New Ethical Guidelines for Promotions

During the past several years, thanks to the Internet and dot-com companies, many of the business practices of catalogers are being challenged.

Do you charge shipping and handling and, if so, on what basis?

How do you price your products? What is considered good customer service?

The benefit of these challenges to ongoing practices is likely to be better customer relations and greater sales for all engaged in the remote shopping channel.

One area that is being challenged is how to apply promotional techniques that are fair to all. Different prospective customers are motivated by different stimuli.

Some want to pay the lowest price. Others want special services like free gift-wrapping while some are moved by reduced or free shipping.

Some time ago, the Direct Marketing Association developed industry standards on ethical practices. From time to time, these are updated and distributed to all DMA member firms.

This booklet is titled “Ethical Business Practice” and is good for all forms of remote shopping. These guidelines are suggestions on how companies should conduct their businesses, but they are not absolutes.

Even with all the work put in on the guidelines by knowledgeable direct marketers, the guidelines are open to interpretation, and reasonable people will disagree with them.

Remote Shopping

Companies whose businesses are conducted through the remote shopping channel are engaged in what is probably the most difficult form of selling. Remote shopping companies have to seek out and then approach prospective customers when they may not be in a shopping mode.

More than 95 percent of the time these efforts fail. No other form of selling has such a high failure rate.

This is true for both the consumer and business-to-business arenas regardless of the medium, paper or electronic.

In the brick-and-mortar world, the majority of prospective customers enter the store inclined to buy something and may have a specific item in mind. It is inconceivable that 95 percent of all customers that enter a store never buy.

In BTB selling, if a company’s sales force was able to close only 5 percent or less of its calls, the cost would probably kill the company.

Therefore, to try to spur a sale, all remote shopping companies frequently resort to offering incentives of some kind or another to induce higher sales. In remote shopping, one of the most powerful incentives is free shipping and handling. There has rarely been a study among remote shoppers that has not ranked free shipping and handling as second only to product selection and pricing as a motivator in getting an order.

However, many other promotions can be employed, such as reduced pricing. This can sometimes be done in conjunction with a specific date, such as order by X date and receive a discount of Y percent. Another possibility involves giving a gift with an order, especially when the order is more than a certain dollar amount.

There is no question that for different companies, different promotions are more effective than others. This also applies to whom the promotion is aimed.

If a company is trying to get someone to buy for the first time, it may use one promotion that it does not use with its customer base. Indeed, it is not unusual to see a company have or run several promotions at the same time aimed at different classes of customers or prospects.

Determining Who Gets What

However, recently there has been a challenge to this practice by claiming that all classes of shoppers are entitled to all promotions a company has at the moment of their purchases.

The one area in which this may be conceivable is when it applies to the price of an item. Then a company should extend to every customer at the time of his order the lowest current price. That is not to imply that a company cannot run different pricing promotions at the same time, if for no other reason than to test what is the best motivator at an acceptable cost. The gains in that customer’s impression of the company will more than offset any margin hit if the lowest price is extended to everyone.

However, if more than one type of promotion aimed at different classes of customers is being run concurrently, it is not necessary or wise to extend all of them to everyone. For instance, one promotion could offer one class of customers free shipping and handling, and another promotion could offer 15 percent off all items. Unlike the pricing tests, where the issue is to determine the break-even cost at which the company will receive the most responses, here the company is trying to judge the value of different promotional techniques that are not related in any way. If a company extended all offers to all customers, this could be so cost-prohibitive that the company would have to reduce the number of promotions, hurting the customers and the company.

Added to this is the new factor for remote shopping companies of dual mediums, paper and electronic. Must a promotion running on a company’s Web site automatically extend to those shopping from their catalogs? For instance, what if a company ran an auction on its Web site? If someone ordered an item from the catalog, does the company have to sell that item to this customer at the current bid price? Or, if there is an offer on one banner or portal but not on another, does the company have to offer it to everyone, even those ordering from their paper catalogs?

This is not required. Rather, the DMA should clarify its ethical guidelines as this issue will get more muddled as time goes on and as we add interactive television, CD-ROMs, etc. to the marketing mix.

Bill Dean is president of W.A. Dean & Associates, San Francisco, a marketing research firm.

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