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Tuesday, 2 November 2010
DIRECT MARKETING STRATEGIES ADOPTED BY THE GAS AND ELECTRICITY SUPPLIERS - A CASE STUDY ON BRITISH GAS - Literature Review

2. LITERATURE REVIEW
a. Overview
This chapter will review the existing and published literature on direct marketing. It begins with the description of the origin of direct marketing. Then the definitions of direct marketing provided by various authors will be reviewed. Further, the factors contributing to the growth of direct marketing will be appreciated. Furthermore, the various forms of direct marketing and its cornerstones will be described. The benefits and limitations of direct marketing will also be analysed. The chapter will then discuss the implications of information in direct marketing. Finally, the chapter will report on the ethical considerations and social responsibility in direct marketing and the legislations and regulations that regulate the direct marketing activities.

b. Origin
The term „direct marketing‟ was first used in the year 1960 by Lester Wunderman (O‟Malley et al., 1999; p4). However, the origin of direct marketing dates back to the year 1498 when a book catalogue was published by Aldus Manutius in Venice. In England, the direct marketing began in the year 1667, when William Lucas published a gardening catalogue. (Evans et al., 2004; p1) Direct marketing has evolved in the UK from mail order. In the beginning of 20th century, the UK mail order began to develop. One of the mail order catalogues of that period is the Freemans catalogue which was launched in 1905 (McCorkell, 1997). After the war, the mail order grew at a fast and steady pace. The share of direct channels in the retail sales grew steadily between 1950 and 1970 (McGoldrick, 1990; p 60). In the mid 1980s, mail order lost some of its share because of the competition from the larger high street stores who also started providing credit facilities (Stewart, 1992). In the late 1980s, the mail order again gained popularity. This was fuelled by

or invited. the total estimated expenditure for the year 2003 on direct marketing was £13. 1999.. Factors contributing to the Growth of Direct Marketing There has been tremendous growth in the expenditure on direct marketing. p 520). 2005. p16). c. 2005. Following are the major factors that have contributed to the growth of direct marketing: . “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.” This is the most comprehend definition that is offered by ADMA (Cited in Lindgren and Shrimp. direct marketing has grown tremendously such that it has been regarded as the fastest growing sector of marketing communication. (O‟Malley et al.. p629). p7) d. Definitions Defining direct marketing is a difficult task as it is very much under debate that what exactly constitutes direct marketing. There are a number of reasons for the growth of direct marketing in usage. This definition has been accepted by the UK Direct Marketing Association. This was 15 % more than the previous year (Ng. The UK Direct Marketing Association has defined direct marketing as “communications where direct contact is made. “Direct Marketing is a cybernetic marketing process which uses direct response advertising in prospecting. between a company and its existing and perspective customers. 1995. 1996. The reason for such definitional difficulties is direct marketing is neither a medium nor a channel of distribution (Evans et al..7 billion. 1999. pp 5-6) Since then.retailers such as Marks & Spencer and Next. conversion and maintenance”. who helped the direct marketing sector grow by improving the convenience of catalogue shopping by improving the product range and credit terms. (O‟Malley et al. p628) According to the American Direct Marketing Association (ADMA). and results are measured to assess return on investment” (Ng. Although this is the most accepted definition it has attracted criticism because it „focuses attention primarily on using a particular type of advertising to effect a measurable response‟ (Bauer and Miglautsch 1992). In the UK. As a result a different definition has been offer by Bauer and Miglautsch (1992).

