Direct Marketing: What Is It And How Does It Work?

Marketing is no longer a one-size-fits-all discipline and modern consumers are much more adverse to strong-arm sales tactics. To avoid overwhelming or alienating potential customers, many brands are embracing direct marketing in order to offer a more personalized marketing experience that caters to consumers.

Direct marketing addresses many of the challenges that small business owners and entrepreneurs without marketing expertise in-house face in growing their client base in a sustainable way that boosts brand awareness and increases loyalty over time.

In order to properly leverage digital marketing as a growth solution, it’s necessary to understand how to execute direct marketing campaigns properly, the benefits and challenges direct marketing introduces into your growth strategy, and explore case studies where other brands have successfully experienced growth as a result of successfully executed campaigns.

Also referred to as direct response marketing, direct marketing is used by companies to communicate and connect personally with a targeted segment of their customer base or potential customers. Direct marketing outreach is built around providing a method for customers to respond directly to the personalized sales pitch, allowing businesses to avoid the negative perception of mass marketing and provide the highly personalized sales experience customers have come to expect in exchange for brand loyalty.

Combining direct communication with a highly personalized call to action (CTA) is the hallmark of direct marketing. In order to execute a direct marketing campaign, it’s important to first understand how the approach prioritizes interpersonal communication between the sales team and prospective clients.

Types of direct marketing

Direct communication can take place through a limited range of mediums, considered to be some of the most private and protected channels by consumers:

• Personal email 

• Direct mail (flyers, catalogs, coupons)

• Social media messaging 

• Phone (telemarketing), text/SMS campaigns

• Mobile and app marketing campaigns combined with content marketing strategies

To increase their impact, CTAs sent through these mediums should be focused and personalized. They should also be framed as urgent and time-sensitive, prompting the recipient to respond via phone, return a reply card, or follow a direct link sent via social or email campaigns within a certain window of time.

The key to making direct marketing outreach successful is to avoid mass marketing tactics, which can lose you as many leads as they might gain in sales. Instead, direct marketing campaigns are targeted at extremely limited prospect segments in order to keep campaign messaging as impactful as possible.

Direct vs. indirect marketing

The ability to include a potential lead or customer in your direct marketing outreach is often the result of indirect marketing campaigns. Rather than taking the approach of directly asking a consumer to buy your products or services with urgency, indirect marketing strategies leverage less invasive tactics, such as SEO marketing, to create an increase in organic traffic, which results in a much different approach to lead nurturing:

• Instills trust over time versus the immediacy of direct marketing

• Focuses on building brand visibility and recognition to encourage the lead conversion slowly versus the urgency of the offer being made by direct marketing

• Educating leads about products and services to increase brand visibility versus the hard sell approach

To be clear, the goal of indirect marketing is still to increase lead conversions and improve sales. However, the slow and gradual approach paves the way for potential customers to have more trust and familiarity with the brand, making it much easier to pivot to direct marketing further along in the customer journey.

How much effort and resources you should dedicate to direct marketing comes down to how well it works for your business. While there are a number of data metrics that you should be keeping track of, from vendor and production costs to client engagement metrics, there are several vital key performance indicators (KPIs) it is crucial to track in order to determine the efficacy of direct marketing as a strategy for your brand.

Response rate

(# of campaign respondents / total # messages sent) x 100 = Response rate %

Depending on the medium of distribution in the direct marketing campaign, the top of this formula could come in several different forms.

The variable in this situation is whether you can track if the customer actually received and opened the marketing messaging. This is easier to track when the medium of distribution is electronic, such as email or social media messaging. Conversely, the response rate will be based on the number of customers in the distribution list when tracking response rate of direct mail or other forms where a physical medium is sent to the target customer with an invitation to connect or make a purchase.

Tracking gross revenue versus net revenue

It’s important to track both sides of your revenue stream in order to assess both the impact of a direct marketing campaign and your team’s ability to execute such a campaign in a profitable manner.

• Tracking gross revenue gives you a baseline for the demand for your product or service in each targeted segment of your overall ideal customer base.

• Tracking net revenue provides leadership with insight into how efficiently your team can execute a marketing campaign and whether the resources expended are proportional to the revenue generated. Tracking net revenue against other KPIs can also reveal opportunities to restructure your product or service pricing relative to demand.

Cost to acquire new customers

(Cost of Marketing + Cost of Labor and operating costs)  / # of new customers = Customer Acquisition Cost (CAC)

Tracking your cost per acquisition (CAC) can provide your team with a sense of how much it costs you in resources to convert a lead into a paying customer. This formula traditionally does not take into account the value of the initial or future purchases, as that information is better put to use in other metrics.

