8 Ways to Dramatically Increase Profits From Direct Mail (1 of 2)

Hello everybody, welcome to the Magnetic Marketing Podcast. Today we have something special for you. Both Dan Kennedy and Bill Glazer are gonna be talking in depth about the 8 ways that you can significantly increase profits through direct marketing. Now here's the deal, this is part 1 of part 2, so we're only covering 3 of those 8 strategies. So take out the pen and paper, start taking notes, or if you're driving, be safe, make sure that you are listening, take some mental notes. These are lessons that are invaluable. Doesn't matter what industry you're in. How do you use direct mail and direct marketing in order to grow? That's what we're going to be covering. So let's listen in.

I don't think there's anybody that has had a bigger impact in the field of direct response than Dan Kennedy. The legend of Dan Kennedy should be ignored at your own peril. They're not really lessons, they're kind of laws that you live by. Dan opened my eyes to what small business marketing looks like.

Dan teaches strategic direct response that is timeless. His ripple effect touches people who don't even know his name.

The world as we know it was changed because Dan Kennedy became obsessed with marketing.

Welcome to the Magnetic Marketing Podcast with your host, Dan Kennedy. Well, hello, uh, Glazer Kennedy Gold Plus members. Uh, this is Bill Glazer, um, and I'm joined today with Dan Kennedy. Today we're going to be talking about a topic that I would think— actually, Dan and I were just sort of talking before the call about how paper and ink can still really be the engine to pull the train. Today's topic is how to dramatically increase profits from direct mail. We've selected 8 items that we've identified that will have the greatest impact on the profitability of direct mail, and I think that we're going to— Dan and I are going to be talking about them, sort of going back and forth, and then afterwards we'll be more than happy to open up for some Q&A. So Dan, how you doing there?

I'm doing good.

So let's jump in on our list of 8 things that have the greatest impact, and the first on that list is, should be no surprise to people, and if it is not what they're expecting to hear, once they think about it, it makes perfect sense, is the who that you target to. So, Dan, I'm going to let you get started with the who, and then we'll just sort of go back and forth on that.

Well, I think it's where a lot of direct mail goes awry., and people who don't get the kind of response or return on investment that they were hoping for or would like from direct mail. Very often if they come to me about it, they come looking for help with the piece itself, and in many cases the problem is not the piece. So much as it is who they are sending it to. I will often counsel people that when you go, if you're using rented lists, for example, there's almost no list where the entire list is going to be productive and profitable for somebody. It is only going to be segments of the list that are going to prove productive and profitable. And so the more you know about who your customer really is, statistically, demographically, as well as psychologically and behaviorally, the more you know about them, the more likely you are going to be able to make direct mail work effectively. It's really an exclusionary process. Process, meaning if there's 100,000 affluent homeowners in your market area who might statistically by income work for your high-end restaurant and wine bar, there's probably only 5,000 of the 100,000 who are ideal and it's about getting rid of the 95,000 and being able to focus on the 5,000. And so, you know, there's simple things like married versus single and have kids, don't have kids, income, value of house when you're talking about consumers. And then you're drilling down a lot deeper into their behavior and what they purchased in the past. I just had some data in front of me from Rodale, the big health book publisher, in preparation for a seminar I'm doing this weekend. And one of the things that really boosted Rodale's business was their discovery that, which once it's said it sounds painfully obvious, but that the person far more likely than any other person to purchase a health book is somebody who has purchased a health book within the previous 4 weeks. And so with that piece of information now, you attack lists differently than without that piece of information. And so identifying who you should be selling to and then going out to very specifically and narrowly, even at times expensively matching up with that precise who is a real key to making direct mail work. I think generally speaking, the game is at least 50% list if not more, and only 50% then divided up between product, service, offer, price, creative, meaning copy and presentation, and all of those other factors.