This has led to growth of direct marketing. Rise of the database There have been significant decreases in the cost of manipulating and storing information in the recent years.. Market Fragmentation According to Smith (1993). 2006. the compositions of the households have also changed. The costs of the hardware have also decreased and the data processing capabilities have improved. (Brassington. and Pettitt. p732) iii. 2000. and therefore they are more attracted towards the convenience of shopping online. As a result. more women are working. p17) iv. the fragmentation of consumer markets is an important factor that has led to growth of direct marketing. Declining effectiveness of traditional media Nowadays. (Cited in Jobber and Lancaster. v. (Evans et al. there are more single parent families. Whereas direct marketing channels offer better capacity to target distinct consumer groups in market segments. This has led to a problem of „clutter‟ where advertising is highly unfocused and untargeted.V. The amount of advertising on T. All these factors have reduced the effectiveness of traditional media. or by mail. Now-a-days. Sophisticated analytical techniques . Therefore it is now easier to hold vast amount of customer information and update it on time (Roberts and Berger. etc. Changing demographics and lifestyles There have been significant changes in the demographics and lifestyles of people. radio. by phone. Market fragmentation has decreased the application of traditional mass marketing channels. All these changes have left less time with the consumers.i. more firms can develop and manage marketing database. 1989). Also the costs of these traditional marketing channels have increased considerably. Today. p328) ii. press and other forms of media has increased tremendously. 1995. This has contributed to the growth of direct marketing. there is more intense competition between organisations for consumers‟ time and attention. and therefore more organisations are now using direct marketing techniques.

a.The developments in the sophisticated analytical techniques have further boosted the growth of direct marketing. thus reducing the chances of losing of customers. Control. For instance. Interaction c. 2000. it is possible to handle hundreds of calls of the potential customers simultaneously. Such benefits have led more and more companies use direct marketing strategies and thus the growth of direct marketing (Brassington. Impact of new communications technology The new communications technology has paved the way for the growth of direct marketing. (O‟Malley et al. . 2001) there are four cornerstones of direct marketing. They are.733-4). pp. pp. 1999. This is because these analytical techniques enhance the targeting of consumers as it helps to analyse the information about the consumers. and Pettitt. p18) vi. 2000. Also the costs of communication technology have decreased considerable. These analytical techniques along with the database technology have contributed to the growth of direct marketing. (cited in Sargeant and West. by using automated systems. Increased customer confidence Direct marketing helps the businesses to build trust and confidence within an ongoing relationship with an individual customer. Continuity b. This makes the customers more receptive and loyal to the company. and Pettitt. e. vii. Four cornerstones of direct marketing According to Holder (1998). Targeting d. making it a cost effective option for firms (Brassington.. It is now possible to handle hundreds of customers at a time.733-4).

That is. 2001. three or four types of mailings may be developed and pre-tested on a sample . Control: Lastly. p11 Continuity: Continuity is an important feature of direct marketing. It means that direct marketing campaigns can be pre-tested in order to measure the effectiveness of the campaigns on the target group.Figure 2. The availability of customer information databases such as modern geodemographic and lifestyle lists improves the ability of direct marketing to target customers with relevant messages and relevant marketing offers. the aim is to utilise the customer information to establish a continuous relationship with the customers. Targeting: Direct marketing also has a better ability to target customers. In direct marketing. the direct marketing aims at the lifetime value that can be achieved from the relationship with the customers. Direct marketing offers opportunities to firms to engage with the customers and interact with them. For instance.2 Cornerstones of Direct marketing Source: Adapted from Holder (1998) Cited at: Sargeant and West. Interaction: Another important feature of direct marketing is the concept of interaction. direct marketing is characterized by control.

Forms of direct marketing Direct marketing consists of all those methods that facilitate „distribution of products. Direct response television marketing e. p168). The response can be assessed and the most effective mailing can then be selected and used on the rest of the target audience. Kiosk marketing f.. Face-to-face selling . Telemarketing d. New digital technologies g. Catalogue marketing c. 2004. p356). Online marketing h. Direct mail marketing b. 2000. It should be noted that these direct marketing techniques are often integrated with other marketing techniques such as sales promotion and public relations (Groucutt et al. information and promotional benefits to target consumers through interactive communication in a way which allows response to be measured‟ (Jobber and Lancaster. The major forms of direct marketing are the following: a.of target audience. f.

