The full-service model sounds very logical on paper, but as Keith Reinhard, chairman of New York-based agency DDB Worldwide, astutely pointed out in a recent piece for the Canadian marketing magazine, Strategy, the various marketing communications functions still remain siloed within most client companies. As a result, the client contact for advertising is not the same person as for PR or direct. If a client's marketing functions have to compete against each other for their piece of the marketing budget, then the various divisions in an agency are unwittingly pitted against each other in competition. Not exactly the kind of environment that fosters integration. Diversification doesn't protect agency bottom-lines much either as spending on all marketing activities gets cut, as we've seen, during a recession and the agency divisions end up cannibalizing each other for client business.

Diversifying into other marketing service areas such as the Internet, corporate image, and branding, also hasn't addressed the real problem facing agencies' core businesses: poor advertising performance. The average ROI of an ad campaign today is between 1%-4%, about the same rate of return as keeping the money in a basic savings account. Eight in ten people don't remember anything about commercials they were exposed to 18 hours earlier—and that's with a lot of prompting! The vast majority of ads fail to communicate any sort of reason to buy message, and in many cases even a brand name. While responsibility for poor performance certainly isn't solely the fault of agencies, concentrating on mergers and acquisitions has not stemmed the decline.

With more and more evidence that indicates the services provided by advertising agencies are not performing, finance-trained senior managers of major corporations have started to look elsewhere for strategic and tactical marketing assistance. Management consulting firms have—rightly or wrongly—stripped away chunks of client business formerly the purview of an agency, as have more specialized naming, media buying, and CRM software companies.

Instead of burying their heads in the sand, advertising agencies are fully aware of the threats to their survival. In his opening remarks to the American Association of Advertising Agencies (Four A's) convention, new chairman Ken Kaess warned of "clients paying us even less for the very marketing and consumer insights they need more than ever." In a similar vein, outgoing chairman Brendan Ryan agreed, "clients are respecting what we provide them less and less and are certainly valuing it less and less." He went on to reference a recent survey of the general public in Advertising Age, in which advertising professionals "were rated well below lawyers, auto mechanics and, most appallingly, members of Congress."

Faced with declining customer satisfaction and increasing defection to substitutes with names like McKinsey and SAP, the time has come for advertising agencies to do something about it. While Four A's chairman Kaess wants the industry to do some research to "quantify the value of what we do," and to determine, "where we are falling short," we don't think a survey is necessary in this case; the answer to their problem is obvious. Advertising was never intended to be an art form; it's supposed to help sell products. It does this by telling people why they should buy one product, service, or brand and not another. If agencies could focus on communicating a simple, clear, and compelling reason to buy as much as they do on the creative aspects of their executions, they could rebuild their relevancy to business. As Donny Deutsch said in a recent Adweek editorial, "Good work, not whining, is what earns respect."

Copernicus Mzine: Do you think the anthrax scare changed—for better or worse—direct marketing?

Berger: There is evidence that it has not had a material impact in the long run. In the same way that life for the airline traveler is probably 80% "back to normal," at least with regard to what the public actually experiences, likewise, the mail and post office communications/visitations/interactions are nearly "back to normal"—except, perhaps, for a portion of the tiny fraction of a percent of post office/postal districts directly affected by the anthrax incidents. Folks are no longer even thinking about anthrax as they receive/open their mail.

Copernicus Mzine: In April, L. L. Bean announced that it plans to reduce the number of its catalog titles from its current total of 95. The company's CEO indicated that the company's best customers received up to 80 catalogs in a 12-month period. How can companies like L. L. Bean better manage the number and distribution of its catalogs?

Berger: A great deal of research and experimentation needs to be done. While there has been fairly extensive research on list segmentation, catalog layout, and some other related issues, there has been very little meaningful research on the frequency with which to send out catalogs. Thus, our current state of knowledge can do a decent job determining to whom to send (the distribution), but not so well determining how many to send (the number).

As an aside, L. L. Bean is reacting the "typical way" to a problematic economy. When the economy is good, companies tend to focus on the "increase profit by increasing revenue" side of the profit equation. When the economy is in the doldrums, companies tend to focus on the "increase [or maintain] profit by reducing costs" side of the profit equation. That this notion applies to a direct response marketing operation may be another indication of direct response becoming part of the "main stream."

Copernicus Mzine: Do you foresee a day when we won't receive catalogs in the mail any more? What do you think of the newer direct techniques like email marketing and wireless?