Well, and you know, I've heard you say so many times, Dan, and I think it's worth repeating, is the fact that this is generally a smart place to be thinking about spending some money in. As far as trying to narrow down the who list as much as possible. And usually, you know, even though people tend to struggle with that, but because like they'll buy a list of 5,000 names, let's say, and they'll merge that against another list and they'll come up with maybe 1,300 names, and they'll think of all the wasted names that they purchased, and that bugs them. But the reality is when you can sort of narrow that list as as much as you can, the money that you spent on the wasted names is really money well spent because you can now just target your who as much as possible and you can go much deeper in that. I mean, I had a client of mine that owns a bank, owns 7 banks actually, but there was one specific bank that they were trying to build up their deposits, particularly in the commercial world. And we very, very, very narrowed down that list of potential customers, and I was able to— which is a really nice luxury to have— I was able to basically spend as much money I had to spend on each of the mailing pieces. So each mailing piece was a semi-elaborate— what we call lumpy or dimensional mail. And the response was terrific. Now, by the way, part of the advantage of being able to spend as much money as I wanted to on those pieces had a lot to do with how naive the bank was with not knowing about that, but that was okay. I guess, Dan, we ought to talk about lists itself as far as where to go find information. Basically there's two main types. There's the, what we call responsive and compiled lists. So can you just sort of identify those for people?

Yeah, and what you've just been discussing about, discussing where really you have a throwaway factor, I prefer to call it that than a waste factor, exists far more with response lists than it does with compiled lists, although it's still there. I mean, so simplistically, a compiled list is that which has been assembled by a compiler from various— from either a single source or a multiplicity of sources of public records. So if you rent a list, for example, of recently bankrupt people, that's public records compilation. If you simply rent consumers by age, homeowners, and approximate household income. That's been compiled from public records. A response list now is a list of people who have responded. So they have either purchased something, subscribed to something, or requested information about something, and those lists are in the commercial rental marketplace. And so you might— so if you're running, again, you know, a high-end restaurant or retail store that deals with wine and gourmet foods, A compiled list that may or may not work for you would be by— in your zip codes, in your community, would be probably homeowner of a certain age, of a certain household income. You probably improve your odds by doing married only. An example of a response list might be a Brookstone catalog customer who had bought wine cabinets or wine openers or those kind of products or the Wine Merchant catalog customer or say Gourmet Magazine subscribers and now out of that list the age and homeowner and those statistics statistics merged against it. And the response lists are of course significantly more expensive than the compiled list because they tell us a lot more and they have a lot more information to offer us about a person's buying behavior including frequency and recency and size of purchase when it's a purchase list. So If I was in your business, your old business, retail menswear, you know, what might be important to me on a list of GQ subscribers might be their recency of subscription. If I was buying a catalog company's list, it might be the size of their purchase or whether or not they had purchased more than once. Or how many times during a year they purchased. For example, off of a catalog list, you rarely— you may not want one-time-a-year purchasers because they may all be gift buyers. So somebody buys from the Sharper Image once a year may be buying gifts for people. Somebody buys from the Sharper Image 4 or more times a year, well, they're probably buying because they like gadgets and they buy stuff for themselves. And so there's a lot more usable information for us about consumers' behavior and the response list. The question is always what, you know, what broker do I call and it is not quite that simple. Compiled lists are readily available in a variety of places but the response list you've got to do some homework and you've got to do some research. Ultimately you will find that there are brokers who sort of specialize different categories of lists, and once your own research has led you to one, they in turn may be able to lead you to others. So like in the health category, for example, where we're working right now for Dentistry for Diabetics, there's one list broker who we are relying on more than others who represents a whole family of health buyer lists and can easily arrange merge purges within that family of lists, but even under those circumstances, there are 4 or 5 other sources we need as well in order to compile them, in order to get the number of names we want that fit the profile that we've built.