Figure 2. (Kotler et al.3 Forms of Direct Marketing Source: Adapted from Kotler et al. p486) c. Direct mail is the one of most widely used direct marketing technique in the consumer and organisational markets (Brassington and Pettitt. Catalogue is an effective sales and relationship builder. It may be a simple letter. 2000. p485 a. Direct mail marketing: Direct mail is the material distributed to the home or business address to promote a product or service or to maintain an ongoing relationship through the postal service. through stores or through internet. 2008. video or electronic catalogues that are made available to customers through postal service. A recent study conducted by Frank About Women. a marketing-to-women communication company found that a majority of women who receive catalogue are actively engaged with them. The main benefits of telemarketing are .. p734). 2008. Telemarketing: Telemarketing is the use of telephone to create and exploit a direct relationship between the customer and the seller. b. Catalogue marketing: Catalogue marketing is the direct marketing through print. a comprehensive catalogue or a sample product..

(Anderson. Podcasts and vodcasts are audio and video files respectively that can be downloaded by internet to a mp3 player or any other handheld device. and ad-supported content. d. 2002. DRTV consists of those advertisements that are on air for 60 or 120 seconds which persuasively describes a product and gives customers a toll-free number or a website for ordering. p492). p12) f. mobile games. Business marketers also use kiosks to collect sales leads and to provide information at the trade shows. and interactive TV. . is highly measurable and accountable i. The other form of Direct response television marketing is Home Shopping Channels. Kiosks have become an important tool of direct marketing.e. generally to provide information to its user.. The first is Direct Response Television Advertising (DRTV) and the other is Home shopping channels. This is because it is comparatively cheaper than personal selling but offers almost same benefits (Fill. The growth of telemarketing in the UK has been phenomenal over the past decade. Mobile phone marketing includes things such as ring-tone giveaways. Kiosk marketing: A kiosk is a smalldvert stand alone unit that without management involvement performs a function. Home Shopping Channels are television programs or entire channels fully dedicated to selling goods and services. and ShopNBC (Kotler et al. Some of the new direct marketing technologies are mobile phone marketing. allows for an instant feedback. is flexible and offers an opportunity to over come objection. Interactive TV allows viewers to interact with programming and advertising using their remote controls (Kotler et al. 2008. 2006. Direct response television marketing: Direct response television marketing consists of two forms. Home Shopping Network (HSN). e. p 675). The most popular examples of Home Shopping Channels are Quality Value Channel (QVC). the effectiveness can be easily analysed. 2008.. Kiosks are now used by businesses for displaying information about their products and along with ordering mechanism. New digital technologies: The rapid advances in the technology have enabled direct marketers to reach and interact with consumers almost everywhere and at anytime. podcasts and vodcasts. p488). Other qualities include development of customer goodwill.that it provides for interaction.

p761). (2008) argues that personal selling is a important part of direct marketing as its facilitates distribution of products. That is. Benefits to sellers i. Accountable returns: Direct marketing provides direct marketers with opportunities to link „cause with effect‟. Communication and promotion (Brassington and Pettitt. Also the door-to-door selling allows response to be measured. ii. p9). Door-to-door selling (personal selling): Personal selling is the personal presentation by the firm‟s sales force for the purpose of making sales and building relationship. Direct marketers have used internet for the following marketing purposes: i. Moreover. the sellers can easily calculate the ROI (Return On Investment) of the campaigns. Benefits of direct marketing Direct marketing approaches by organisations offers a number of benefits to both organisations and consumers. Following are the benefits that both buyers and sellers can accrue from direct marketing: a. which restates that personal selling is an important form of direct marketing. Kotler et al. Online marketing: Online marketing is the use of internet to market goods and services and to build customer relationship over the internet. Builds customer relationship: . information and promotional benefits to the target consumers through interactive communication.a. the results from marketing activities carried out in various media can be accounted and compared so as to come up with an optimal communication strategy (Sargeant and West. g. 2000. 2001. Distribution and customer service iii. Although personal selling has been argued by several authors as being a part of direct marketing. The technological advances have given birth to a digital age and increasing use of internet has made online marketing the fastest growing sector of direct marketing. b. Research and planning tool ii.

