The following is an excerpt from the Direct Marketing Association’s 2005 Customer Prospecting and Retention Report. David Shepard, president of Dix Hills, NY-based David Shepard Associates, developed and analyzed the results for the DMA. To learn more about the report, visit www.the-dma.org.
If there’s one thing direct marketers should be expected to know how to do, it’s track investments in new customers acquisition–both up-front response and back-end performance–and calculate return on investment.
Admittedly, some media are more difficult to track than others, but we would anticipate the overwhelmingly majority of direct mail users to report that they track both response and back-end performance by key code and are therefore able to calculate their ROI on direct mail.
Surprisingly it turns out that only about half of the consumer respondents track both response and value. A third track just response—not a good idea in situations where profitability depends on long and profitable customer life. Consumer firms are significantly more likely than business-to-business companies to track direct mail by cost and value per new customer at the key code level.
Given all the talk one hears about lifetime value and customer equity at conferences and seminars, these results are truly alarming. Our immediate reaction to the data is that the averages simply reflect the number of new companies now part of the direct marketing community rather than the hard-core traditional direct marketers. These marketers use direct mail as one of many channels of customer acquisition. But a quick look at the results within the consumer segments suggests that this phenomenon of not tracking results by cost and value is fairly widespread.
As you move away from direct mail, the results tend to get worse. For example, within the consumer only segment, the percent tracking both response and back-end performance drops from half doing it in direct mail to a third tracking response from print advertising.