[Speaker:DAVID] Well, we also, and you know, listen, I think even though we have 8 things on our list today, to discuss, being the fact that this one is 50% of the battle, I'd like to spend a little bit more time on this one and make sure that all of our members, you know, really sort of absorb this because— so now that we talked about the two major types of lists, let's just spend a little time and talk about, you know, as far as information itself. And you touched on it, but I'd like you to maybe expand on a little bit of the difference between geographic information and also psychographic information.—

well, look, most people, if they do list selection at all, they think, especially the local business owner or sales professional or whatever, they usually think in terms of, first of all, geography, as you said. So radius around my store or office, traffic patterns within a city, these zip codes make sense, these zip codes don't make makes sense. Then demographics are sort of public domain statistical data, age, marital status, kids, no kids, pets, no pets, income, value of house, you know, that sort of thing. And so most people, if they go down this path at all, Some never get beyond their own house lists, their own customer lists, and their own inquiries from their own advertising. And of course, most people underutilize that and don't get enough information from their own customers to properly segment their list. But then if they get beyond that, they do geodemographic. Psychographic is much more interesting because it gets us to the psychology of marketing.

Marketing.

And so, you know, I've always said direct marketing is about psychology and math. And so psychographics allow us to get to the psychology of marketing. And so within a— again, a simple thing like multi-buyer versus infrequent or single buyer from a particular catalog. Well, that tells us something about how that person behaves towards catalogs in specific and in general towards direct mail. And of course, the universe of catalogs, the universe of magazines, and the universe of newsletters allows us to get very, very specific. So if you take something like like the Wall Street Journal or Investor's Business Daily and we're talking about some kind of a financial offer. The Wall Street Journal or Investor's Business Daily, big broad publication. We know a lot demographically about their readers. They can give us a profile of age and income and that sort of thing, but they can't give us much psychographically other than these people interested in investing. If we get the oil and gas speculator newsletter list, probably all of them subscribe to the Wall Street Journal and to Investor's Business Daily, but because they pay $495 a year to subscribe to the oil and gas speculator, if we take the time to learn a little bit about that publication, we find the key word here is speculator. These are people who use some part of their money for high-risk, potentially high-yield investments that are one step away from gambling and maybe as much about the game as about the gain. And so if we're selling some kind of exotic thing that's very useful to us. You could go the other way and find a publication that only catered to extremely conservative people who basically keep their money in their mattress. And so you can get down into these subsections. And so, like, I'm working with Scott Tucker today. I'm taking a break to do this call. And so amongst the many things we've been talking about today, day or certain list segments that he wants to reach in certain fragmented media. And for reasons that don't need to be discussed on this call, we're talking about horse owners. And of course, there are racehorse owners and there are pleasure horse owners who just have a horse to go ride it on the trails. And there are competitive horse owners who take them to shows and compete for ribbons. And the people who compete for ribbons spend a lot more money than the people who just take it out in the backyard and ride it around on trails. So how do you get to the ones who just have horses for the purpose of competing? Well, there are magazines, so there's media that gets us there, which means there are subscriber lists that can get us there. But another key indicator is horse trailer ownership or not, because you are far more likely to own a trailer if you haul your horse places than if you don't. So while there's a public list, there's a compiled list of trailer owners because you have to license those things. So now you could take a compiled list and you could cross it with a subscriber list of Western horse owner and you have narrowed your probability down to Western horse owners who probably take their horses someplace to compete in shows. And so this sort of Who are we trying to get to? Who are we trying to get to? Who are we trying to get to? And then how can we get to them is a real important thinking and practical exercise.

And just a couple other things on this topic, then we'll move on to our next bullet, is that one of the things I want to mention is the fact that I can almost guarantee everybody who's listening to in this call right now who has got a pretty successful marketing funnel. If you go back and you, and this works even better when you have a successful marketing funnel, not when you're sort of trying to get to success. If you now have a successful marketing funnel and you try to look for how can you further narrow that list that you're marketing to even more, that now will be a big breakthrough in your business. So for example, a couple things. One of them is that I can assure you that in your current customer base, there's things that I first heard the term from Dan called hidden biases, which is, so the example would be like Rory Phat in his restaurant marketing system. He knows that if the business owner, the restaurant owner has the word pizza in their name, they are infinitely more apt to invest in his information than if they don't have pizza's name. I know actually in my retail marketing system that if somebody has their name in the name of the business, and I believe also Joe Polish found this exact same in his carpet cleaning business, that their name was in the business, they're less likely to buy than if it has more of a corporate type of name in their business. So there's these biases that you're looking for, and you really want to go hunt and look at your their own list to try to figure those out. So now if you now go buy a list and you— so in Rory's case, you know, he goes out and buys a list, he's looking for all the ones that have got pizza in their name. The other thing that we also know is there's oftentimes a lot of— if you're marketing to the entire country, there's geographic biases. And so, for example, historically California has been one of the best areas to always sell to.

