Don’t Count Out Direct Mail: Five Ways to Boost ROI

By Michael W. Maynard, 89 Degrees

As the economy gradually turns around, more retail marketing departments are increasing their marketing budgets. And while much attention is being directed to burgeoning world of digital communications, don’t be too quick count out direct mail.  The Direct Marketing Association expects direct mail to see year over year growth of up to 6% in the next several years, for some very good reasons. To capitalize on these strengths, retail marketers need to re-assess their direct marketing campaigns and take another look at some techniques that will boost the ROI these campaigns generate. 

The balance of messages has shifted – hugely. Many people are sent hundreds of emails a day while only a handful of direct mail pieces are delivered to households. This gives retailers who do direct mail a competitive edge. Despite this advantage, many retailers avoid direct mail, citing several reasons: they say it is too costly, they don’t have a customer data base to target the right people, they lack the expertise in direct mail creative, and they don’t how to measure the return-on-investment. But there is a proven method that addresses all of these concerns and assures you are maximizing your DM ROI – CTCOA (Cost, Targeting, Creative, Offer, Analysis). Here is an overview of how these five steps work together:

1. Cost
The very first challenge is the cost of the direct mail piece. What many people do not know is that the greatest cost that goes into any direct mail piece is postage. Postage typically costs anywhere from 60%-80% of the total cost. The format (postcard, tri-fold, catalog, etc.) is also another varying factor in the total cost. The key to a strong ROI is to keep the cost of the piece low. One avenue is a “Route Re-mix” process, which lowers the profit bar per person. Route Remix examines millions of carrier route combinations to figure out how to achieve maximum revenue and ROI as cheaply as possible. This process takes advantage of high density postal rates which in turn reduces postage costs by 15-25%. See the example below which shows how saving $.04 in cost makes achieving a positive ROI $0.20 closer.

Cost per Piece Margin Rate Incremental Sales per piece to Break Even
$0.26 20% $1.30
$0.30 20% $1.50

 

2. Targeting
With over 100 million households in the United States, it can be overwhelming for marketing departments to pick the best households for mailing. When selecting people to mail, the RFM (recency, frequency, monetary) approach works well for a very broad product selection. But most retailers have a niche market and should consider using customer purchase models to determine who is most likely to shop again. And in order to keep sales growing year over year, it is a very good idea to target high value prospects using a prospect model as well.

3. Creative
Consumers have a short attention span. Using phrases such as “exclusive deals,” “offer’s inside,” and “buy one, get one free” work well. The creative format can also make a difference when considering your ROI. Low cost formats limit how much content (typically less surface area) you can put on a piece and limit the ability to upsell items. A medium cost, medium surface area piece works best for your investment.

4. Offer
The best and most critical direct mail ingredient is the offer. All direct mail should include an offer that provides the consumer with something tangible. Give people something they can use to recoup the dollars spent on the DM piece. The offer should be well placed on the piece, unique for the DM channel and better than the competition with limited restrictions. A dollar or percent-off work best due to the limited restrictions. The best part about offers is that they typically can be tracked by a code at POS or by item, which helps to measure the impact of the DM.

5. Analysis
All direct mail campaigns should be measured in a standard time window and include a control group. In addition, you should test small groups of people with different creative and offers to see which gets better response then use that information for future offers/campaigns. The results should also be validated to ensure they are statistically valid.

Example
CTCOA has proven its ability to maximize direct mail ROI. Here are actual results from one business that used this five step approach and experienced a drastic increase in ROI in three months.

Event Cost Targeting Creative Offer Analysis/ROI Change in ROI Points from Month 1
Month 1 Low Models Good Good Worst n/a
Month 2 High Models Better Better Second Best 31%
Month 3 Medium Models Best Best Best 58%


In business the phrase you have to spend money to make money usually holds true. Using the CTCOA approach, direct mail is an alternative way to spend less money (than you would have without these methods) to make more money. It’s a proven technique that is giving marketers a competitive edge with effective DM campaigns. So next time you are reviewing your marketing strategy, take another look at direct mail. It’s an advantage you don’t want to count out.   

Michael Maynard is a marketing analyst & developer at 89 Degrees, a customer engagement agency leveraging data and analytically driven strategy, technology integration and creative that connect consumers with brands for maximum engagement and ROI.


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