efficient alternatives to reach their target customers. 2008. unlike mass marketing where there is little or no control on the response of the consumers. Direct marketing enables one-to-one approach of interacting with customers and this positions direct marketing to take advantage of these trends.Direct marketing is considered a powerful tool for building customer relationship. Direct marketers have low-cost.. p478) iv. tastes and alter their product and services accordingly (Kotler et al. Wide coverage: . Direct marketers can use database marketing to target small groups and individual customers with relevant promotional offers and products. direct mail and company websites have proven to be more cost effective (Kotler et al. Greater control and flexibility: Sargeant and West (2001) argues that direct marketing gives greater control to the marketers as they can control the timing of the campaigns as well as the timing of the response. p482). This helps the seller in managing the consumer response and ensuring that a particular day or period may not by swamped by requests for products or services. vi.. Cheaper media such as telemarketing. 2003. p482) iii. Suitable for niche marketing: The diversity of consumer demand has been increasing and this has led to more emphasis on micro or niche marketing strategy by marketers. 2008. Cost-efficient: Direct marketing offers the benefit of being cost efficient. p482-3). Direct marketing helps marketers in targeting precise market segments and therefore more easily follow micro marketing strategies (Rosenbloom. 2008. speedy.. Direct marketers also become more flexible to make adjustments to prices programs and offers when using a direct marketing approach (Kotler et al. v. Direct marketing also offers opportunities to interact with customers about their needs.

direct marketing enables a high degree of selectivity. TV. Benefits to buyers: According to Kotler et al. Wide range of media: According to Sargeant and West (2001). Direct marketers can use mediums such as direct mail. direct marketing can make shopping quicker and easier (Rosenbloom.Although. Techniques such as direct mail. print adverts. . (2008). b. p480). radio. ii. 2003. iii. internet. telephone. vii. TV. and traffic congestion. 2003. Convenience and comfort: Direct marketing make the shopping for consumers convenient and comfortable. Therefore consumers have the option of choosing from a large selection of products. i. This is because direct marketing is unrestrained by physical boundaries. the consumers can get the following benefits from direct marketing. it has the ability to offer enormous geographical range. Also since larger proportion of women are now working and the fast-paced lifestyle leaves less time with consumers. Availability of wider range of products: Direct marketing can offer wider range of products to consumers almost anywhere in the world. p478). radio stations can help sellers to reach customers anywhere (Rosenbloom. Such wider range of media opens up additional creative opportunities. inserts. Consumers do not have to face the crowded stores and malls. companies and competitors. etc. telephone. Access to comparative information: Direct marketing channels offer consumers a better access of comparative information about products. direct marketing offers marketers an access to wider range of media than those available in mass marketing. internet. Websites and good catalogues provide information in more useful forms than any other mass marketing channel.

According to the Direct Marketing Association‟s Statistical Fact Book (2002). Limited exposure of products: Direct marketing provide limited exposure of products to the consumer. Limitations of direct marketing According to Rosenbloom (2004).iv. Personalised approach: Direct marketing enables the sellers to interact with buyers and thus the approach is more personalised. There are thousands of firms who use direct marketing and this has resulted in cluttered and saturated markets. ii. the average response rate is between 1 to 2 percent when direct mail is used. iii. Even the best catalogues. television adverts and websites cannot exhibit the product equivalently to the . The unethical and dishonest practices of some direct marketing firms have earned negative publicity about the industry. Thus direct marketing gives the consumers greater control and satisfaction. The industry estimates that the response rates are even lower in other forms of direct marketing. This has been one of the big limitations of direct marketing. h. Intense competition: There is intense competition in direct marketing. Sellers can also tailor the products and services according to the needs of the consumer. Bad reputation: Although there have been huge growth in direct marketing. direct marketing has the following limitations: i. This intense competition has also contributed to low response rates. the direct marketing industry suffers through an image problem. Low response rates: The response rates in direct marketing are very low. iv.