Pardon me? Yeah, and I was going to say, and you have to be careful to look all the way through to your— when you're reverse engineering this, you have to look at purchase activity, not just response activity. So, like, I have a client who 50% of his response to his his advertising up until 2 years ago was divided evenly between men and women in his niche. But when you analyze the purchasing activity, 75% of the purchasing beyond the first 2 transactions came from men, only 25% from women. And ascension up the ladder to the highest priced things that he sold narrowed down to 90% male, 10% female. So that tells you now you don't really want women customers in his business and you want to change the way you use lists as well as change your message appropriately. Whereas if all you did was look at the front-end response, you would never make that call.

Well, let me give you another example. I have a client, as you know, Dan, that has a very high-end coaching program in the automotive repair industry. And we, when we bought their list initially, we were looking at the volume that the shops were doing as well as number of employees. And then we drilled that down further and we also saw bias with number of bays, repair bays that they have in the shop. And we knew that shops that fell in between, not less than X number and not more than X number of bays, were much more likely to buy our coaching program. That was a huge breakthrough for us.—

and a huge breakthrough. It allows you to throw out names. It allows you to throw out names. Most people look at it as waste, but it's not at all.

Yeah, and me as the marketer, I look at it as now I've got more money to spend on the good names.

Yeah. You know, biases work different ways for different people depending on who you resonate with. An example everybody would be familiar with, let's say that Zig Ziglar is going to come into a town and Tony Robbins is going to come into a town and they are both going to do a seminar, same price, a 1-day seminar at the same price point and both of their seminars are aimed at a mixed bag of small business owners, butcher, baker, candlestick maker. So they are both probably going to use an InfoUSA compiled list of small business owners in X number, in a bunch of SIC codes. May be differentiated by number of employees. However, Zig resonates with a very different person than does Tony. So a bias point, for example, would be subscribers to Guidepost Magazine, which is a Christian magazine that was originally created by Norman Vincent Peale. Now, if I was filling seats for Tony, I'd take all the Guidepost subscribers merge, purge them against the InfoUSA list, and I would throw out the Guideposts subscribers because Tony is not going to resonate with that crowd. If I was mailing for Zig, those are the ones that I would spend the most money on mailing to, and I would definitely keep them. So you've got to think really all the way through to who you are and what you are about because your who has to to kind of match up with your message.

So, and just in ending this first bullet point, I just want to give everybody a couple of resources that I think would be valuable for them. One of them is SRDS. We talk about it often. I had actually an opportunity to meet with them. I recently went to the Direct Marketing Association conference and met with them, and we're trying— I'm trying to get them right now to do a gold call call for us in the future. But SRDS is a place where you can go where all the commonly available lists are compiled. Other resources that would be very valuable for our members if you're looking for finding out research is go online. There's wordtracker.com. You can find exactly how many people are searching for particular keywords. Which should be valuable for you if you're trying to narrow down lists. Alexis.com is another good one. There's a really interesting one which is called marketingsource.com/associations, which has a directory of all associations that are out there, and oftentimes associations are very, very smart places to look to for lists. There's also— The last one I'll give you, I've got a long list here, but the last one I'll give you that's valuable is called magazines.com/magsdirect.com is a place where all of the magazines for different— all magazines are listed there. So if you're looking to try to— magazine lists oftentimes can be very, very good lists to be looking for. So there's a couple resources. Oh, the last sort of funny thing, I don't know, Dan, if I ever told you this, I actually wrote about it in last month's No BS Letter. There's this company called NeuroGraPHIX, N-E-U-R-O-G-R-A-P-H-I-X dot com. And they're claiming they're like the new frontier where beyond demographics and psychographics, they now are looking at people the way that they think. And so they divide people into 4 different kinds of groups depending on the way they think, and they claim that if you can run your list through their list to determine a bias in the way people think and then use that to help you buy your list, so buying lists from people that think alike, or buying a list of people who think alike is an interesting thing. So I haven't tested it yet. If anybody out there wants to test it, please let me know. Before me, I would appreciate it. So see how that works out. Let's move on to the next bullet on our list, which is creating better margins in what is being sold.

