when Fingerhut Cos. needed to acquire new customers a couple of years ago, it decided on a radical solution. Instead of trying new lists and new media in old markets, the cataloger went after a whole new universe: Hispanics.
The firm started by translating its catalog into Spanish. And this year, it launched a multimedia marketing blitz targeting communities with large Hispanic populations. "We're hitting them with everything," says Steve Leighton, vice president of marketing services for Fingerhut. The result: Fingerhut has increased its customer file in that segment by 70%.
For Fingerhut, the basic rules of prospecting remain the same as they were in 1948 when founders Manny and William Fingerhut tapped motor vehicle files to offer custom-designed seat covers to auto owners by direct mail. But the job is harder than ever, thanks to shrinking universes, declining response rates and higher acquisition costs, all of which have reached crisis levels in recent years, according to some observers.
These problems are compounded by ignorance in the case of newer firms. Some neophytes are so preoccupied with CRM that they are overlooking a fact of life long known by old-line DMers: You have to get customers before you can retain them.
And yet the tools exist for effective prospecting. Some advanced companies put their focus on looking for new universes. Others try to qualify prospects as early as possible so that valuable funds aren't wasted in chasing the uninterested.
Some, like Sprint, are doing both.
On the one hand, Sprint has created successful partnership programs, like the one it has with Northwest Airlines (giving it access to the names in the Northwest database). The targeting is based on a simple hypothesis: International travelers make international calls.
Sprint uses these programs to deliver a variety of co-branded offers based on the prospect's affinity with the partner. Northwest customers, for example, will get frequent flyer miles for making long-distance calls via Sprint.
Sprint is also trying to determine the lifetime value of a customer up front, says Daniel Alcazar, assistant vice president of marketing for the telecommunications giant. The firm assumes that with the initial contact it has already gained an interested prospect. From there, modeling criteria are applied to get an early handle on the person's probable lifetime value. "With the increased competition that we know we face and pricing going down, we have less room for inappropriately investing in customers or channels," says Alcazar.
The time that it takes to determine lifetime value can vary greatly. Fingerhut needs a minimum of one year to start making correct assumptions. But opportunities for short-term analysis also present themselves at the initial point of contact.
For example, the data gleaned at that moment can help the firm determine what type of promotion series the prospect will receive. New buyers are sent a detailed survey with their first shipment. If they show an interest in hiking and biking, for example, Fingerhut will tuck an Outdoor Spirit catalog into the promotion series.
All data is then analyzed using a sophisticated modeling system developed with IBM. "Everybody is initially going to see a fair amount of mail until we determine whether or not they're going to buy again," says Leighton.
And Fingerhut doesn't give up easily on non-respondents; it continues to mail for one year. "We can't find enough good lists," notes Leighton. "We mail each other's lists, and pretty soon we all have the same customers."
Like all multichannel prospectors, Fingerhut pays attention to its media mix.
The firm is now high on alternative media; the cataloger's own insert programs grew by 10% last year, says Leighton.
Fingerhut has substantially increased its catalog-request volume with shared mail and circulars, both of which are cheaper than prospecting mail. Catalog requests, meanwhile, provide a "double confirmation," says Leighton. Prospects express interest by requesting the catalog, then reaffirm it when they buy.
Credit Card Glut
Catalogers are not the only marketers facing a prospecting crisis: Credit card issuers have also been hit hard. Last year, they pulled an average 1% response with 2.87 billion solicitations – an all-time low, according to BAIGlobal Inc., Tarrytown, NY. (The 1992 rate was 2.8%.)
It's hard to pinpoint a single reason for the decline, but credit card glut, product confusion, price wars, and mergers and acquisitions have not helped. The ineffectiveness of the mailings has caused issuers to cut mail volume and to look elsewhere for customers. The volume of direct mail dropped from 3.45 billion pieces in 1998 to 2.87 billion last year, according to BAIGlobal.
General Motors Corp., Detroit, introduced a new version of its credit card in March with its first national DRTV campaign for the card since 1992. The campaign was followed by print, Internet advertising and a direct mail blast that targeted 16 million households.
