#83 Phone Call from a Stranger

Issue #83 – Tuesday, February 11, 2020

http://dennyhatch.blogspot.com/2020/02/83-phone-call-from-stranger.html

Posted by Denny Hatch

Phone Call from a Total Stranger:
A Sad Tale of Total Incompetence

   “We mailed a million pieces and results came in at 0.2%! That's only two orders a thousand! Test mailings brought in 0.7% to 1.5%. We did everything right! We stand to lose the account! Can you help me?”

Note: While This Was in the Era of Direct Mail,

These Broken Marketing Rules Will Destroy You Today! 

As you know, I'm always happy to talk to subscribers and answer questions. If I don't know the answer, I try to put them in touch with someone who does.

The Panic Call

In 1992 my phone rang. I was editor & publisher of the well-regarded newsletter and junk mail archive service, WHO’S MAILING WHAT!

     I answered it.

     On the other end was a very distressed marketer—a non-subscriber who was an account executive at a very large agency.

     I have no idea who this guy was, where he worked, who his client was. He was a voice on the other end of the phone who bared his soul and his utter mediocrity.

      

A Sad-sack Saga 

The account executive—let's call him Bob—said that his agency had just done a big mailing for a frequent traveler's program. The mailing was a disaster, and Bob wanted to know what competitive mailings had gone out to that market during that period which might have creamed all his customers off the top.           
     Bob was flailing. The idea that an avalanche of competing offers blanketed the entire nation at precisely that time and stole all his business was preposterous.

Huge Dollars at Stake

Bob had mailed a million pieces on behalf of the client and got an average of two orders per thousand across ten outside lists as well as the client's own customer lists. Never before had results been so rotten.

     "It was a textbook-correct mailing," he insisted many times during our conversation.

     "We did everything right. My senior vice president wants to know what went wrong. We stand to lose the account. And the mailing was textbook-correct. Prior mailings brought in 0.7% to 1.5%; this one came in at 0.2% across the board. What happened?"

Did the Entire Mailing Actually Get Mailed? 

The first thing I determined was that all but one of the 27 seed names had received the mailing, so the USPS did indeed deliver it.

An Old Reliable Direct Mail Rule of Thumb

If you mail the same direct mail package to the same lists within a six-month period, the second effort will pull exactly half the first effort.

     If the prior mailing to the house file brought in 1.0% six months ago, the new effort to the same lists will pull 0.5%—guaranteed.

     What’s more, if you send the same mailing to the same lists a third time within six months, the result would be half the response of the second mailing.

     Bob wanted to know how I knew that. I knew that because I had been in the business for 20 years, that's how I knew that. That’s what people pay me to know.

     I told him it was the same principle as the 19^th century rule:

"Great fleas have little fleas upon their backs to bite 'em,
And little fleas have lesser fleas, and so ad infinitum."

       —Augustus De  Morgan (1806-1871)

       (Also attributed to Jonathan “Gulliver’s Travels” Swift)

About the Mailing

The mailing went out in April of 1992 with a June cut-off date; it was sent to affluent $50,000+ a year consumers ($91,500 in 2020 dollars). These were upmarket travelers who had signed up for trips via direct offers.

     A control package had been mailed in April and again in September of 1991.

     In addition to the control mailing, two new creative efforts went out in April.

     The old control package had been mailed to the same lists over and over in the past, results had fallen off.

     "So we convinced the client to use all new lists for this mailing," he said.

     That meant, with the exception of the house lists, there was no way to compare results of the control mailing this year vs. last year to the same lists. So I suggested we compare how the control mailing did this year vs. last year to the client's own customer lists.

     "I'm telling you, results are terrible across all the lists. Two-tenths of a percent."

Was This a List Selection Problem?

"Let's talk about the other lists—the new lists. What were they?"

     Bob said that he had the list data cards right there. For example, one of the lists was people who bought things using their credit cards. "Who were they?" I wanted to know. "Were they direct mail sold?"

     Bob studied the data card and said they bought travel-related merchandise through the mail. "Oh, yes, here it is. Yes, they were direct mail sold."

     Bob did not know what products or services they had bought. More to the point, he had not seen any samples of the mailings that they had responded to in order to get on the list.

     He and the client chose the lists based on the recommendation of a broker (whom I had never heard of) and the information on data cards.

     When I asked him what other lists he used, he started to tell me about Lifestyle Selector.

I cut him off instantly and gave this short lecture:

There are two kinds of lists, I told him:

    • Mail Order Buyers: Customers who have ordered products or services over distance as opposed to retail (the result of direct mail, email, off-the-page advertising, telemarketing, TV or radio)—and paid the bill.

    • Compiled Lists: Example, Bob’s Lifestyle Selector List is pure crap. Here is how Equifax describes its Lifestyle Selector List:

Responses to Equifax surveys and product registration submissions.
  
These are not proven buyers of anything!
     Compiled lists are the equivalent of copying names out of the phone book. You don’t know if they read their mail or even receive any mail! Do they respond to telemarketing? Have they ever ordered from a TV commercial or sent in a coupon from a magazine or newspaper? You don’t know their income—whether they are living from paycheck-to-paycheck, perpetually broke and waking up every morning with a renewed sense of dread.

