The Next Direct Marketing Evolution: Evolution and Transformation I believe the five years ahead will be the most turbulent period in direct marketing history. This is not a sensational statement for sensational reasons. This is a rational belief born from observation and first-hand experience of over a hundred board-level forensic reviews of business and consumer direct marketing companies over the past decade. I have observed evolution and believe I see where it is going. The direct marketing era, as we have all historically known it, is over. The next, logical evolution has begun. Direct marketing will never return to its former incarnation. It will be forever changed in its evolving destiny. The conventions of 1 percent prospecting response rates and 3 percent customer response rates can no longer be sustained. The formulaic conventions of catalog lifetime value and dollars per catalog mailed are passé and obsolete. We have arrived at a point in time where all the rules, formulas and benchmarks are changing and nothing is stable any longer. Retail Channel Evolution Massive channels such as retail, distribution, and direct sales have undergone tectonic change in the past 25 years. Retail has shifted from independent to chain stores; from locally owned to nationally owned; from customer-driven to foot traffic driven; from margin focused to discount focus; from service providers to self-service; and from product differentiation to product homogeneity. In short, retail has become ubiquitous, big, faceless, thin-margined and merchandised with a dead, unimaginative, cookie-cutter, boring sameness, mall to mall, city to city, and coast to coast. Distribution Channel Evolution Distribution has consolidated in size, geography and market share. Where 20 years ago there were 500 distributors in a given market space, today there are only fifty. The big have survived and the weak have been absorbed. But the “Bigs” are very big and the “smalls” are essentially irrelevant. The distribution model has shifted from a closed, domestic, dedicated manufacturer-distributor relationship to an open, international, cut-throat importer-distributor supply chain model that ultimately depends on the continuing Wal-Martization of America for its sustenance. Direct Sales Channel Evolution Direct sales has experienced a concentration of accounts and the emergence of central account management and outbound contact for smaller accounts. The sales force has been forced and focused upward in size and sales for maximum productivity and profitability. A salesperson who managed a book of 100 accounts worth $500,000 twenty years ago, today manages a book of 20 accounts worth $2,000,000; inside sales are automating the 1,000 accounts worth only $2 to $3 million. The incredible myth and charlatanism of CRM, Customer Relationship Marketing, has relegated nearly all small customers—consumer and business-to-business—to an endless loop of recorded menus and a maize of “options designed to help serve you better.” Advent of “Net Gnats” And adding to the dynamic are thousands of “net gnats,” small Internet businesses that take 1 percent of sales here and 1 percent there, wherever they can get recognition and order flow. For virtually zero overhead, these small irritant entrepreneurs are able to lightly feed on and bleed off our primary business strength until we slowly develop anemia. When you have 500 competitors each taking 2 orders a day for your best product, it is still 1,000 orders you don’t get. And it’s growing. The Web And, of course, there has never before been anything like the Web. When my local 10,000 square foot retail store called Golf Galaxy was unable to inventory a single pair of golf shoes in 9.5 EEE, a web search revealed 120 merchants with 142 brands and styles in stock willing to sell them for 30 percent off and ship them to me in 2 days free. How are you going to compete with that in another five years of web evolution? Cultural and Political Externalities While all of this channel evolution is occurring, there are concurrent external forces at work that are shaping the direct marketing destiny. Outbound telemarketing has been taken to the stake for burning. Two million jobs are at risk as is a large portion of Gross Domestic Product, a fact that seemingly blithely evades the inmates of the Congressional Asylum. Privacy legislation nationwide and federally is bringing direct marketing to its knees. Absent an effective lobby or trade group, the direct marketing industry is being structurally dismantled, piece by piece. E-mail marketing—extremely effective executed properly—will likely be sacrificed legislatively due to the outright greed and prurience of spammers and Nigerian Oil Ministers needing help with making large deposits in U.S. banks. Being from Iowa, I can say, unequivocally, that if the corn or pork industries had as many threats as the direct marketing industry has today, there would be 100,000 tractors parked in Washington, D.C. until the clowns in Congress got their definition of “pork” right! But, no, not us . . . 2 million jobs at risk . . . billions and billions of dollars at risk . . . inane privacy overkill rampant in every state and now a new Federal Do Not Call empire . . . sales taxation inevitable . . . and mailing to consumers and businesses without permission coming next to your national chopping block . . . and we sit back and say, “Well, we’ll figure out something.” The Retail Economic and Financial Complex Face it! Wal-Mart doesn’t want you. You, your catalogs and your Web sites are a threat to the retail economic and financial complex. Let’s look at it. I will accept that none of you will like what I am about to say. I can live with that. The truth is a bitter thing sometimes, but it has to be given exposure to full light in order to see whether it will stand up and if there are any alternatives. Since the first nascent moment of the first catalog, all sales—business-to-business or consumer—have been birthed from the field sales and retail sales worlds. Think about it. Our world of direct marketing is wholly derived from sales taken away from field sales and from retail sales. We have not created new sales; only taken away or shifted sales from other channels. If there were no catalogs or direct marketing, the field sales and retail sales worlds would be, very conservatively, some 2 to 3 trillion dollars bigger. Direct marketing’s mom and dad are retail and field sales. And Mom and Dad are not pleased. Almost every business-to-business marketer I know admits that their true competition is retail, and every consumer marketer faces this reality daily. In a commercial world where substitutes can be found, and where those substitutes can be found within 1 to 12 miles of any business or home, retail will have a primary, competitive influence. If you examine the strategic, geographic positioning of both retail consumer and business-to-business merchants, you find that niches are served by placing retail stores within 12 miles of niche customer concentrations; that is, no customer should ever have to drive more than 12 miles to make a purchase. By locating two stores 20 miles apart, the 12-mile circle is established for niche customer satisfaction. By targeting 12-mile circles in densely populated universe areas, the geographic niche and market share strategy can be readily seen. Knowing this, why are catalog marketers not challenging their biggest competitors right in the primary competitive arena? Why not do geo-selects and blanket a 12-mile or 25-mile overlapping circle with direct mail specifically targeted to local competitive offers? Why not take the rebirth of direct marketing to the battleground and meet the competition in hand-to-hand combat? And if the wisdom of this strategy is unclear, consider what is likely to occur in the immediate years ahead. Previous | Next |
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