DMers Are Spending on Acquisition: Kern Survey

Direct marketers are not acting they way they’re supposed to.

Normally, they work their house lists during a downturn, but that’s not the case this year, according to a survey from the Kern Organization.

Of those polled, 44% are spending over half of their DM budgets on customer acquisition, and 25% are pouring over three-quarters into it. In contrast, less than 20% are allocating more than half of their spending to retention or cross selling.

What’s more, 77% cited cost-effective acquisition as one of the challenges they want to solve this year.

“Unlike in prior recessions, customer acquisition is still extremely important,” said Russell Kern, president of the Kern Organization. “Companies are not turning within to focus on their current customers.”

Not all the findings were equally gratifying to Kern. Take the one that
over 60% devote less than 5% of their budgets to testing.

“That shocked me,” he said. “People don’t feel they have the time, and they don’t feel they know the disciplines of testing. They don’t to take a risk on a test that might fail.”

Then there’s the low premium placed on lifetime value.

Of those surveyed, 61% listed ROI as a metric they are held accountable for delivering. This was followed by response rate (57%); total sales dollars generated (47%); cost per lead (38%); cost of new customer (31%); and customer lifetime value (22.5%).

“It’s shocking how few people are focused on lifetime value as a measure, in comparison with response rates,” Kern said. “Decisions are not being based on a fundamental belief in the value of the customer, but on short-term needs.”

Yet ROI ranks third in the list of challenges DMers want to solve. Of those surveyed, 61% hope to increase the revenue from current customers, and 56% want to boost their overall ROI.

“It shows there’s still a need to improve the use of data and analytics to increase ROI,” said Kern.

He added: “Recession or no recession, the problems of direct marketers remain the same.”

Less surprising is the fact that dollars are being diverted from traditional media to online.

For example, 31.5% are cutting their direct mail spending, compared with 29% who plan to lay out more. And sizable percentages are pulling back on print and broadcast advertising.

But almost 80% expect to increase their spending on e-mail, and the same percentage on Web development. Over half plan to spend more on e-newsletters, Web video and organic search. Few firms are cutting their budgets in these areas.

In addition, 37.5% will shell out more on social media, 35.5% on Web events/seminars/podcasts and 25% on user-generated content. But Kern isn’t impressed with the latter numbers.

“There’s some increase in social media, but it’s not significant,” Kern said. “ I just got off call with a B-to-B client, and they said that social media is not working—it’s not paying out. We’re not bloggers.”

Meanwhile, over two thirds of all DMers are satisfied with their current direct marketing resources, the survey found. Of that 79% handle their DM strategy and creative development inhouse. But 37.5% outsource it to a specialized direct agency, and 29% to a general shop.

Another positive finding is that “there’s good collaboration between sales and marketing departments,” Kern observed.

For example, 43.5% of the DMers follow up with sales upon launch of a campaign to get early feedback and share results. Another 42% collaborate with sales to provide leads, and to adjust their campaigns according to need.

“I guess you could do the inverse and say that almost 60% are not doing this,” Kern said. “We don’t have a benchmark to know if it’s growing or not. But let’s assume it’s positive.”

In addition, 31.% have created a cost-per-sales qualified lead or ROI metric and use as them as guides for shaping their direct marketing.

Finally, the survey found that:

*Half of the DMers polled forecast the results of each program in writing before any budget is approved.

*Only single-digit percentages have decreased their use of either inbound or outbound telemarketing. While less than 30% increased their use of either, the majority did not make any change. “They’re still using the channel, one way or the other,” Kern said.

The results are based on responses from roughly 200 direct marketers. Of those, 45.5% work for firms that spend less than $500,000 a year on DM. Nineteen percent spend over $5 million per year, and 11% from $2 million to $5 million.

The Kern Organization is a subsidiary of Omnicom Diversified Agency Services.