Should you sell your product or service directly to the consumer? Cutting out the middleman is always a tempting concept because profit margins increase when you remove the pesky retailer and its pesky markups. However is the benefit of having a scrupulously managed end aisle display across several thousand retail locations worth it?
Direct marketing is a form of advertising in which the advertiser/manufacturer targets its advertising message to the consumer directly and quite often sells to the consumer directly as well. According to the Direct Marketing Association (DMA), marketers spent $153.3 billion on direct marketing, which represents more than 54% of all advertising expenditure in the United States, directly or indirectly generating over $1.8 trillion dollars in sales for 2010.
The concept for marketing directly to consumers is simple. You target your advertising message directly to the consumer and create a call to action where the consumer responds via mail, telephone or Internet. The advertising can then be measured to determine its’ effectiveness, with the base measurement being return on investment (ROI). This number is usually figured as the amount or revenue generated divided by the amount of money spent to generate it. You can comfortably and accurately point to the profitability of your marketing efforts in plain and simple numbers. Any gross number over 1.0 represents that the advertising generated more money than the advertising cost to generate it.
Any medium can be used as a way of marketing directly to a consumer. Historically each medium has varying degrees of success depending on the audience for the product, the form or presentation of the “call to action” and the ability of each individual medium to explain enough to cause a call to action. However, any media from direct mail to mobile/text advertising and everything in between can be assigned a specific “call to action” and be measured against the response and revenue it generates.
In the era of social media though, maintaining a direct relationship with your consumer has taken on different facets. Although we still subscribe to the theory of ROI as the most important tool in that relationship, the ancillary and often hard to monetize elements (facebook “likes”, twitter followers, etc) seem to hold some regard, if not in the financial model on some level of the brand building model.
In this regard, there are similarities when selling direct to consumers and maintaining brand loyalty, since it is more of a “relationship” form of marketing rather than a transactional one. This means that the emphasis is most often focused on customer retention and satisfaction rather than only focusing on one sale. A Ginsu knife need only be purchased once, but a customer profile and what they purchase from you in their lifetime is invaluable.
When marketing directly to a consumer, the cost of acquiring the customer is all paid for at the onset, and then becomes amortized over time. Long term customers tend to exhibit the following traits: they become loyal to the brand, are less likely to switch to competitors, are less price-sensitive, act stably in purchase time and volume, often initiate free word of mouth about your product, are more likely to purchase ancillary products and high margin supplemental products and are easier to service because they require less education of your product line over time. This cannot be accomplished as easily in the retail selling format due to the fact that customers are unknown to you, you have no ability to communicate with them, they have limited ability to communicate with you and you cannot measure their level of satisfaction, usage or efficacy.
One drawback of selling direct to consumers is that the rate of success is low. A fickle consumer may not be interested in your product. There also the disagreeable connotation of “infomercials” and other forms of direct marketing; junk mail, spam, clutter. Unscrupulous advertisers tend to overstate the value and efficacy of their products and the “bad reputation” of these advertisers creates a negative attitude to the industry as a whole. Many purchasers need to see and feel a product before purchasing, which cannot be done in this format. There is also a lot of attention to detail required from the manufacturer who sells direct over one who sells at retail. You are taking on the customer service function of a product that is usually handled at the retail level. You have to continue to intensively measure your advertising efforts because the requirement of this format demands profitability and are ongoing expenditures to promote sales. These drawbacks should be considered before launching a direct to consumer marketing campaign; however, if you believe in your product, you see the benefit for others and you want to begin acquiring customers in a short period of time, direct marketing has great benefits that far outweigh the drawbacks. And as time has gone on, the cost of entry in this arena has become increasingly lowered and selling through multiple channels has become more universally acceptable.