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Weighing Risk and Reward

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For years, one of my favorite quotes has been “you can’t steal second base with one foot on first.” Too many direct marketing users don’t understand the risk involved in keeping their feet on first base; they see only the risk of stealing second. An even higher percentage of direct marketers don’t seem to understand the risk of not swinging for the home run occasionally. Let’s look at a few specific cases in which the risk vs. reward axes are warped.

1. Business-to-business lead generation. The marketer is in a real niche – a particular technology for a relatively small number of industries and for only really big companies within those industries.

The true universe here could be 25,000 prospects tops – and it’s more likely 10,000.

The company thinks that the safest thing to do is to send out an e-mail blast. After all – other than the list cost (and they’re intending to use one that doesn’t cost very much), their financial exposure is limited. They aren’t evaluating the risk of depending on e-mail going to IT managers who are besieged with it.

From the company’s point of view, the next safest thing to do is to test a personalized direct mail letter with a response device and reply envelope. “We can test 5,000 and not get hurt too badly,” management thinks. Meanwhile, the company’s talented sales people are sitting without any qualified leads – not quite a safe situation. It is possible that this approach will generate a few leads, but the great risk is that a personalized letter, no matter how well written, will get lost in the clutter.

What constitutes making a real attempt to “steal second”? Making the decision that neither e-mail nor a letter are going to get through. As a consequence, risking a strategy that utilizes a dimensional package (or series of dimensional packages), along with e-mail and structured/properly timed telemarketing. The cost of reaching and communicating with the prospect may be 10 times that of mailing a single flat letter. The response level may also be 10 times that generated from the single flat letter. The average sale is some $40,000. Worth the risk? You tell me.

2. Consumer newsletter publishing. This is a highly successful publisher. Its acquisition direct mail has used the same very hard sell copy formula for decades, though formats have now changed from 6-page letters to magalogs.

With its aggressive copy formula and the amount of money it spends on its current format, few would accuse the publisher of keeping one foot on first base. Yet there is a great reluctance to risk straying beyond the formula. Packages based on some of today’s trends among consumers – including the need to feel in control and the recognition that most consumers are skeptical of advertising — have not been attempted. There is a great risk in not moving beyond the formula, in not reaching out to prospects who may be motivated in different ways.

3. Mortgage lending. This broker is in 25 states. They’re risk-takers in lots of ways: their main lead generation vehicle is broadcast faxes to companies, and they just spent a fortune setting up a telephone room with a predictive dialer. But they won’t risk a 25,000 piece direct mail test, a $10,000 dr radio test, or a simple mailing to the leads they’ve generated but not closed.

Have you looked at your company’s risk/reward profile lately? What are you risking by playing it safe? Is that “far out” creative strategy or offer test really putting your profits at risk does its potential reward justify the test?

Lee Marc Stein heads his own direct marketing strategy and creative services firm. The consultancy contributes to its clients’ profitable growth through sound marketing and test plans, creative development and execution, database and media maximization, and customer nurturing programs. Lee works with all size companies in both consumer and business markets. Contact Lee at 631 724-3765, lmstein@optonline.net, or through http://www.leemarcstein.com/.

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Weighing Risk and Reward
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