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What’s Old Is New?
BY ZAK STAMBOR Managing Editor. Internet Retailer Magazine. February 2015.
Direct mail is an old form of marketing, but some retailers find it works for them today.
Like many tech startups, LawnStarter aims to “disrupt” an industry that hasn’t changed much over the years. In the case of LawnStarter, that industry is landscaping.
The way landscapers operate, including how they market themselves, isn’t efficient, says Ryan Farley, the startup’s chief operating officer. Most landscapers run local print ads that they can’t track. And if a prospective customer calls to get a quote, she usually has to wait for the landscaper to drive out to her house to give an in-person estimate.
LawnStarter is using the power of the Internet to rethink the way landscapers build their businesses. The company offers consumers an online platform where they can type in their address, get an instant quote based on LawnStarter’s homegrown software, and manage everything from their scheduling and billing online—via LawnStarter.com and its mobile app. Not surprisingly, it uses digital marketing channels such as paid search, Facebook advertising and daily-deal sites like Groupon and Amazon Local to attract new customers. Perhaps more surprising is the other technique that Farley says is a crucial cog in its marketing machine: direct mail.
While it might seem counterintuitive for a technology-focused company to use what it calls an “old-fashioned” marketing technique like direct mail, Farley says it’s effective, in part because of consumer e-mail fatigue. “Ten years ago people weren’t excited about getting a piece of mail, they were excited about receiving e-mails,” he says. “But now, with everyone’s inbox overrun with marketing e-mails, everything has changed.” The proof, he says, is in the 4% average response rate to LawnStarter’s mailings, which it tracks via a coupon code.
If you’ve looked in your mailbox recently, you know that LawnStarter is far from the only retail-oriented business using direct mail. There’s a good reason for that: Consumers actually read the direct mail that arrives in their mailboxes. 79% of households say they either read or scan retailers’ advertising mail, according to the 2012 U.S. Postal Service “Household Diary Study.” While retailers marketing through the U.S. Postal Service harkens back to the early mail-order days of Sears and Montgomery Ward, a new wave of retailers that aren’t traditional catalogers are also using the technique to drive shoppers to go online to buy.
That’s despite the relatively high cost of printing and mailing a promotional piece when compared to e-mail marketing. Direct mail costs more than $600 per 1,000 pieces, roughly 100 times the cost of sending out an e-mail blast to 1,000 consumers, according to a Harvard Business Review report. But the cost is not a barrier if the return on investment is high, Farley says. “We wouldn’t be doing it if it wasn’t profitable,” he says. “Direct mail is expensive. But then again, so is paid search.”
Merchants large and small— like J.C. Penney Co. Inc. and BackyardPoolProducts.com—have reached similar conclusions because direct mail gives retailers a relatively unobtrusive way to reach consumers, says Sucharita Mulpuru, Forrester Research Inc. vice president and principal analyst. “While people tend to get annoyed by mail from nonprofits and credit card solicitations, they don’t tend to have the same reaction to direct marketing from retailers,” she says. “Direct mail gives retailers a very different way to tell a story or get attention than a banner ad.”
That’s the idea at J.C. Penney, which next month will send its first catalog since 2012. The catalog will be similar to the mailing the retailer sent out prior to 2012, when then-CEO Ron Johnson overhauled J.C. Penney’s marketing approach, which included discontinuing the retailer’s catalog, in an attempt to drive shoppers into stores.
By sending a catalog, J.C. Penney aims to entice shoppers to browse its wide-ranging selection, says a spokeswoman. “Customers still like flipping through a traditional print piece, particularly when it comes to looking at home merchandise,” she says.
Direct mail can also help drive online sales. Take web-only retailer BackyardPoolProducts.com, which took seven years to reach that conclusion. The pool accessories retailer, which launched in 2005, for years relied on Google AdWords, e-mail marketing and print ads to drum up business. After several years of advertising in the pool industry trade magazine Aquatics International, the e-retailer decided in 2012 to test direct mail.
“Direct mail has more impact as name brand recognition increases,” says Paul Entin, president of EPR Marketing Inc., the advertising agency used by BackyardPoolProducts.com. “After a few years of building up the brand we decided to see if direct mail might work.”
For its first effort, BackyardPoolProducts.com spent “several hundred dollars” to rent Aquatics International’s list of about 5,000 subscribers. Each of those consumers received an oversized postcard, which cost the retailer around $4,000 to produce.
Entin then examined the site’s traffic before, during and after the mailing, to see if the postcards led to a bump. In the first two or three days after the postcards arrived in recipients’ mailboxes traffic was almost double that of a typical day. Traffic ran about 50% higher than normal for a week before subsiding. At the same time, the e-retailer booked a number of big sales which, with the site’s $650 average order value, made the campaign worthwhile, he says.
Following that initial campaign, BackyardPoolProducts.com tested whether combining direct mail with e-mail messages might boost the effect. Once again it rented Aquatics International’s list of about 5,000 subscribers, and this time also rented the magazine’s list of about 2,000 e-mail addresses. About a day after consumers received the mailing, they received a follow-up e-mail. The traffic jump jumped even higher than the initial mailing.
It now sends out similar mailings and e-mails once a year in the late winter when its customers are preparing for warm pool weather. The campaign eats up about a third of the retailer’s relatively small marketing budget, but it more than pays for itself, in part, because the combined campaign increases the likelihood that recipients will see its messages, Entin says. “You need to be where they’re looking,” he says. “And that isn’t always online.”
Reaching consumers offline while staying within a budget requires retailers to use some of the same targeting techniques they use on the web. For instance, LawnStarter works with direct mail marketing vendor BigEye Direct to identify and send mail to specific, small neighborhood clusters, such as areas with many homes with large yards, where homeowners are likely to be looking for a landscaper. That’s similar to the technique it uses when advertising on Facebook, where it uses location-based targeting to target affluent ZIP codes. And while it can track direct clicks from Facebook, its mailings contain a coupon code that lets it track the effectiveness of its direct mail campaigns.
In certain markets LawnStarter also mails out a booklet, “A Complete Guide to Lawn Care,” which costs between $1 and $3 per booklet to print and mail. It aims for consumers to keep the booklets around their house until they decide they want to hire a landscaper. While Farley declined to share specifics, he says the number of leads LawnStarter has received from the booklets has “far offset the cost.”
Prior to co-founding LawnStarter, Farley was a senior business analyst at Capital One Financial Corp., where he worked on the bank’s direct mail campaigns. The role taught him that while marketing techniques like paid search are “sexier,” direct mail has benefits that some other online methods lack. After all, “you can always send another mailing,” he says. Subsequent mailings decrease the response rate, and LawnStarter builds that decay factor into its model.
Forrester’s Mulpuru agrees that direct mail typically doesn’t have the same “annoyance effect” as some other marketing channels, including retargeting ads and e-mail. “If a retailer does it well, it can be seen as much as editorial content as selling something,” she says.
However, direct mail likely won’t work for all retailers, particularly those that sell commodity-type products, she says. Direct mail works best when a retailer can use the channel to provide value in some way, Mulpuru says.
LawnStarter believes it is doing just that, which Farley says explains the company’s early success. As consumers are bombarded with ads just about everywhere they look online, direct mail offers retailers a different route that they can use to build brand recognition and drive sales.