By adding up the campaign costs, the direct marketer can figure out in advance the needed break-even response rate. This rate must be net of returned merchandise and bad debts. Returned merchandise can kill an otherwise effective campaign.
The direct marketer needs to analyze the main causes of returned merchandise, such as late arrival, defective merchandise, and damage in transit, not as advertised and incorrect order fulfillment.
By carefully analyzing past campaigns, direct marketers can steadily improve their performance. Even when a specific campaign fails to break even, it might still be profitable.
Suppose a membership organization spends $10,000 on a new-member campaign and attracts 100 new members, each paying $70. it appears that the campaign has lost $3,000 (=$10,000-$7,000). Bit if 80% of new members renew their membership in the second year, the organization gets another $5,600 without any effort. It has now received $12,600 (=$7,000+$5,600) for its investment of $10,000. to figure out the long-term break-even rate one needs to figure out not only the initial response rate but the percentage who renew each year and for how many years they renew.
This example introduces the concept of customer lifetime value. The ultimate value of a customer is not revealed by the customer’s purchase during a particular mailing.
Rather the customer’s ultimate value is the profit made on all the customer’s purchases overtime less the customer acquisition and maintenance costs.
For an average customer, one would calculate the average customer longevity, average customer annual expenditure, and average gross margin, properly discounted for the opportunity cost of money, les the average customers whose expected lifetime value the company wants to assess.
After assessing customer lifetime values, the company can focus its communication efforts on the more attractive customers.
These efforts include sending communications that may not even sell the customer anything—but maintain the customer’s interest in the company and its products.
Such communications include free newsletters, tips and birthday greetings, al serving to build a customer relationship.
Direct marketing has spawned a growing body of theory, measurement, and competent practice. It adds a number of communication concepts and capabilities to the marketer’s toolbox.
When tied to a carefully developed customer database, it can increase sales and profit yields and strengthens customer relationship. It can provide more accurate prospect leads and trigger new sales at a lower cost.
Ultimately, marketers will make direct marketing and database marketing an integral part of their marketing strategy and planning. Yet they must do this responsibility.
The direct marketer needs to analyze the main causes of returned merchandise, such as late arrival, defective merchandise, and damage in transit, not as advertised and incorrect order fulfillment.
By carefully analyzing past campaigns, direct marketers can steadily improve their performance. Even when a specific campaign fails to break even, it might still be profitable.
Suppose a membership organization spends $10,000 on a new-member campaign and attracts 100 new members, each paying $70. it appears that the campaign has lost $3,000 (=$10,000-$7,000). Bit if 80% of new members renew their membership in the second year, the organization gets another $5,600 without any effort. It has now received $12,600 (=$7,000+$5,600) for its investment of $10,000. to figure out the long-term break-even rate one needs to figure out not only the initial response rate but the percentage who renew each year and for how many years they renew.
This example introduces the concept of customer lifetime value. The ultimate value of a customer is not revealed by the customer’s purchase during a particular mailing.
Rather the customer’s ultimate value is the profit made on all the customer’s purchases overtime less the customer acquisition and maintenance costs.
For an average customer, one would calculate the average customer longevity, average customer annual expenditure, and average gross margin, properly discounted for the opportunity cost of money, les the average customers whose expected lifetime value the company wants to assess.
After assessing customer lifetime values, the company can focus its communication efforts on the more attractive customers.
These efforts include sending communications that may not even sell the customer anything—but maintain the customer’s interest in the company and its products.
Such communications include free newsletters, tips and birthday greetings, al serving to build a customer relationship.
Direct marketing has spawned a growing body of theory, measurement, and competent practice. It adds a number of communication concepts and capabilities to the marketer’s toolbox.
When tied to a carefully developed customer database, it can increase sales and profit yields and strengthens customer relationship. It can provide more accurate prospect leads and trigger new sales at a lower cost.
Ultimately, marketers will make direct marketing and database marketing an integral part of their marketing strategy and planning. Yet they must do this responsibility.