How To Project Response Rates for Untested Channels

Written By Ted Grigg

From time to time, clients and prospective clients ask me for general direction on a wide variety of direct marketing subjects.

One of the most frequent questions relates to response rates.

The short answer is that response rates vary dramatically for many reasons. And the only way to project reliable response rates is to test the channel or integrated channels.

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But what if we want to determine if testing a new channel is even worth the cost or effort? How should a marketer approach this question rationally?

A general agency media director recently asked such a question and I sent back the answer. Here it is for your consideration.

Question:

"We are working with a national _______ company. Recently the subject of TV came up as a possible option. I’m trying to compare what responses we might get to other platforms we use (ie. Internet, magazines, etc). Is there a general range of response rates on DRTV? I realize it will be widely driven by the category, etc but if I could just find a starting point that would be helpful."

Answer:

"Direct marketers do not use response rates as an evaluation criterion for DRTV. (In fact, all channels would benefit from using something other than response rates for evaluation.) Instead, the industry uses a Cost Per Lead or Cost Per Sale calculation to determine the effectiveness of DRTV.

We look at the CPL or CPS on a station by station basis and monitor these numbers in real time for response rates cutting off the ineffective stations and ramping up circulation on the winning ones.

The CPL is driven by such things as product category, offer, spot length, station and seasonality. In combination or singly, these factors dramatically affect the CPL and CPS. The only way to project a reliable response rate for your client is to test it. Be sure to test all of the factors mentioned above to get a true picture of your DRTV potential.

I realize that you are attempting to compare the media options and weigh the potential for each before recommending a test plan.

So let me share what I would do in your shoes as part of the process.

The first thing I would do is calculate an allowable CPS (with the client's support) backing into an allowable CPL based on the client's conversion rate. Depending upon the result of those calculations, then you will be in a much better position for determining the potential for DRTV.

I would hope that the allowable CPL for this client's category would reach a pretty high number making a DRTV win achievable. For example, a CPL of $200 for DRTV might be achievable. At $10, I would run away from DRTV for this product.

You also have the added complexity of overlaying other channels such as the quality of the website to convert the interest generated by TV into a real lead. Mobile is another overlay... and the list grows from there.

If other channels are not supporting the DRTV effort appropriately, then the CPL number will go down making DRTV less attractive. DRTV no longer (and never really did) operates in a vacuum.

Are you being asked to develop response rate projections without the benefit of a relational database from the client? Access to this data would allow you to extrapolate a DRTV CPL with the added input of CPLs by medium. You need client specific CPL and CPS data rather than response rates that do not relate to marketing costs.

If you have response data (CPLs and CPSs) for other media (especially targeted media like direct mail), this would help you project a CPL more accurately."

The bottom line:

The media strategy in direct marketing relies more on the financial criteria than response rates. The CPS incorporates the bigger evaluation picture by putting all media strategies on a level playing field. Response rates + Marketing costs + product profitability = CPS. CPS is the magic planning and channel (or multi-channel) evaluation number.

Ted Grigg

Ted Grigg is a direct response strategist who helps growth-focused companies reduce risk by identifying weak assumptions before they become costly mistakes.

Over the course of his career, Ted has evaluated several hundred million dollars in direct response testing across direct mail, digital, print, television, telephone, and other channels. His work combines direct response strategy, acquisition economics, customer analysis, creative evaluation, offer development, and disciplined testing.

Ted has worked on both the client and agency sides of the business. That experience gives him a practical understanding of the pressures facing executives, marketing teams, agencies, and service providers—and of the problems that arise when activity, media volume, or creative preference replaces a clear economic objective.

His consulting work helps organizations examine such questions as:

  • Are acquisition goals economically realistic?

  • Is the allowable Cost Per Sale supported by customer value?

  • Are targeting, offers, creative, media, and response paths working together?

  • Are tests structured to produce reliable business decisions?

  • Are unproven assumptions being treated as facts?

  • Is the organization measuring sales outcomes rather than convenient proxies?

Ted’s experience includes the development of direct mail and multichannel acquisition programs for insurance, healthcare, financial services, technology, nonprofit, manufacturing, retail, transportation, communications, government, and business-to-business organizations.

For a national direct-to-consumer insurance company, he developed a direct mail format that defeated established controls and helped expand the productive use of compiled prospect lists from less than 10 percent to more than 30 percent of total direct mail circulation within one year. He also planned Medicare lead-generation programs for more than 60 regional and national HMO and PPO organizations, with some programs exceeding sales projections by as much as 60 percent.

Ted founded Wyse Direct, a direct marketing division of Wyse Advertising in Cleveland, where he developed acquisition programs and helped launch a new technology product for Seiko Instruments by generating a predictable flow of qualified sales leads for its national sales organization. As vice president of new business development for the Grizzard Agency, he helped broaden the agency’s strategic capabilities and pursue new commercial and fundraising opportunities.

He is the author of The HMO/PPO Marketing Plan—A Step-by-Step Guide, published by Executive Enterprises, and has written numerous articles and conducted webinars on direct response strategy, testing, creative development, and marketing economics.

Ted earned a Bachelor of Arts degree from Abilene Christian University and completed two years of graduate study at Texas Tech University. He is the founder of DMCG, LLC.

http://www.dmcgresults.com
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