Chapter 7
Review of Related Literature

Telemarketing is one part of Direct Marketing, Direct Marketing is one part of Non-Store Retailers. In this chapter, Non-Store Retailers and Direct Marketing are discussed. A full understanding of Telemarketing requires some knowledge of the more general subject of direct marketing, some of the aspects of direct marketing are discussed.

7.1 Non-Store Retailers

7.1.1 The definition of Non-store Retailers

Generally speaking, most people think that the focus of business activity is to build a store in a populous area in order to attract customers. But in recent years, a lot of businesses have gotten large revenues without shops or stores. That means that the epoch of Non-Store Retailers is coming. The U.S. department of Commerce defined the Non-Store Retailer in 1929 by means of Figure 7.1.

Figure 7.1 The Definition of Non-Store Retailers by The U. S. Department of Commerce

Kotler divided these three parts into more detail. ( Please see Figure 7.2)

Figure 7.2 The Definition of Non-store Retailers by Kotler

7.1.2 Why Non-Store Retailers are Growing

Non-Store Retailers have existed for a long time. However, they have been growing rapidly in the recent years. Here are some reasons.

Increase in working women. Well over half the female adult population now works, and the number continues to grow, showing strength in all economic and educational levels. As a result, women have less time for traditional shopping. Convenience and time become critical. Someday someone will come out with a catalog of timesaving products for busy people.
It is not easy to get a store. The population is growing but land is limited. As a result it is very difficult to find a location for a store to run a business.
Decrease in production profit. Too many intermediaries reduce profits.

According to the research data of International Management Technology Crop., the average growth rate of Non-Store Retailer is 17% in the most recent twenty years. It is higher than the overall retail trade's 10%. Japan has analyzed the motivation of Non-Store Retailers. Here is the result. (Please see Figure 7.3)

7.2 Direct Marketing

7.2.1 The Definition of Direct Marketing

The current "official" definition given by the Direct Marketing Association is:

Direct marketing is an interactive system of marketing which uses one or more advertising media to effect a measurable response and/or transaction at any location.

It is important to have a thorough understanding of the current official definition. Let's dissect the definition.

A: The expansion of new customers B: The various needs of customers C: The future attraction of non-store retailers D: The expansion of market place E: The growth of the operating earnings of retail store F: The counterplot for difficult to display merchandise G: The saving of investment H: The expansion of the limit for running retail store I: Others
Figure 7.3 The Implement Motivation of Non-Store Retailers

Interactive: Interaction one-on-one communication between marketer and prospect/customer( is an important key.
One or more advertising media: Direct marketing is not restricted to any one medium. Indeed, direct marketers have discovered there is synergism among the media. A combination of media often is far more productive than any single medium, such as TV, radio, newspapers, magazines, and mailing.
Measurable response: Measurability is a hallmark of direct marketing. Everything in the field, with rare exceptions, is measurable. Direct marketers know what they spend, and they know what they get back.
Transaction at any location: The world is direct marketing's oyster - transactions can take place by telephone, at a kiosk, by mail, at home, at a store.

Direct marketing is accountable. It is advertising that can be justified and tracked. It is ideally suited for small business. Not only is direct marketing measurable, but it can be adapted to fit a budget and changing business goals. Like marketing, direct marketing involves analyzing the needs of a target audience and considering how best to design, package, and market a product or service that meets those needs. It means estimating the size of a market, thinking about the competitive environment, pinpointing customer preferences, establishing a customer profile, and devising a strategy to promote the product or service to that customer. But in direct marketing, the customer communication process is far different( and so, often, is the way products actually reach the purchaser. In the traditional advertising, marketing, and sales process, a product is shipped to a distribution point such as a retail store. Advertising and promotion draw interested customers to the store, where salespeople can close the sale.

Direct marketing uses media to deliver a message that often asks the consumer to purchase through a separate, non-store distribution channel( usually the mail or a private package delivery service like UPS. It may also direct the consumer to make a purchase through traditional channels.

Jim kobs, chairman and CEO of the direct marketing agency Kobs, Gregory & Passavant, describes direct marketing this way:

Direct marketing gets your ad message direct to the customer or prospect to produce some type of immediate action. It usually involves creating a database of respondents.

An overall view of the media from which direct marketers can choose is given in the direct marketing flowchart. (Please see Figure 7.4) Interspersed with the media in the flowchart are the disciplines involved in a successful direct marketing operation.

Figure 7.4 Direct Marketing Flow Chart

7.2.2 How Direct Marketing Started

There are historians who will argue that the roots of direct marketing are actually much older, but in the U.S. it is Mr. Ward and Mr. Sears who are credited with launching and refining the direct mail phenomenon. Both men, based in Chicago, used their "wish books" to market goods to farmers and small town citizens all across the country.

Aaron Montgomery Ward was a traveling salesperson who discovered that he could offer rural customers quality goods at up to 40 percent off if he purchased large quantities of goods for cash directly from manufacturers, and then sold them for cash directly to rural consumers. In 1872, he issued a single-page sheet listing items for sale and explaining how to order them. The single-page sheet quickly grew to 8 pages, and by 1884, Ward's catalog had 240 pages and listed ten thousand items.

