2000 and Beyond: Perfecting Customer Relationships

As the days to 2000 rapidly dwindle, the direct marketing industry is faced with both new challenges and opportunities that will continue to shape the way products and services are marketed worldwide.

The opportunities are seen in the growth of the Internet – not only in North America, but around the world. Because the Internet allows access to Web sites anytime and from anywhere, its potential for global marketing presents enormous opportunities. The most profound challenges include stricter privacy regulations that would limit the ability to use consumer information for the purposes of targeted marketing.

Overall, the direct marketing industry is healthy, with total U.S. consumer sales expected to grow from $1.5 trillion this year to nearly $2.34 trillion in 2004, according to a new study by the Direct Marketing Association and economic forecaster The WEFA Group, Eddystone, PA.

That sales increase will continue a trend of 8 percent annual growth, which is twice the growth rate of the retail industry, said the DMA, which has observed a tremendous influx of companies from areas that traditionally did not market directly, including utilities, automotive and pharmaceutical. It also has observed an explosion in online retailing start-ups that have risen to compete with traditional direct mailers and catalogers.

“We’re going to continue to see a further blurring of the lines between traditional advertising and direct marketing,” said DMA president H. Robert Wientzen. “Every company is looking for ways to make its advertising work better, and I expect to see a significant amount of further convergence in direct selling as opposed to direct marketing.”

The distinction between direct selling and direct marketing may be subtle, but the expected growth in household appliances attached to the Internet – including the television, stereo and even the refrigerator – is expected to further close the gap between sending consumers a highly customized marketing message and conducting an immediate sales transaction.

DM experts say the Internet will further equip consumers with the ability to research products, comparison shop and make inquiries. Meanwhile, marketers will have a stronger capability to maintain an individualized relationship with a core constituency of customers. Even more profoundly, according to Lester Wunderman, chairman emeritus of Wunderman Cato Johnson, New York, consumers will have the technical capability to control which marketing messages they receive, either opting in or out.

“The most profound effect of the Internet is in the development of permission marketing,” he said. “I don’t find one-to-one marketing is as revolutionary as not sending messages to people who don’t want them.”

But Wunderman doesn’t deny the importance of building a relationship with consumers. Nurturing the relationship means “starting to get rid of the gimmicks and get into the substance.”

“Matching a consumer’s need to a vendor’s satisfaction becomes more doable in light of the communications we now have,” he said. “We have to get past the gimmickry of getting people to purchase what they otherwise wouldn’t buy. The function of direct marketing is to better and more efficiently satisfy consumer needs.”

Relationships require extensive consumer information, which is the bedrock of the DM industry. The information available to marketers has exploded in the last 20 years as database technology becomes less expensive, but it has spurred increased concerns about consumer privacy. Abuses of personal information have captured the attention of the mainstream press and have heightened concerns among consumers who are afraid of being victimized. That climate of fear is the basis for stricter regulations on the use of consumer information and pending legislation that may restrict its use even further.

“The industry is more tied to information than it ever has been,” Wientzen said. “The success of the industry depends on continuing to deliver efficiency and wringing a lot of costs out of the system, and that requires information.”

The most recent threats include the Shelby Amendment, which would allow consumers more control over the use of their names and addresses in driver’s license records, and a provision in a banking bill that would restrict the disclosure of banking records.

“The Shelby Amendment hits marketers right between the eyes,” said privacy consultant Robert Gellman. “Marketers weren’t able to change it or modify it in any way, which is really telling. Marketers are failing to do enough on the privacy front and have left themselves open for legislation.”

At the same time, Gellman said he doesn’t think U.S. privacy restrictions are as big of a threat to the industry as some think.

“Direct marketing all around the world seems to be progressing and succeeding, despite the fact that much of the rest of the world lives under data protection laws,” he said.

While European countries may have more limitations on the use of consumer information, those limitations stymie growth, Wientzen countered.

“Direct marketing is growing not nearly at the rate it is in the U.S.,” he said. “The growth is confined to a few places, including the United Kingdom and Germany.”

Despite the current threats to the use of consumer information for a marketing purpose, the industry has come a long way since the 1950s and ’60s, when it was perceived as the domain of marketing bottom-feeders.

“What has happened in the last 40 years is that more companies have recognized direct marketing as a strategic imperative,” said Bob Kestnbaum, president of database marketing agency Kestnbaum & Co., Chicago. “One-to-one marketing, relationship marketing, database marketing – they’re all different names for the same thing – but they are now recognized as fundamental marketing strategies.”

If there is one characteristic about the direct marketing industry Kestnbaum would change, it’s to place less emphasis on individual campaigns and think more about the long term of serving a group of customers over a lifetime.

“I recommend that marketers not communicate a message in one contact,” he said. “There’s a cumulative effect of how a marketer treats customers that is going to determine what that customer does.”

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