     In short, Bob’s list work had been abysmal.

     There was no point in spending time analyzing the outside lists.

“Let’s talk about the offer,” I suggested to Bob.

“The offer was right on target,” Bob said. “We had run the offer by focus groups along with competing frequent traveler programs. The focus group unanimously preferred the client’s packages.”
     The term "focus group" raised a red flag in my head. 

About Focus Groups

“Focus group usually refer to a group of 10 or fewer volunteers who gather to discuss a particular product or idea. The market research firm will ask them a series of questions or give them a product to try, after which they freely share their opinions, ideas and reactions. All their responses are viewed and studied to measure the likely reaction of the larger market population. Focus groups are usually tools used by the advertising industry to measure the potential impact of a new product”. 

—Alexis Writing, smallbusiness.chron.com

Rule #1 on Focus Groups 

NEVER, EVER mail a million pieces based on what you learned from a focus group. The opinions may be worth testing (assuming there was minimal moderator bias).

     "Okay, let's do some arithmetic," I said to Bob. "Were the offers identical to all the lists and in all the various packages." Bob said they were.

     I told Bob to hold the phone while I went into my giant WHO’S MAILING WHAT! archive of samples and found his control mailing.

     "So at two orders per thousand at a $35 membership fee, you brought in $70 per thousand mailed, Right?"

     "Uh, no. Actually the client insisted on raising the price to $50 for this mailing."

     "Okay," I said calmly, "obviously if this was a textbook-correct mailing, you went with the $50 price, but back-tested the $35 price. How did the old price do vs. the new price?"

     "Uh... Um… the client didn't want to spend the money on a test at the old price."

     "WHAAAAT? You mailed a million pieces at a new price to a bunch of new lists without back-testing?"

     Bob said that was indeed the case. The client had made some revenue projections in 1991 and, based on prior results, the only way the projections could be met was to mail a million names at the new higher price.

The Arithmetic

     • If the average cost of mailing one million pieces at $500/M (50¢ each) the total was $500,000.

     • Since they brought in 2 orders/M at $50 each for total revenue of $100/M, then this one-million piece mailing lost $400,000.

     • No wonder the client was pissed and Bob was scared of losing the account.

     • If Bob wanted to save the account,  he should blame the price increase that the client insisted on.

     • No matter what the creative looked like, the uniform 0.2% response from all meant that only 2 people per thousand were willing to pay $50 for roughly the same program that was being offered for free by some competitors, for $25 by another competitor and for $35 by his client last year.

     • It would be useless to try and explain to Bob why his list work sucked. And, besides, if he told the client the truth about the gawdawful list research, he and the list broker would get the blame, and they would all be fired.

     • Remember, the agency will always be blamed by the client's employees who want to keep their jobs.

     • What was so remarkable about this entire conversation was that Bob honestly believed this was a "textbook-correct" mailing effort when, in fact, he and the client had done absolutely everything wrong. Everything.

Takeaways to Consider

• The agency’s job is to know the rules, know the arithmetic and firmly guide the client accordingly.

• If the client insists on action that defies proven rules—in essence making decisions based on gut rather than test information— explain what's being done wrong and stop him cold.

• If he insists on going ahead, and you are still part of the team, you will get the blame. And the client will bad mouth you throughout the industry.

• “There are two rules and two rules only in direct marketing. Rule #1: Test everything. Rule #2: See Rule #1.”  —Malcolm Decker

• Always have a small cadre of seed names—say 15 or 20 people nationwide whom you add to every list you use—digital or direct mail. 

• These are folks you can alert to watch for a new promotion. If you're digital, ask them to forward the promotion to you. If it's direct mail, have them date the outer envelope and send you the actual mailing so you can see what kind of shape the package was in on arrival, whether the keying was correct and whether the mailing company got the name and address right, the personalization (if any) correct and that the various elements were inserted in the envelope as specified.

• Always back-test.

• Never raise a price without testing.

• Case history: Some years ago the moneyed directors of New York's Public Broadcasting System (Channel 13) set up a conference call it was decided that anyone who could afford the basic price of $35 could certainly afford $45. They raised the price without testing. Revenue stayed the same, but the membership base dropped like a stone. Having rolled out with the new price, they were stuck with it.

• "Once the toothpaste is out of the tube, it's hard to put it back in." —H.R. Haldeman, President Nixon's Chief of Staff

• Do not ever commit to a media spend—direct mailing, email effort, telemarketing campaign, TV commercial or space ad—without finding out everything you can about the people on the lists you are talking to. For example: if they were they sweepstakes sold and you don’t offer a sweeps, your results will be deader than Kelsey’s nuts. They are gamblers, not long-term prospects.

• Before you test a list, demand to see the direct mail packages, email offers, TV spots, space ads that the names on those lists responded to. Are these promotions anything like what you are sending in terms of pricing, offers and copy approaches?

• Don’t waste money on compiled lists.

• In November 1992—shortly after Bob's original phone call—several agencies called for samples in this category, indicating that the account was up for review. Shortly thereafter the trade press reported Bob's agency lost the account (which it damn well should have). 

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