This report will help you to:
Determine the profile of your target market. Deal more effectively with list vendors and brokers. Identify the right list. Effectively test lists before program roll-out.
Introduction: What is a Direct Marketing List
Direct marketing success is dependent on the selection of your marketing lists – names and addresses, phone numbers or email addresses of people to whom advertisers will send a direct solicitation. But the list isn’t just the way you reach your market; it is the market! If you cannot identify and rent appropriate lists, your chances of success are poor.
Except for your offer (the product and its price), list selection is the most important factor in determining direct marketing response. Outstanding copy and design, for example, might pull double the response of a poorly conceived mailing piece. But a good list can out-pull a weak list by a ratio of 10:1 (a difference, for example, of a 1 percent response or a 10 percent response!).
Approximately 40,000 different lists are available for rental, representing a combined database of some one billion names. There are few persons in the United States whose names are not on at least one of those mailing lists.
The basic categories of available lists include:
House list – an in-house list usually contains customers, people who have bought from you; and prospects, people who have inquired but not bought. House lists are best because they frequently pull double or more the response of even the best-performing rented lists.
Compiled lists – these lists are of people or businesses compiled from published sources, such as industry directories and the Yellow Pages. Compiled lists frequently provide the best means of reaching large groups of specific audiences. For example, you can rent compiled lists of all attorneys in New York City or all radiologists in the United States. For mail order offers, however, compiled lists generally do not pull as well as response lists.
Response lists – these are lists of proven direct mail buyers. Mail order offers usually get the best return through mailings to response lists of buyers who have purchased a product similar to yours and in the same price range. For example, a $10 book on small business success is likely to sell best to test lists of people who have bought similar books in the $8 to $15 price range.
Attendee/membership/seminar lists – these lists contain individuals who have attended a specific trade show or industry event, belonged to an industry association or paid for seminar participation. Since relatively costly trade show attendance, memberships, and seminars are usually sold through direct mail, excellent results are possible from such lists.
Subscription lists – these are some of the best and largest lists on the market. Two types of subscription lists exist: controlled circulation and paid circulation. With controlled circulation, the readers receive the magazine free, provided they can prove to the publisher that they fall into a certain professional category (for example, to receive a free computer magazine, the reader must work in the data processing department at a firm of a certain minimum size). Proof is accomplished by completing a subscription request form or “qualification card.” With paid circulation, the reader pays for a subscription and is not required to provide additional data other than name and address. Each type has its pros and cons. For mail order promotions, paid subscriber lists may be the better choice, because those on the list have purchased a product (the magazine) through the mail. However, controlled circulation lists offer the advantage of greater selectability. Because the subscribers have given a lot of information about themselves, you can select portions of the list according to certain characteristics, which might include job title, job function, size of company, or even the types of products purchased.
Donor lists – used primarily by fund raisers, these lists contain the names of people who have contributed money to charities and non-profit organizations.
Credit card holder lists – these names are useful because the prospects can respond to your offer using a credit card. Also, credit card holders are somewhat “upscale” (demonstrated by the fact that they earn enough money to qualify for a credit card).
Merged database lists – this type of list simplifies selection because merging lists eliminates duplicate names and offers the remaining names as a single master unduplicated list. Such databases allow list users to reach a large portion of a specific market without having to track down obscure, hard-to-find, or poorly managed lists.
Lists are usually rented for onetime usage. If you want to do a second mailing, you must rent the list again. The names and addresses of people who respond to your original mailing, however, become your property and can be added to your own in-house list.
Lists are generally available from three sources: the list owner, a list manager, or a list broker. A fourth source, of course, is to compile your own lists from appropriate publications.
Marketers and private organizations can rent their own in-house mailing lists. If you wanted to rent a list of people who attended, say, the Chemical Exposition, you could call the show sponsor and see if the list is available.
Because the administrative details of list rentals are time-consuming, many list owners hire outside firms, called list managers, to manage and market their lists for them. If a list is handled by a list management firm, you would rent it from that firm rather than the owner. Also, list managers aggressively promote their lists (to generate commissions from rentals), and many of the ads featuring lists are placed by list management firms.
A list broker is a third-party agent that acts as a liaison between the list owner or manager and the list user. Unlike list managers who work primarily for the list owner, list brokers work primarily for you, the list user. Also, while managers may have a vested interest in promoting their own lists, brokers can be more objective in their recommendations.
Since all brokers have access to the same lists, they differ by the service, advice, expertise, and recommendations they offer clients. We estimate that approximately 80 percent of all list rentals are made through brokers.
Profiling Your Target Market
A key component of successful direct mail strategy is generating a profile of your target market or “ideal customer,” then selecting lists of people who most closely fit this profile.
