In 1872, Aaron Montgomery Ward printed the world’s first mail-order catalog and gave rise to what we think of today as direct response marketing, or direct marketing. The catalog, and later everything from newspaper ads to 800 numbers to email spam, gave advertisers the ability to directly measure the impact of their efforts. Let’s look at a simple example.
Direct Response Marketing – Example
Jane’s insurance company would like to increase the number of auto insurance customers they’re serving. She pays $100 for a list of 1,000 names/addresses for people who seem likely to have the means and desire to purchase auto insurance. She then goes to a print shop and has 1,000 solicitation letters made up and sends them out at a total cost of another $400. Over the next 2 weeks she receives 100 inquires from interested customers and sells 25 auto insurance policies earning $50 in commission for each policy. Should Jane repeat and/or scale up this direct marketing effort?
Let’s run the numbers. Jane spent a total of $500 to produce the advertising. She sold 25 policies earning $50 in commission for each policy, a total of $1,250 in commission. This makes her return on investment $2.50 or 2.5x. Based on this it probably makes sense to continue or scale up the effort, depending of course on other potential factors such as cost of customer service and other overhead.
While Jane may have achieved an acceptable result with her first test, she shouldn’t rest on her laurels. She could ask some questions such as,
- Would a larger mailer, that’s slightly more expensive to produce would generate more responses?
- Could her list provider could sell her prospect information for customers who are more likely to respond?
- Could the messaging she’s using in her direct mail pieces also produce an acceptable return on investment in another medium, maybe a newspaper ad or boosted social media post?
Why are you going on about mailers? I thought this was a digital media blog…
The only difference between Jane’s direct mail campaign and a modern paid search campaign is that the paid search campaign reports results basically in real time, where the direct mail campaign takes at least days or weeks to show the result. In the same way direct mail, newspaper and magazine advertisers have been able to test, measure and iterate their advertising to improve return on investment over time, digital advertisers can use these same tools. If you’d like to learn more about strategies and tactics that direct response marketers have developed and refined with traditional direct marketing channels over the last 100 years I’d highly recommend reading Claude Hopkins famous book Scientific Advertising. In future posts we’ll look more at how we can leverage decades of experience from marketers who came before us to test, measure and iterate direct marketing campaigns.