And Adarian, I'll let you get started with that, please. Well, as you pointed out in your bank example, The position that you want to be in as a marketer is to be free of handcuffs to the greatest degree possible in what you spend either to acquire a customer, client, or patient or to make a sale. And people are often prohibited from using direct mail and using a lot of other media for that matter and/or restricted in speed and size of growth by having poor margins in what they sell, not figuring out how to adjust those margins or adjust the mix of things that they sell or the order in which they sell it and so a bunch of good things are off the table. For example, in a profession where I'm doing some work, we've got direct mail that works if you define works as an acceptable cost of appointment between $500 and $550 Now, 90% of people in that profession would define that— would not be willing to pay that for an appointment because the margins of what they do once they get an appointment as well as their sales effectiveness and so forth won't support it. However, my view is anytime I can get a direct mail system to work, then rather than trying to I'd rather fix some other things in order to support its cost, and then you have real competitive advantage because you'll be the only one who's able to use it. Nobody will be able to copy and knock you off because they won't be able to live with the numbers. And so I'm always looking for how can we improve the profitability of the customer once we get them so that we can spend more in order to get them.

So why don't we talk a little bit about some strategies that we use in order to improve the profitability of the customer. And also, I guess we should also be very clear that a lot of this topic is about, you know, in order to create better margins, it also allows us to be successful with being able to sustain up response rates that aren't what we had originally, or response rates beyond what we have to get as far as response rates. So a lot of people look at, gee, I've got to be successful, I got to get 2% response, whereas with this whole notion of better margins, sometimes you can get a half of 1% response as opposed to 2%, which allows you to live in that world very comfortably because You know, one of my favorite Dan Kennedy-isms is that the purpose of a sale is to get a customer, not to make a sale. So we want to start off with getting more customers to allow us, if we have enough of a continual back inflow, we don't have to have as big a percentage of a response if that's in place. So, Dan, why don't we talk about what are some strategies that you use in order to gain better margins?

Usually, you know, the painfully obvious one is raise the price. And you know, most marketers are usually in one way or another are underpriced. And it may be as simplistic as simply they're underpriced and if you added $4 or $9 or 40 cents or 90 cents or whatever. It wouldn't make any difference whatsoever. We've learned in the world of direct response, in solo direct mail packages where you are selling a product, let's say a weight loss product. I have a client right now I'm working with who has this margin problem, and so his core which for reasons we don't need to discuss, he has absolutely no alternative but to sell. The margin just will not support direct response. It should be 8 to 10 times cost and it's really closer to 3 times cost. So what do you do? Do you walk away from direct mail? Well, no. You start trying to figure out what else can you do, right? So in his case, there's a lot of things that can be done. We can sell a 4-month supply instead of a 2-month supply, thereby not improving the margin but at least improving the transaction size of each sale. We can add paper and ink product with high margin to it, either coupled with it or done as an upsell, which now averages out to improving the margin of the complete sale. And we can charge more for shipping and handling. We've learned in direct response that once somebody has made a decision to buy a product and they get all the way to the order form, that $4.90 shipping and handling, $9.90 shipping and handling doesn't make much difference. But we've just added $5 to the margin. And so This is sort of a creative exercise I call bridging the gap. And so you have this gap that has occurred between your cost of making the sale and at your existing margin and transaction size which you can afford to make the sale and the gap is X dollars. Most people's reaction to the gap is to simply throw up their hands in the air and walk away from it altogether. The ones who try and solve it are usually looking for one solution and you don't build a bridge out of one piece of wood. So usually it's a combination of a number of solutions that chip away at and gradually bridge that gap. So I first look to price, then I look to— ways to sort of package around the core product. And so can we get more money for shipping and handling? Can we have a basic and a deluxe version? Can we sell them 4 months instead of 2 months? Can we add something to it that has— if this has not such a good margin, what can we add to it that has great margin in the electronics business? Which everybody's experiencing because we're Christmas. You know, the margins in those products have gone into the toilet, which is why all electronics retailers very aggressively try and sell you an extended warranty. And you see businesses now selling you extended warranties on things like bookcases. Why do you need that? You don't, but They do because the margin in the extended warranty is exceptional. And so these are the kinds of things that you have to think about. I was recently in a high-end pen store and was pitched on and was looking at pens. And they have a 3-year extended warranty for the pen. For the pen. It's a pen. But it's a $99, 3-year extended warranty. Anything goes wrong with the pen, even if you lose the pen, we'll replace the pen.

