My last three posts talked about channel “surfing”, the direct model (one’s own sales force) and the indirect model (utilizing resellers/distributors/ISV) for sales distribution. Both models have their advantages and disadvantages but in either case it is critical that your selection align with your overall strategy. Let’s look at the third model, direct marketing (basically reaching customers by using electronic/internet technology). I will use the same functional areas as before, so one can do a comparison in helping make a distribution selection.

Account control: In the direct marketing model you really have very little control over the accounts.  Your “control” is in your targeted marketing, the message, the “spin”, the advertisement or promotion that captures the intended audience.  Note, these activities are far more effective and highly scientific in the consumer market versus the industrial sectors.

Product environment: For a pure direct marketing, the product characteristics must be straight forward. Its features must be either clearly known or it’s the current hot trend. A classic example is that late night TV ad that offers on a limited time basis, not 5, not 10 but 15 knifes for only $19.95 AND if you order today you get a free knife holder, valued at $1,000 dollars.  Seriously the real issue is that the ads have to run hundreds of times and appear as the greatest deal since night baseball. The main reason for this is, you really have no control over the audience or feedback, and thus it is a “numbers game.

Services – Similar to the product characteristics, any service must be well established or a hot trend for it to be successful via direct marketing. Both product and services need multiple exposures, multiple medias and clear impacting messages.

Customer Segmentation: Other than other marketing activities, this is probably the key issues for direct marketing.  One needs to really analyze who you are targeting and know to the n^th degree the proposed audience. Considering that one will be using email or telemarketing or direct mail campaigns or any combination of the three to reach an audience; well designed customer segmentation is critical. The importance of this activity can not be overstated when one realizes that a good return on mailings is 3- 5 %.

Marketing support: If you think about it, direct marketing distribution is fundamentally all marketing; thus your sales funnel, and eventually actual revenues will be almost a hundred percent dependent on marketing. Given that the key functions are the following.

1- Customer segmentation as mentioned above. I would add that testing the segmentation and the message are critical before any broad scale campaign is initiated. Also hold some focus groups or conduct blind tests to help validate your assumptions.

2-Make it extremely easy for the potential customer to “buy” the product or service. Do not make them fill out a hundred items to get the product. A simple phone number or email or return card should be all that is required. If you do otherwise, you run the risk of “turning off” the customer. So, a creative, impactful call to action and asking the customer to response is very critical.

3-     Campaigns- Understand that it will be highly unlikely the your potential customer will respond or act on the very first marketing activity that he or she receives is important to know.  One must “hit “ the customer repeatedly (5- 10 times depending on the message, product or marketing activity). Knowing this, marketing must design campaigns that last over months or quarters and contain key items such as the overall message, key promotion for the repeated activities, linking messages, uniqueness for the particular sub activity within the campaign and a consistent call to action for the overall campaign.

Financial considerations:  the biggest item here is what marketing activity will give you the best return on your investment.  This decision is not as straight forward as one might think.  As an example, it not just the cost of a mailing, but is a mailing  the appropriate media for the product and the customer. Another example is email mailings. While the cost is relative inexpensive, if you are an unknown (no brand) and the email is not compelling then your response rate maybe unacceptable. In reality, most direct marketing is a combination of activities, thus your expenses have to be weighted against the overall potential returns.  One might use some dollars (expensive dollars) to create awareness through advertising and less expensive dollars on an email activity as a follow – up.  In any case analyze the overall cost with the overall expected return and balance your spending for the best return

Below is a high-level pros and cons regarding the direct marketing model.

Direct Marketing Model

Functions                                Pros                                                     Cons

Sales force                               None –really marketing              No real closed loop 

                                                Inexpensive (if done correctly)   Specific type products

Product                                    Potentially high margin                Volume for sucess 

                                                      Usually commodity types            Commodity type       

Services                                   Proven experience                      Account control

                                                                                                 Potential costly support

Marketing                     Unified campaigns     All about marketing                                        

                       Volume sales                            lack of customer loyalty

Financials                                 Potentially inexpensive                Potential poor returns

Again, as in the last three posts, do your due diligence relative to your strategy and weighing whether, the pros outweigh the cons relative to your overall strategy.   Secondly, understand that most enterprises use a combination of two or three of the models which is where the funs begins.  Things like channel conflicts (who sells what, who gets paid, what territories are covered by who) come into play and nine- times out of ten, poorly designed models relative to channel conflict, results in missed objectives and goals or just complete failure.

In any event, I hope this help you in selecting your distribution model, next time, I will draw and overall comparison of the three models. Until then like to hear from you about your experiences or if you have any follow up questions.

RHL 8/20/09