The following selection factors, available on many lists, should be:
Most lists can be segmented by location: state, SCF, zip code, county, and metropolitan area. (NOTE: SCF refers to Sectional Center Facility. All zip codes included under a given SCF share the same first three digits.) If you are planning a mailing designed to get business people to attend a conference in New York City, you might mail only to executives located within a 100-mile radius of midtown Manhattan.
Some lists provide quantitative characteristics of a given population: age, sex, income level, wealth, race, and other vital statistics of a personal nature. A great many mailing lists, for instance, allow selection by sex (male or female).
This segmentation refers to the psychological makeup of your target audience and is more difficult to identify. A mailer sponsoring a seminar on “How to Become a Published Author,” for example, might mail seminar invitations to members of the AARP (American Association for Retired Persons) on the assumption that many retirees are looking for something to occupy their time and might consider writing for publication. The premise is unproven, however, and a test mailing to this list might fail to generate sufficient response. A better choice might be the Writer’s Digest subscription list, where people have indicated their interest in writing by buying a magazine on the subject.
Three important selection criteria for mail order buyers are frequency (how often they buy through the mail), recency (the date of their last purchase), and amount (how much they spent). Many list descriptions provide a dollar amount for “average order,” representing the average amount spent by people on the list.
Experience proves that buyers who buy often and spend more are better prospects than those who buy infrequently and spend less. Also, contrary to what might seem logical, those persons most likely to respond to a new mail order offer are those who have recently responded to a previous mail order offer! This is why “hot lines” – the segment of a list comprised of the most recent buyers – are priced higher than the rest of the list.
These include job function, title, plant size, industry (often specified by SIC code), number of employees, annual sales, and types of products purchased.
Market Research as an Aid to List Selection
Market research studies – especially those involving focus groups – can help define an accurate profile of your target prospect, which in turn simplifies the process of selecting the right lists for your offer.
Many direct marketers use market research to avoid costly errors and to correct misconceptions about their prospect or the perceived benefits of their product. Nonetheless, most agree that no amount of market research can predict a winner or guarantee success. The only accurate measure of selling success is to test mail to a portion of the list and analyze the returns.
Using List Brokers
The best way to find a good list broker is through referral. Call colleagues, associates, and others who rent lists, and ask for recommendations. You can also find brokers in the Yellow Pages under “Mailing Lists” and ads in such direct mail publications as Direct Marketing News, Chief Marketer and Target Marketing, and through web search.
The broker’s key function is to provide timely and informed recommendations about which lists you should test – and why. A detailed report on each recommended list should be provided. Be suspicious of brokers who regard your request for more information as an affront or a waste of their time.
In addition to providing list recommendations and information, your broker should handle the administrative aspects of list rental and delivery, follow up on all details, and make sure your lists are delivered by deadline. Brokers do not charge list users for their services but are paid a commission from the list owner or manager; hence, there is no extra fee for renting through a broker instead of going directly to the list owner.
How to Evaluate Lists and List Recommendations
Although the list supplier can make recommendations, only you can be responsible for making the final decision concerning which lists to test. You can make a better choice by taking the time to study the broker’s list recommendations.
Information about a list is traditionally provided in a format known as a “data card.” This document (sometimes an 81/2-by-11-inch sheet of paper or a computer printout) contains basic information on the list. For each list, you should look for:
Lists range in size from less than 2,000 names to one million names or more. The traditional approach to direct marketing is to test a small portion of the list, then mail to a larger portion if the test is successful. For this reason, some direct marketers avoid small lists because the opportunity to expand after a successful test is limited by the total number of names available. On the other hand, to the direct marketer seeking unusual or hard-to-find prospects, such small specialized lists may be the only means of reaching certain markets.
Cost per thousand
Prices for postal lists typically range from $50 to $85 per thousand names, with specialized lists going for $125 to $175 per thousand and more. Be wary of firms offering so-called “bargain lists” selling for $5, $10, or even $25 per thousand; often these are absolutely worthless. Phone numbers cost between $50-$100 more per thousand and business email lists average $400 per thousand including transmission.
Each data card contains a paragraph or two about the background of the list: its source, history, a profile of the type of buyers it represents, and a description of the product they bought, the publication they subscribe to, or the seminar they attended. Read the description to get a “feel” for the market represented by the list.
Average size of order
Given as a dollar amount, this represents the average size of the mail-order purchase made by the buyers on the list. Average size of order is a good indication of whether people on this list might be willing to pay your price.
Percentage of list that is direct mail-generated
You will often see the phrase, “95% direct mail-generated” or “100% direct mail-generated.” This indicates the percentage of the names on the list obtained through response to direct mail. Higher percentages are better because direct mail-generated prospects and customers are more likely to respond to direct mail than people who became prospects or customers through over avenues. (Surveys indicate that as many as one third of Americans do not respond to direct mail solicitations.)
This is a segment of the list that represents “hot” customers who have recently made a mail-order purchase – usually within the last 30 to 90 days (the more recent, the better). Hot lines typically rent for $10-$15 more per thousand than the rest of the list.
