marketing were the analysts, circulation mavens and database managers who were also grounded in classic marketing techniques.

And then the mid-1990s put E-commerce on the lips of the world. Direct marketing, because of its affinity for “integrated marketing” techniques was the anointed industry for carrying the E-banner forward into the virtual and unlimited future. The wily old entrepreneurs shook their heads and scheduled more frequent tee times in Boca Raton. The professional managers consolidated as rapidly as possible, building corporate and personal wealth in the traditional sense of value. The stock analysts held sway over the industry and technology emerged as the Holy Grail.

Something unusual occurred in 1996-1998. Dot-com companies, in league with investors flush with money, redefined value. Assets became liabilities and liabilities became assets. If a dot.com wasn’t losing money, it wasn’t worth anything. Great losses were consistent with great opportunity. The world of direct marketing was turned on its head and the Beast of Irrational Reason was loosed on the Earth. The kings and queens of direct marketing were no longer the entrepreneurs, the marketers, the professional managers or the database gurus. The kings and queens were the possessors of near-illiterate four-page business plans, a domain registration and $40 million in “first-round funding.” The third era of direct marketing management had been born:The E-Management Era

From Madness Comes Order

American business is unique for many reasons. One distinguishing characteristic is the ability to rapidly recycle businesses. Perhaps no other country can recycle businesses and business structures as quickly and as totally as the United States. We grow great businesses as if they were oak trees. When they begin to drop their acorns and give birth to additional trees, we cut them down, grind them up and produce fertile mulch to nurture the new saplings growing around the stump. These lithe, new trees, in turn, become big and are inevitably chopped down to be recycled and reincarnated as yet another great, seed-bearing tree. That is what has just taken place in direct and catalog marketing. The industry has been recycled and the strong, new sapling is E-commerce.

What seems to be madness is, in fact, the normal, early period of frenetic growth. The new saplings are quickly adding height and girth; the primary and secondary branches are forming; the leaves are budding and soon the fully-leaved canopy will be seen. As one should expect, many of the saplings will not survive as the forest depends on strength and vigor for its survival. The weeding process always precedes the maturity process; order will inevitably emerge.

The E-commerce enterprises have already discovered that the future is governed by fulfillment. It’s one thing to have a cool site, but it’s quite another thing to move boxes accurately and fast. The E-commerce enterprises have already discovered that the future is governed by a new definition of customer satisfaction. The customer has taken control of price. Their definition of a successful transaction is cheap, accurate and now. They are beginning to prefer self-service and algorithms to live humans and their foibles. The preference is for price over marketing, accuracy over “warm fuzzies,” and algorithms over attitude. Price is, for the first time, in the hands of the customers. Who, then, are the new kings and queens of the E-com industry?

Building a Management Structure For The E-Com Future

Core Competencies. The essential competencies for a traditional direct or catalog marketing company include product development, merchandising, marketing, circulation, order entry/customer service, warehousing, MIS, finance and administration. In the past, these disciplines were represented in the middle and senior management structure. Senior management generally consisted only of marketing, operations (customer service, order entry, warehouse, possibly production), finance and the CEO/owner. The board of directors often included officers of the corporation, most often from marketing, operations, finance and the CEO.

This management structure described the marketing-driven direct marketing organization with secondary drivers being operations and finance. This was the classic model for the entrepreneurial management era and, later, the professional management era. When the transition from entrepreneurial to professional management occurred, marketing influence gave ground to financial influence; the accountants had more power than the marketers who suddenly were viewed as an expense.

It is interesting to note that this structure does not take into account the customer. It is a top-down, function-oriented hierarchy. With the ascendancy of finance over marketing in the 1980s, customer service and customer advocacy had to take its place behind marketing. Fulfillment became a profit center; MIS a necessary and expensive evil. Database marketing and database efficiencies were, by and large, grudgingly tolerated by the accountants as a means to reduce costs in order to maximize profits; the database as a customer-oriented asset or a retention tool was rarely recognized.

Reporting and management responsibilities were bottom-up along lines of diverging disciplines. Order entry, customer service and warehouse reported to the VP of operations; the VP of operations reported to the CEO. The VP of operations and the VP of marketing, more often than not, didn’t speak except when absolutely necessary; no one talked to the accountants.

Recruiting occurred almost totally from within the direct marketing milieu. The next marketing head came from a competitor or a similar direct marketing operation; product managers were lured away from competitors. A consumer catalog call center director was recruited from a consumer catalog call center; experience outside the box was minimal.

By and large, all of those core competencies are still in place at direct and catalog marketing companies today. But, where those companies have morphed to E-commerce or dot-com companies, those classic structures and their characteristics remain intact, but they are the middle layer of management and not the senior management.

Senior management in an E-commerce or dot-com organization has simply layered itself on top of these classic managers and reduced them to a functional, categorical middle management. Senior management today may consist of bright, technological and conceptual creators, but they rarely have a solid, experiential direct marketing background. That’s why they are hiring every experienced direct marketer they can find with promises of get-rich-quick opportunities and phantom stock deals, some of which actually happen. In short, E-dreamers have to hire savvy direct marketers to render themselves real. E-dreamers have discovered what direct marketers have known for some time: the customer is the king. Unfortunately, with the advent of E-commerce and the ubiquity of the Web, the customer now controls price and defines satisfaction as “free, accurate and immediately.” If you are the web-based business in the middle, you have to be a very smart and efficient direct marketer—in both the classic and the E-com sense of the term—to be able to compete in this “E-nvironment.”

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