Marketing Insights

THE #1 CAUSE OF DIRECT MAIL DISASTERS

Have you ever thought about the worst thing that could happen to your bank's direct mail campaign?

"Getting low or no response," is what most of you are probably thinking.

Well, think again.

There is something worse...much worse!

One of our direct marketing experts at ACTON Marketing enjoys telling the story he heard from the account director of his bank's well-known direct mail agency in the mid 1970s.

This major New York agency put together a mailing for American Airlines, soliciting the company's customer file for American's Frequent Flyer card. (AA Advantage).

It wasn't long after the mailing dropped that a letter arrived on the airline president's desk. It was from the widow of a man who had died in the crash of an American Airlines plane and had been solicited for the Frequent Flyer Card. You can imagine how the president felt...and the call he made to his direct mail agency.

Someone should have considered this possibility during the list generation process and prevented it from happening.

During the 1970s, a few very large banks were aggressively building credit card portfolios using direct marketing. Mail drops in the millions were common.

One of the more innovative approaches to these mailings was the pre-approved offer...made possible by prescreening customer and prospect lists at the credit bureau.

Put one million names into the bureau and 200,000 great prospects came out the other end. Twenty percent was the typical pass rate on such programs. The consumers passing the bank's stringent prescreen criteria were sent a pre-approved credit card offer.

In the early days of these solicitations, response required only a signature and date.

One medium-sized bank, new to the program, was elated when the response to its first pre-approved mailing was way beyond their wildest expectations. It was simply too good to be true.

Fortunately, an alarm bell went off in the credit manager's brain, causing him to quickly inquire how the list work had been done. After a number of frantic phone calls, it was determined that somehow the wrong list had been sent to the lettershop where the direct mail pieces were personalized and mailed.

It turned out that the bank had been soliciting consumers who failed the prescreen. Of course, these less-than-creditworthy folks were more than excited about some bank offering them an unsecured line of credit on their signature only. They wanted to respond quickly in case the bank had made an error. In the credit card marketing business we call this "adverse selection."

Legally, the bank had to honor these responses.

Actually, during the peak of the credit marketing frenzy during the 1970s, there were a number of list blunders that resulted in significant problems for the banks doing the mailings.

One of the more common mistakes was a failure to eliminate P.O. Box addresses, prison zip codes, and apartment building addresses from the final mail file. Of course, early response was always highest from these locations. Criminals tend to use P.O. Boxes, which results in credit card fraud.

The problem with soliciting prisoners is obvious. With apartment buildings, too often the postman dumps all the mail on a table for the tenants to pick up at their leisure. During the massive pre-approved mailings, this mail was a target for mail thieves.

As a result, banks encountered a lot of fraud and resulting charge offs as a result of poor direct mail list work.

Why am I telling you these direct mail horror stories?

Because, while many bank marketers believe that elements like the creative, the timing of the mail drop, the format, and the offer are as important as the mailing list, nothing could be further from the truth.

And to quote the great Harvard professor, philosopher, and cultural critic George Santayana, "Those who cannot learn from history are doomed to repeat it."

THE PROBLEM PERSISTS

Fast forward almost 30 years after the list tragedies just described, and we find they still happen today.

What about the bank that forgot to purge its current checking customers from a mailing list soliciting prospects for a free checking account? It caused problems with the free gift offer. Imagine working in the branch and being confronted by existing checking customers demanding their own $50 bonus interest.  

After all, they never received a $50 bonus when they opened their new checking accounts.

Or, the bank that solicited its recent mortgage loan customers with a credit card offer. You can imagine the customer outcry when many of them were turned down for the credit card, even though the bank had recently approved them for a mortgage loan.

These mailing list errors bring us to the all-important Direct Mail Formula. A formula that – while it's been around for some time – seems to be one of the best kept secrets in the direct mail business.

THE SECRET DIRECT MAIL FORMULA!

The seemingly little-known formula is:

40% List

40% Offer

20% Everything Else (the creative, the timing, and the format)

Put another way:

40% List + 40% Offer + 20% Creative, Timing, Format = Direct Mail Success

Of these five components, your LIST is the most important component of the Direct Mail Formula.

Before getting to the list, let's consider the remaining four components.

THE CREATIVE

We'll cover creative first as many marketers believe it is the most important component. The primary reason for this belief is that the creative is the most visible part of any direct mail campaign.

You might say, "it's where all the action is."

The role of creative is to grab the attention of your customer or prospect, deliver the offer, get them to read your copy, and finally take action. We call this attention-getting task "cutting through the clutter."

How bad is the clutter?

According to Professor Barry Schwartz, author of the book, The Paradox of Choice, the average American sees three thousand ads a day.

Again, that's 3,000 ads per day.

How is this volume of advertising possible?

Easy! According to the March 31, 2008 issue of Fortune magazine, Target spent $1.2 billion dollars on ads in 2007. And the Nielsen Monitor-Plus organization tells us that the marketing folks at Washington Mutual bank spent $105 million on measured media from Jan – Nov 2007. Just imagine the billions spent in 2007 by GM, Ford, Chrysler, Procter & Gamble, McDonald's and others.

The chart in the sidebar provides you with a visual image of the ad clutter in America compared to other developed countries.