Active versus inactive, buyer versus prospect
Customer lists almost always pull better than prospect lists. If you’re thinking of testing a list of newsletter subscribers, for example, rent the list of current (active) subscribers rather than the list of former (inactive) subscribers whose subscriptions have expired. When renting a list from a mail order catalog company, obtain the names of people who have actually bought from the catalog, not those who merely requested a free catalog but did not buy.
List usage report
Try to get the list supplier to tell you how well the list pulled for other people who rented it – especially those with offers similar to yours. This information probably won’t appear on the data card, but it may be contained in a separate List Usage Report available from the broker. List usage reports usually show rental activity by tests (initial mailings) and continuations (rental of additional names following a successful test). If a high percentage of the mailers who tested are also listed under continuations, they are getting test results profitable enough to warrant continued use of the list – a good sign.
The data card indicates the selection criteria by which the list can be segmented. In general, the more selections, the better, because selectability allows you to mail only to those people who are closest to your target profile.
Frequency of updating
Question the list’s cleanliness, that is, are the names current and is the list frequently updated? Many list suppliers guarantee their lists to be clean and will refund postage costs on pieces returned (called nixies) in excess of some certain small percentage.
Because approximately one fifth of the population moves every year, compiled and prospect lists get dated quickly. As a rule, a list should be updated (meaning that names no longer current are removed) at least once a year.
How to Order Your Lists
Most brokers and manages require a minimum order of 5,000 names per list (not per order). By ordering all lists through a single broker, you may be able to get volume discounts ranging from 10 to 60 percent.
Traditionally, brokers are paid only for the actual number of names rented. However, there is a movement in the list industry to create a new payment structure in which brokers are compensated for the consulting service they provide, not just for net names rented. Do not be surprised if some brokers actually request an up-front retainer for making recommendations. In most cases, this fee will be credited toward list rental, so that the consultation costs you nothing if you buy from the broker who gave you the advice.
Almost all list owners reserve the right to review your offer before accepting your list order. Be sure to send two samples, whether it be a direct mail piece, html or telemarketing script, to your list supplier so this can be taken care of promptly. Although most are approved, list owners occasionally deny use (especially if your offer is competitive to theirs or if they think it will offend their customers in some way).
When ordering postal lists, you must specify the medium on which you wish to receive the names. The most common formats are cd, diskette or via email. (Be sure to check with your letter shop to see what they prefer before you place your list order.)
Email lists are transmitted by the list owner’s transmission service which will provide you with a clickthrough report after transmission to view results. All emails must have an optout option and contain the direct marketer’s contact information. You must supply a copy of your suppression (optout) file to comply with CAN SPAM regulations for subsequent email campaigns.
In testing, a mail piece is sent to a small portion of several lists to determine which lists generate the best response. What’s a good response? It depends on your goals. Eugene Schwartz, author of “Mail Order” (Boardroom Books), considers a mailing successful if it generates profits 30 percent in excess of the cost of the mailing. Some mailers, however, require a greater profit while others are content to break even on an initial mailing just to add hot customer names to their house list.
If test results show that a list works for your offer, then immediately mail the same package to a larger chunk of the list. This process of expansion is called roll-out. If a test mailing fails to pull the desired result, the list is considered a “dud” and no additional names are mailed.
How many names must you mail to generate a meaningful test result? Table 1 provides a method for determining the number of pieces you should test.
The two key elements are confidence level and percent decline. The mailer wants to know, with a certain degree of confidence, that the response rate won’t decline more than a certain percentage when mailings are expanded.
|Chart for Determining Number of Pieces to Test|
Percentage Of Decline
How to use the table:
The table helps determine how many pieces must be mailed to get a statistically valid test result. There are two factors to consider: percentage of decline (top line) and confidence level (first vertical column at left). Many mailers prefer testing at an 85 percent confidence level with a 12.5 percent decline. Reading across from 85 percent confidence level and then down from 12.5 percent response, we see we must test enough pieces to get 56 responses.
If we anticipate a 1 percent response, we must mail a test of approximately 5,600 pieces (56 divided by 0.01 response rate). Thus, according to the chart, if we conduct a 5,600-piece test and get 56 responses, we can assume, 85 percent of the time, that the response rate on the roll-out will decline by no more than 12.5 percent (drop from 1 percent to no lower than 0.875 percent).
Once a test is successful, how many names should you roll-out to? The answer is another useful rule of thumb: Roll-out to no more than 10 times the number of names you tested.
Thus, if you test 10,000, you can roll-out to a maximum of 100,000. If results continue to be acceptable when returns from the initial roll-out mailing are counted, you can then roll-out to 10 times 100,000, or one million. However, Schwartz and others warn that smaller roll-out quantities – say five times the test size – may be safer.
Author: Stevan Roberts
© Reach Marketing LLC 2012 All Rights Reserved.