As a railroad station agent, Richard Warren Sears took advantage of special freight rates to sell watches wholesale to other station agents, who marked them up and sold them again. When Sears, Roebuck & Company began in 1893, Sears branched out beyond railroad station agents, eventually serving the same largely rural audience developed by Ward. By 1897, Sears, Roebuck & Company had 318,000 catalogs in circulation; by 1907, 3 million.

When Ward's and Sears began, catalog distribution was problematic. The U.S. Postal System was still rudimentary in the late nineteenth century; while urban customers took home delivery of letters for granted, it wasn't until 1898 that "Rural Free Delivery" brought catalogs and first-class mail directly to farmers and small town residents.

Fulfillment -- that is, how packages from Sears and Ward's actually reached rural patrons -- was another challenge. Before 1913, the U.S. Postal Service delivered letters only. Packages were shipped via rail or by private carriers like American Express and Wells, Fargo. To receive a package, one had to go to the nearest railroad freight station. In 1913, the U.S. Postal Service introduced Parcel Post. Within a year, 300 million packages were shipped( a boon to both companies. In the first year of Parcel Post, Sears received five times the number of orders it had the year before, and the increase at Ward's was almost as dramatic. That is about how direct marketing started.

7.2.3 How Direct Marketing Works

Getting a message "direct" to the customer or prospect means using a medium like direct mail or the telephone that can target a specific group of consumers with certain characteristics, instead of a medium like television that addresses millions of people at a time. In direct marketing, the message always requests a response( the "immediate action" that it seeks to produce.

Responses can take a number of different forms. A catalog or a direct mail package asks recipients to purchase items by placing a mail or telephone order. But whether the response comes by mail or telephone, it can be measured. This means that the success of every direct marketing offer is evident as soon as all the responses are in. A lot of responses equals a successful offer, while less than was predicted means the offer failed.

The classic formula for direct marketing success is to build a list of satisfied customers, and then go back to them for repeat sales. That is why a database captures name and purchase information whenever a customer orders a book or a computer, sends in a check to a charity, or decides to go ahead with a security system installation. This "house file" is a direct marketing company's most important asset. It can be used to sell additional goods and services, or generate revenue by renting those names to noncompeting direct marketers. Even traditional marketers, such as package-goods manufacturers, are discovering that communicating with a customer database can boost in-store sales.

Direct marketing is sales, pure, and simple. Although some marketers are beginning to measure its results in terms of image, it is still radically different from traditional image advertising. Direct marketing is response advertising( through the mail, telephone , in a magazine, over the radio, or on TV, that is geared to making a sale.

7.2.4 The Media of Direct Marketing

Whether we use direct marketing for retail support, mail order, or business-to-business marketing, we need to define our market clearly, then select the appropriate media to carry our message to that market. There are many kinds of media for direct marketing:

Mailing
Magazines
Newspapers
TV
Radio
Computer Networks
Co-ops
Telemarketing

7.2.5 Why Consumers Like Direct Marketing

Why consumer acceptance is growing so rapidly? Recent statistics from the Direct Marketing Association indicate that:

Nearly 10 percent of consumers have spent over $300 on merchandise ordered by mail or phone.
Among their purchases, 27.5 percent were for clothing, 16.8 percent for magazines, and 11.5 percent for books ordered by mail.
52.6 percent of the U.S. population ordered merchandise by phone or mail in 1991, spending almost $35 billion on catalog purchases alone.
16 percent bought items by mail or phone six or more times than in 1990.
The total percentage of American adults shopping direct has increased nearly 70 percent since 1983.
Annual sales of goods and services through direct marketing are over $200 billion.

Behind these impressive statistics are a number of factors. Understanding the causes and symptoms tells us what people want and why. Here are the major reasons.

Increase in the number of working women
Inbound telephone marketing
Debit card shopping
Wider selection
Central inventory
Shoplifting
Transfer of labor to the consumer
Improved graphic presentation
Mail order offers better customer service than do retailers
People basically don't like to shop

7.2.6 Why Businesses Like Direct Marketing

Businesses like direct marketing for its versatility. Time has demonstrated that there is almost nothing direct marketing cannot sell. It can be used to:

Sell products directly to customers.
Sell corporate season tickets for professional sports teams.
Sell insurance and other financial services.
Generate leads and convert them to sales.
Generate traffic for retail stores.
Launch new credit cards and attract new credit-card customers.
Establish consumer demand for products that can be converted to retail.
Get lower cost than other marketing methods.

"Traditional" direct marketing sales through catalogs and direct mail packages also run the gamut of possibilities. Companies have discovered that they can use the direct-response media to sell a lot of commodities.

Mail-order expert Maxwell Sroge estimates that more than 13,000 companies are involved in direct mail; it's estimated that hundreds of thousands are incorporating Telemarketing into their everyday sales and marketing efforts.

Last update: May 15, 1995; Version 1.0.1

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Chapter 7 Review of Related Literature