Customer lifetime value 

Calculating the lifetime value of your customers depends on whether you’re trying to find the Gross LTV, Net LTV, a traditional LTV, or an LTV adjusted for discounts that might be active. Because CAC and net revenue should figure heavily into your assessment as to how much the average customer will spend with your company over the course of their relationship with your product or service, we’ll look at the Net LTV in this article:

(Avg Order Value x net profit as a percentage) x Purchase Frequency x Customer Lifespan 

Customer LTV is an important component in determining if your marketing efforts are worth the results you are achieving.

LTV/CAC ratio

In order to know whether your efforts support your sales goals, you should consider if the ratio of your LTV to your CAC is sufficient to achieve profit targets. You always want your lifetime value per customer to be higher than the cost to acquire.

Return on investment

[ (Sales Generated - Cost of Sales) / Costs of Sales ] x 100 = Return on Investment percentage

The overall return on investment provides you with the bottom line revenue the direct marketing initiative generates for your company.

Boasting an extremely high average success rate versus other marketing models, direct marketing has one of the highest engagement rates, translating into a number of other marketing related benefits for your brand.

Laser-focused targeting of segments within a well-defined ideal audience

The goal of direct marketing is to find the most personal and direct method of reaching out to specific segments of your target audience. This might require your team to run several concurrent direct marketing campaigns at once, with the benefit that each campaign will be streamlined based on the target audience needs and purchasing behaviors.

Easily measurable ROI tracking

Tracking your KPIs for digital marketing campaigns and other forms of marketing can be extremely challenging, as there is often distance and range of factors that can prevent lead conversion.

Because direct marketing consists of your sales team engaging directly with customers, your team can provide a direct method to make a purchase from the start of the engagement. This makes tracking ROI for direct marketing much simpler, as there is less chance that the buyer drops out of the buying journey without making a purchase.

Nurturing customer relationships with personalized engagement

The channels you’re leveraging for direct marketing campaigns allow you to reach your customers on a more personal level than indirect marketing. As a result, direct marketing becomes a much more intimate and personalized sales experience that clients come to trust, resulting in improved customer loyalty and long-term value.

As with any marketing strategy that your team can leverage for results, there are going to be challenges that arise in the process of executing a direct marketing campaign.

Data privacy legislation evolving and expanding 

The EU’s General Data Protection Regulation (GDPR) and California Consumer Privacy Act (CCPA) have set a standard for privacy protections followed by pieces of consumer data protection legislation that have been introduced or passed in recent years. [1, 2]

Direct marketing is heavily impacted by such legislation, as privacy protection often requires advertisers to seek permission or opt-in for marketing communications, and requires optimization of your messaging to avoid coming across as spam or impersonal and aggressive.

Direct can be intrusive and cause attrition in your customer base

Certain direct marketing tactics, such as door-to-door or telemarketing campaigns, can come across as overly invasive of people’s personal space. Direct mail is often treated as junk and discarded out of hand without even being opened or looked at.

If you’re not properly dialed into your target audience, direct marketing campaigns will come across as aggressive and cause leads and customers alike to opt out of future communications. 

Don’t damage your reputation buying low-quality targeted contact lists

There are third-party services that sell vetted contact lists where the contacts have been curated for specific demographics and metrics. Presented as lists of opted-in potential leads, these lists are often poorly managed, expensive, and when used as the framework for a direct mail campaign, can do more harm than good to the perception of your company.

Direct marketing provides small businesses owners with an alternative to digital marketing and other tactics. Some examples of direct marketing helping brands achieve their goals include:

• Instacart leveraged direct marketing in the San Francisco market, a geographic area trafficked heavily by their target audience, in order to create buzz in other markets about the customer experience with the on-demand grocery service.

• Harry’s grooming products guaranteed a strong ROI by leveraging the existing personal networks of their sales team with social proof marketing tactics. An existing level of trust garnered through direct marketing allowed the company to build and expand their outreach.

Another brand, Vetta, combines exclusivity with direct marketing through their loyalty program to create a sense of urgency when new product lines launch. The promise of early access and other perks inspires fans and leads to willingly opting into ongoing engagement.

If you’re looking to shift your marketing efforts away from tactics that aren’t connecting with customers in a way that generates sustained growth, direct marketing might be the key. This strategy gives your team the tools and tactics necessary to skip the middleman of digital marketing platforms and personally connect with highly invested and engaged clients.