KeyCorp, the Cleveland-based bank, has shunned outside lists entirely to mine its 4-million-name customer database. KeyCorp's credit card portfolio was purchased earlier this year by Associates Finance Services in Dallas, but KeyCorp continues to market the card under its own brand, says Susan Finnerty, KeyCorp's vice president of strategic analytics and direct marketing.
This year KeyCorp will mail about 2 million pieces to customers who have, say, small business loans or lines of credit with the bank, but do not own a KeyCorp credit card. The bank will also distribute take-ones and other promotional materials at its 936 branches, and these efforts will be supplemented with presentations by sales reps.
According to Finnerty, there are many reasons for going to the house file. It's cheaper to use than an outside list, and it offers a wealth of untapped prospects who have a history with the bank. Moreover, in-house prospects can be easily screened for income, debt ratios and delinquency history, she adds. And based on that data, a wider net can be cast offering prospects a variety of rates depending on financial stability. For example, the company recently began offering risk-based pricing, charging higher rates for those who pose a greater risk.
Determining the value of credit card prospects upon initial contact is more challenging for the 25% "invited" prospects vs. the 75% who have been pre-approved, says Finnerty. Invited prospects complete a form that is sent to one of three credit bureaus that assess the prospect's financial risk.
The Media Mess
Meanwhile, the media landscape has changed since the days when DRTV time was cheap and easy to come by. For example, dot-com companies have been gobbling up TV dayparts, driving prices up so high that many traditional marketers are buying less-valuable time – or no time at all.
And yet some firms cannot afford to be driven out. DRTV is not only the top prospecting channel for Sprint, it represents the largest expenditure in the firm's media budget, says Alcazar.
Sprint has compensated for price increases of 10% to 25% by consolidating its media buying with large agencies, whose greater clout gains maximum efficiencies. "As long as there's so much cash available for the [dot-coms] we don't expect media costs to be declining very much," says Alcazar.
And by consolidating those efforts, Sprint is able to make media mix decisions on an "almost real-time basis" instead of weekly or monthly, adds Alcazar. "If I'm on a certain program and I don't see it pulling very effectively, I'm going to pull that program a lot faster than I would have yesterday."
Meanwhile, the increasing deregulation of the telecommunications industry has prompted Sprint to transform its nationwide, one-message campaign so that it now includes targeted messages tailored by unique market. "Cutovers and spot market buys on a region or state basis will become increasingly important in our overall advertising mix as we go forward," says Alcazar.
And while the cost per sale of DRTV is high compared with that of other media, Sprint justifies the expense with the high-quality profile of the prospects delivered.
Outbound telemarketing provides a low-cost prospect, for example. But the prospect often has to be persuaded, whereas a respondent to a DRTV ad has taken the initiative to call and therefore has a higher potential lifetime value.
Radio advertising has also been affected by the dot-coms. Prices have jumped by as much as 100%, pushing out both DMers and general advertisers, says Lawrence Butner, president and CEO of the Lawrence Butner Advertising Agency, New York. For example, a 30-second spot that not long ago cost $500 now carries a $2,000 price tag. "It's do or die for the dot-coms," he says. "They're looking for venture capital and need to make a big splash. Whatever it takes, they're going to pay."
To improve efficiencies in the face of skyrocketing prices, he adds, marketers that have the ability to tell their stories in 30-second spots as opposed to 60-second spots are buying that time for half the price. Moreover, 30-second spots are more available and can be just as successful in terms of response. Depending on the product, a spot appearing on a small-town station in the middle of the night can be as effective and efficient on a CPO basis as the highly-rated morning spot in a major media market.
In the end, these challenges may force marketers to pursue true media integration, an idea that makes at least one list broker happy.
"It's an exciting time," says Linda Huntoon, customer management officer for The SpeciaLists, a Client Logic Co. based in Weehawken, NJ. "There is more opportunity out there than there has been in the past 20 years."