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he names and addresses of ultimate consumers have always been valuable in direct marketing, if you know how to use them. But not all names are valuable. In the last 20 years, we have discovered that the names and addresses of purchasers of packaged goods sold in retail stores have almost no value. This is because you can t pro tably use direct mail to get people to buy packaged goods in retail stores. What could I do with a clean, household database of all the families in the United States that use Ivory Soap I could lose a lot of money. Database marketing is incremental. You are already selling Ivory Soap in retail stores. Your assumption is that, by sending direct-mail messages, you might sell a little bit more Ivory or a little bit more of another P&G product, perhaps 10 percent more. When you look at the cost of direct mail, you will soon learn that you are dead wrong. Ivory Soap is selling in some supermarkets at $1.29 for four bars. The pro t on those four bars is obviously tiny. A 10 percent increase would be even tinier. A good response to direct mail is 2 percent. There is no way that direct mail could possibly increase sales suf ciently to pay for itself when promoting most packaged goods. This is true not only for Ivory Soap but for almost everything sold in a supermarket, of ce supplies store, hardware store, or department store. Manufacturer after manufacturer has tried promotions with rebates by direct mail. They have collected thousands of consumer names and addresses in this way. None of them has gured out a way to make money from those names.
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Copyright 2003 by Arthur Middleton Hughes. Click Here for Term of Use.
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That does not mean that consumer names are worthless for direct mail. Catalogs obviously work extremely well. Supermarkets pro tably send circulars that get customers to come back, or to shop on Tuesday night. Names of parents of new babies are very valuable indeed. What does not work well is the two-step direct-mail process for regular packaged goods: Send consumers a direct-mail letter inviting them to go to a retail store to buy the product. If you use TV, radio, or print to do this, it works like gangbusters. Why are the names of packaged goods purchasers worthless There are several reasons: The margins on these products are low. Certi cate redemption is very slow it takes up to 6 months to nd out what is happening. To make a pro t, you need repeat sales (low margin). You can t redeem a certi cate for every sale, or you would go broke. So you never nd out about the subsequent sales. There is no way to gure out if you are succeeding. When people buy packaged goods at a retail store, their purchase may be captured by the store when the product is scanned. If the store has a proprietary card, it may know that Helena Hughes bought a tube of Crest toothpaste on August 17. But the store won t tell Crest about it because of privacy considerations. The small amount that Crest might pay for the information would not compensate for the bad public relations if Helena found out that her name was being used and complained about it publicly. Retail stores simply will not sell this information. They have been burned, and they know better. Crest doesn t want the information, anyway, because it can t gure out how to use it to make a pro t.
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A year after the dot com crash, I had a telephone call from the CEO of a dot com start-up (yes, they were still starting them up, despite the carnage). He told me that his new venture would generate thousands of satis ed Web consumers who would gladly provide permission for resale
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