Posted by Brian Berg Google+
Direct mail marketing response theory is the belief that over time, not only cost may change, but the same prospects may respond differently to the same direct mail campaign. What a direct mail marketer achieved 3 or 4 years ago with the same list, same mail piece, and same offer may not be possible today. The campaign cost have likely increased in several areas while at the same time, response for the offer may have decreased. Direct cost change occurs in several areas. Cost will change with paper due to the fluctuating cost of pulp and postage may change do to the ever increasing cost to deliver your mail. Both paper and postage cost changes in an irregular fashion and is difficult to predict when or how much. Your mailing list cost most likely hasn’t changed as advances in technology keep pressure downward on the actual cost to the direct mail marketing business. Indirect “cost of goods sold”doesn’t affect the response requirements for figuring your breakeven analysis. But if, over time, your cost of goods sold increases, unless you increase your product price, your gross profit decreases which will require a different response to achieve the same outcome.
If your cost of goods sold increases, you’ll need a higher response to breakeven. If your “gross profit” increases due to a decrease in “cost of goods sold” or price increase, your response requirement for breaking even will decrease. Your direct mail response percentage rate will likely also fluctuate due to a variety of reasons. Need – A personal need for your product or service may change over time. This happens when a persons priorities shift in their life. As an example, the need for dating service disappears when an individual finds their match and is married. Ability to pay for your product – Whether your product or service is purchased with cash or is financed, if the ability to pay for a such a product diminishes, you will see a decrease in response to your direct mail campaign. Competition – Your competition may offer a superior product or price that affects the interest in your product or service. Diminishing market – The number of available prospects doesn’t directly affect the response rates in a given direct mail campaign. But if the available prospects, in a given market, decreases to a point where you are unable to mail as many as you’ve mailed before, then your cost per piece may increase thus applying pressure on your ability to break even. So the main point to take away with this blog post is to remember, that changes in the market (and beyond) may affect your ROI, but you can consider each of these points mentioned and make changes yourself. Consider where you purchase your printing services. If you’re mailing the same or more, it may be wise to discuss your campaign pricing with your vendor or shop around to find the same product at a better price.
You should also closely monitor your competitions direct mail. What are they doing differently than you are and are they testing or are they consistently mailing the same over time. If they are mailing the same, it’s likely that that mailing is performing well. Also consider making changes to your mailing list such that you are able to better fit your product to the prospective customer. And finally, with the technological advances in direct mail data, you may likely find additional segments within your target market. If so, develop a variety of mail piece versions to better pitch your products and services. Understanding the economics of direct mail helps the direct mail marketer make adjustments to their mailing list, offer, and mail piece creative. The more you’re able to monitor the changes in the market, the competition, and the changing cost associated with your advertising, the better you’ll be able to stay profitable and grow your business.