How To Project Response Rates for Untested Channels

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.

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.

Posted on June 26, 2012 and filed under Direct Marketing Strategy.