Did you ask them how many people take the warranty?

Well, no, I didn't. But my suspicion is the margin in the warranty is somewhere around 90%. That would be my suspicion. And so these are the kind of things that we're constantly looking at.

Let's move on to our next item on the list, which is kind of linked to this other topic of creating better margins, which is improving the total customer value. And, you know, a lot of what we've seen— two things. Number one area to attack is the value itself of the initial transaction. And as you know, like you talked about, Dan, you know, having the A/B offer or the basic or deluxe offer. Amazing when we offer a more expensive offer how many people will take that offer. We've experienced, which has been a huge shock to us and delight by the way, that in the phenomenon the new DVD that was recently launched, we offered an additional product with that called Triggering the Phenomenon, which was a full-day seminar that Dan delivered the day before last year's Superconference. And 76% of the people took that offer of moving that sale from a $40 sale to almost $100 sale. Changed dramatically our economics around a lot and it significantly improved the customer value for us. It also made us now think in terms of making some changes to our business. Another good example that you'll be hearing from, by the way, next month is Lloyd Irving, who's a practitioner of the phenomenon, he's in the phenomenon, he's also in my InfoMastermind group. And in our recent meeting, we were discussing how he's moved in his martial arts studio. His, his, the average martial arts studio is charging $60 to $70 a month for martial arts training for, for, for young students, and his price is $340 a month. And what he did was he rebundled what he actually delivers. It now has— and has 40% of the people now taking the $340 a month option, which suggests that he needs to have yet another price higher. But he substantially is improving the whole customer total— the customer— the total customer value substantially allowing him to be able to do a whole lot more in his marketing, including his direct mail. Of course, the other thing that, again, getting back to what I said before, which is you've got to look at the purpose of the initial sale is to actually get a customer. You also want to look at is what is the customer value of work to you in order to get them. I mean, in many cases, people will break even and/or go negative. I mean, I've said it for years, but at Glaser Kennedy, we go negative on the upfront acquisition of a new member, knowing what the value of a member is to us. And so knowing what the total value of that customer is and being able to improve the value can make a world of difference in your direct response. Before we move on from there, Dan, anything you want to add to that?

Yeah, quickly. Well, one thing I would say is, just as a little piece of inside information about going negative for people, I mean, all great direct marketing fortunes— what a decade ago we would have said mail order fortunes— all great direct marketing fortunes, there are 3 things that are true about them without a single exception. One is they involve and are largely driven by direct direct mail. Two, more importantly, they all go negative in acquiring customers, you know, and are cheerfully willing to do that. And three, their direct mail customer acquisition portion of their business functions at 1/4 of a percent or less response. And so if you're going to violate any of those three— you know that you're not following a sort of time-tested, proven, overwhelmingly supported formula for success. And so most people aren't willing to go negative because in most cases they don't have their customer value act together. And customer value is a very complicated thing. It deals with the initial transaction. It deals with repetition or frequency or retention or both as it does in our business. And it deals with ascension. It deals with speed of— repeat purchase. And so, you know, the dry cleaners who gets the customer back and into a habit of coming in every 2 weeks is infinitely better off than the dry cleaner who has the customers with the habit of coming in every 6 weeks. And that won't happen by accident. That has to happen strategically. And so customer value is a very complicated thing, but it's really, really important. Important to work on all aspects of it so that you have the ability to do the things on the front end that can actually grow a business.

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