p187). direct marketing programmes are „critically dependent on the availability of detailed. Most individual. one of the major medium of direct marketing. storage and use of customer information so as to target customers with relevant products.conventional marketing channels. The information about customers is very significant for the direct marketing campaigns. the exchange of information between marketers and consumers is one of the fundamental aspects of successful relationships. v. whereas the insightful and non- . Such information usage by direct marketers is not only beneficial for marketers but also for customers. b. However. the value of information about consumers cannot be denied. services and promotional benefits. Direct marketing focuses on the collection. similar tastes. such limitations can be reduced in some case by using samples as a supplement to direct marketing channels. the costs of order processing and shipping can also be high compared to the sales volume produced.e. In today‟s business environment. Sources of information: Direct marketers obtain information from a variety of sources. Implications of Information in Direct marketing a. preferences. interests etc. Such information helps direct marketers to personalise communication and target customers with relevant information. involves high printing. the operating costs are high. direct mail. High operating costs: Although the cost of setting direct marketing systems is low initially. paper and mailing costs. 2005. i.level transactional data is obtained from customer records. Direct marketers use information about consumer preferences to form group of consumers with similar characteristics i. Significance of information to direct marketers: According to Dolnicar and Jordaan (2007). For instance. as relevant communication can be delivered to the consumers based on their interests and preferences. individual-level consumer information‟ (Robertshaw and Marr. Moreover. Thus.

sweepstake promotions. friendship and maternal feelings. p187). a. 1. According to De George (1999). preferences values. The discussion related to ethics requires an understanding of social responsibility. „good mothers buy…‟ etc often try to exploit human emotions. following are the ethical grounds on which direct marketing has been criticised. affections. this field has been traditionally been proven as a difficult area of study. religion. beliefs. Exploitation: Direct marketing is accused of exploitation of emotions such as love. Promoting Materialism: The main criticism of direct marketing as an activity is that direct marketing advertisements along with the general advertisements promotes materialism. opinions. But very often it becomes difficult to distinguish between the two (O‟Malley et al. use of taglines such as „Happy families buy…‟. However. Moreover. response to direct response ads. warranty cards. 1999. According to Sargeant and West (2001). political views. ethics is the study of morality. television viewing habits and other lifestyle characteristics is generally obtained by the voluntary disclosure of the consumers. The authors argue that direct marketing make people buy products that they would not buy otherwise. those practices. For example. Ethical considerations Despite the growth of direct marketing. p419). Ethical considerations and Social responsibility in direct marketing The field of direct marketing ethics is considered of immense importance. the children and direct marketing is often looked as a more serious topic. . Direct marketers generally employ some type of marketing process such as loyalty cards. discount and cashback offers to collect these non-transactional information about consumers (Robertshaw and Marr. direct marketing has been criticised by several authors on ethical grounds. b.transactional information related to the interests. future purchase intentions. and activities that are importantly right and wrong. j. whereas social responsibility refers to the effects of those practices and activities on the society. 2005. spending habits..