Addressing the issue of marketing message clutter in his 2005 book, Buzzmarketing: Get People to Talk about Your Stuff, buzzmarketing expert Mark Hughes writes, "The smart folks are catching on. If you assume you have people's attention, you are dead wrong.

"Rule number 1: GET THEIR FREAKIN' ATTENTION. Don't follow the herd, because you won't get heard."

The goal of your creative is to get your prospects' freakin' attention. To be seen or get heard.

So, yes, the creative is important...just not as important as the list and your offer.

Unfortunately, we often find that clients, and almost all general media agencies, tend to focus too much on the creative to the detriment of the list and offer. Why? Because the creative is the tangible part of direct mail marketing and considered "the fun part" by many people. Everyone has an opinion about the copy, the photographs chosen, and the layout.

As the old saying goes, "too many cooks spoil the broth." This happens all too frequently with creative. It's important to leave the creative to the creative experts.

And not the creative experts working for your general media agencies. To them creative is everything, and the only thing. At direct marketing agencies, creative is simply part of the 20% of the direct mail formula.

THE TIMING

Sometimes timing is relevant, other times it's not. For example, the most appropriate time to promote IRAs via direct mail is in the January through March timeframe.

While most banks choose to promote equity loans and lines of credit during the Spring and Fall, this is a self-imposed, follow-the-leader decision. From a needs-based marketing perspective, consumers' need to borrow money is a year-round necessity.

July and August are often avoided by mailers because of low response due to vacations. And Thanksgiving through Christmas are also avoided because consumers are busy focusing on the holidays.

But generally, like TV, radio, and print advertising, it's important to be in the mail year-round. This is what works best for checking account solicitation mailings.

THE FORMAT

Your standard direct mail format choices include envelope packages, postcards, self-mailers, snap-packs, and magalogs. A few more esoteric options also exist including dimension or box mailers and die-cut postcards called Customized Market Mail.

The format decision is driven by several factors:

1. Your marketing budget
2. The product being sold
3. The purpose of the mailing
4. Your timing
5. Your brand image

As postage rates continue to climb, more and more marketers are moving away from the more expensive envelope packages consisting of several components and embracing self-mailers and postcards.

We could spend hours talking about each of these components. But again, together, creative, timing, and the format accounts for only 20% of the direct mail formula.

The remaining 80% of the direct mail formula is divided between the OFFER and the LIST.

And between the OFFER and the LIST, the LIST is considered by almost all direct marketing experts as the more important of the two.

Before getting to the LIST, we'll quickly cover the OFFER.

THE OFFER

Writer Ralph Waldo Emerson once quipped: "If a man can make a better mousetrap than his neighbor, the world will make a beaten path to his door."

Unfortunately, Emerson was only partially correct.

It's one thing to have a new, superior product. It's quite another to convince people to buy it from you.

Undoubtedly, there were many purveyors of mousetraps during Emerson's time as rats ran rampant through the dirty streets of American cities.

With all these sellers, the man with the new mousetrap needed some way to grab the attention of his potential customers.

This is the goal of your offer.

Having developed this better mousetrap in the mid-1800s, your offer might have read something like this:

New No-Bait Mousetrap...Even a Child Can Use!

The New No-Kill Mousetrap for Animal Lovers.

Now, Catch Multiple Mice in the Same Trap.

Introducing American's First Disposable Mousetrap!

How important is your offer?

Your OFFER is the reason your prospect or customer CONSIDERS what you're selling.

Your OFFER is the incentive and the motivation for your prospect to RESPOND to your direct mail piece.

Bottom line...your OFFER is the reason your prospect BECOMES your customer.

Shockingly, more often than not, marketers fail to provide an offer…particularly in newspaper ads and even in their direct mail packages.

In his out-of-print book, The Complete Idiot's Guide to Direct Marketing, veteran copywriter, prolific author, and direct marketing expert Robert W. Bly defines the offer as:

1. What your customers or prospects get when they respond to your ad or mailing.
2. What they have to do to get it.

Michael Masterson is a direct marketing veteran and entrepreneur. In his course book on direct marketing copywriting, Masterson describes the offer as "An exact, succinct description of what the customer will be getting."

An excellent example of a direct marketing offer that's worked for many banks since 1982 is "Totally FREE Checking and a FREE Gift."

I think you you'll agree it is an exact and succinct description of what your prospect or customer would be getting when he or she responds to your direct mail.

As you might expect, not all offers are good offers. Many direct marketing programs fail because of a poor offer.

Which offer sounds better to you?

Your Choice of Six Different Checking Accounts at ACTON Bank.

Or,

Get Totally FREE Checking and a FREE Gift at ACTON Bank.

Almost any bank can make the first offer. But how many of your competitors can make the second offer?

ACTON Bank's Totally FREE Checking and a FREE Gift is a superior offer.

At this point, there are at least a few of you thinking, "With a great offer like this, any mailing list should work."

But thousands upon thousands of direct mail tests prove otherwise.

Here's a rule of thumb when it comes to your offer and your mailing list:

You'll get better results with a mediocre offer to an excellent mailing list than sending an excellent offer to a mediocre mailing list.

Bottom line, the LIST is the most important component of the Direct Mail Formula.