Berger: If that time comes, it's a long way off! When Amazon.com was in its "heyday," it was predicted that brick and mortar bookstores would disappear in a decade. That's clearly not happening. Indeed, brick and mortar bookstores had their best 5-year period yet, and show no sign of slowed growth. Email campaigns have had the effect of increasing awareness, thereby increasing overall category sales for most traditional catalog products (as opposed to simply increasing sales from one channel at the expense of another channel). Look in stores today. They are very crowded, and, while the majority of customers are computer/Internet-knowledgeable, they are still visiting the store! There is still a pleasure in shopping—touching the merchandise, seeing the colors live, having the social experience, being "with people," having lunch out, etc.

There is an increasing amount of research currently focused on email marketing strategies. That's one of the many indications of the future growth of wireless channels. However, don't expect traditional channels to diminish greatly in their importance in the near future.

Copernicus Mzine: How does relationship marketing fit into the general framework of direct marketing?

Berger: It is useful, if a little bit simplistic, to view direct marketing strategies as falling into two general categories—acquisition marketing and retention marketing. Relationship marketing can be thought of as another name for the latter category, the maintaining and enhancing of customer relationships, with the ultimate goal of increasing the lifetime value of the individual customer. It is interesting to contrast strategies and programs that essentially buy loyalty (e.g., frequent traveler, shopper, or visitor programs), versus strategies and programs that create more lasting types of loyalty (e.g., superb customer service and/or support).

Copernicus Mzine: If you could offer one piece of direct marketing advice to CEOs, what would it be?

Berger: Start collecting data on your customers! Appreciate the potential of direct response marketing, and realize that, in addition to its unique ability to precisely target and personalize, it's the measurable side of marketing and has unlimited potential for establishing long-term relationships with customers. It's very difficult to target your customers to the fullest extent, if you don't know who they are on an individual basis!

Back to top.

Marketers know that keeping customers is a more profitable business strategy than acquiring new customers. To that end, companies are spending more than $23 billion this year in Customer Relationship Management (CRM) investments, according to the Gartner Group and InfoWorld. Yet, most CRM projects don't improve customer relationships!

Consider these facts:

• 60% of customers hang up the phone unhappy
• 40% of customers' emails go unanswered
• Just 3% of Web site visitors will actually buy
• 50% of a company's customers defect every 5 years
• 40% of companies can't recognized a profitable customers

The root of the problem is that most CRM investments are in software, hardware and technology tools. The tools are not solutions, they're merely tools. How you use those tools is the job of marketers. Yet IT professionals —NOT marketers—spearhead most CRM projects. A further cause for disappointing results: almost 63% of Global 2000 companies focus their CRM projects on internal, department oriented operational processes, not on customers.

Many experts believe 85% of CRM projects fail. Unless marketing professionals step up and own their company's relationship with its customers, CRM failure will remain more the rule than the exception.

For more insightful marketing discoveries, visit http://www.copernicusmarketing.com/discover/index.htm

Have a hot discovery for our next release? Contact us at info@copernicusmarketing.com

Back to top.

We hold many of the same sentiments about marketing that the authors hold about sales. We wish we had come up with the book's dead-on story about Rip Van Winkle—if he woke up after a 100-year nap, he wouldn't have missed a beat in sales. The same goes for marketing. Like our work, many of the recommendations in Rethinking the Sales Force sound like common sense, but companies simply aren't doing them. Instead they are stuck on out-of-date practices, particularly when it comes to the organization of the sales force.

Back to top.

If marketing's goal is to understand what people want and give it to them at a profit, then selling implements marketing. With marketplace results largely dependent on successful implementation, developing and executing the most effective sales and channel strategy, as well as managing the brand and customers across these sales and distribution channels, is more critical to achieving profit objectives and competitive advantage than ever.

Because very few companies get a second chance at getting sales and distribution right, The Conference Board has dedicated the 2002 Integrated Marketing Conference to the subject. Doing Business in a Multi-Channel Universe will take place on June 19 and 20, with an optional pre-conference on June 18, at the Westin River North in Chicago. At the conference, Kevin Clancy, chairman and CEO of Copernicus, will give a talk on counterintuitive approaches to developing sales and channel strategies and Peter Krieg, president of Copernicus, will discuss using research to select the financially optimal channel strategy. We'll have these presentations available for download in the next edition of The Copernicus Mzine.

Click here for more information about the conference and registration: www.conference-board.org/integratedmktg.htm

Back to top.