c. or with some brands and make claims that are not fully true and subject to certain conditions. telesales. Dishonesty: Although the dishonest direct marketing advertisements are rare because of the UK and EU legislations and the presence of various professional agencies. 1999. p436-7). the specific privacy issues relating to direct and database marketing are a. information privacy. Physical or interaction privacy refers to the physical disturbance of direct marketing activities such as direct mails. Since the response rates are low. the half truth remains. physical /interaction privacy. Direct marketers are being pressed to be more accountable in their campaigns and to become more socially responsible. . b. 2. a. Environmentalism: Another issue of social responsibility associated with direct marketing is environmentalism.Direct marketing often persuades children to demand products that the parents cannot afford or wish not to give to their children. into the daily lives of consumers. organisations use vast quantities of direct communications to get more sales. accuracy. c. Information privacy means the extent to which individuals can control who holder and uses of their data. This would also help in reducing the wastefulness of their operations (O‟Malley et al. Many consumers in UK have real concerns about the environmental impacts of direct marketing communications such as direct mail. etc. Privacy issues: The explosion in direct marketing practices has raised consumer concerns over threats to privacy. According to Evans et al (2004). Following are the headings under which the societal impact of direct marketing will be discussed.. leaflets etc. The advertisements often make comparisons based on one criterion. as these cannot be recycled. emails. The problem is further increased by the usage of glossy paper by many companies to attract customers. Therefore organizations must become socially responsible towards the environment. b. Accuracy refers to the extent to which the consumers can the accuracy of their data. Social Responsibility: The subject of social responsibility has become more important in direct marketing recently. This can be done by utilizing information in such a way as to generate smaller and more tightly defined and relevant direct marketing communications.

uk/content/Pro-Code. It also requires the organisations gathering. The Data Protection Act gives protects the consumers by giving them certain individual rights. 1998: All the companies that use personal information are abided by the Principles outlined in the Data Protection Act. have to abide by the laws that regulate direct marketing. For instance.(Source: http://www. The Data Protection Act is concerned with the personal information of consumers which is automatically processed. The code is administered and monitored by the independent Direct Marketing Authority. ASA/CAP code: The Advertising Standards Authority is an independent body set up by the advertising industry. This independent authority monitors that the rules laid down in the CAP Code which has to be followed for non-broadcast advertisements. This means that some members of the society will be excluded. k. sales promotions and direct . Legislations and regulations in Direct Marketing Organisations that adopt direct marketing as a part of their marketing strategy or as a strategy as a whole. and ethnic groups tend to live in different areas‟ and since geography is one of the major criterion of used in direct marketing to target people.dma. The Code covers all forms of direct marketing. Data Protection Act. Direct Marketing (DM) code of practice: The DM Code of Practice sets the standards of ethical conduct and best practice that organizations must follow. religions. such as the Data Protection Act 1998 and Distance Selling Regulations 2000 (Source: http://www. 1999. organizations may target localities with high spending power.c.uk/content/Pro-Code. Exclusion: Direct marketing activities tries to target some sectors of the society. According to Cespedes and Smith (1993) (cit. directives and precedents that organisations have to follow. „people from different races. regulations. This would limit the choices of the lower income group. storing and using personal information to be open about their activities and follow sound and proper activities . Although. there is a proliferation of statutes.asp).dma. iii.org.org. p437). there is no particular Direct Marketing Act where all the direct marketing laws can be found. there will be some sectors that will be discriminated.asp) ii. in O‟Malley. The Code reflects the requirements of new legislations related to direct marketing. Some of the major laws and regulations affecting direct marketing are discussed below: i.

asp) . The various preference services run by DMA are Mailing Preference Service (MPS). Telephone Preference Service (TPS).marketing that are laid down in the CAP Code. telesales calls.uk/content/Pro-Code.org.org. (Source: http://www.dma.uk/content/Pro-Code. Sales Promotion and Direct Marketing came into force in March 2003.dma. emails etc. This eleventh edition of the British Code of Advertising. Preference services: The preference services run by Direct Marketing Association (UK). enables businesses and consumers to register their wish of opting out of receiving unsolicited direct marketing communications such as leaflets. Fax Preference Service (FPS) and Baby Mailing Preference Service (Baby MPS). Organisations are required either by law or by the codes of practice to follow these wishes of businesses and consumers.asp) iv. Email Preference Service (E-MPS). (Source:http://www.