The DM Essays: Dennis Kerslake, the chief executive officer of Publicis Dialog

Dennis Kerslake of Publicis Dialog believes an emphasis on planning rather than measuring results will give DM campaigns a much better return on investment.

The direct marketing industry has fared better than most through the difficult commercial environment of the past few years. The promise of greater measurability, and therefore greater accountability, has been an attractive proposition for hard-pressed clients under pressure to justify marketing expenditure. But if direct marketing, as a discipline, is to remain an attractive option for clients, those of us working in agencies need to raise our heads and ensure that we are in touch with issues that are business critical to our clients.

One of the main business-critical issues being, of course, the effectiveness of marketing expenditure - not just in the sense of return on investment on a particular mailing or programme but in the broader sense of its ability to make a real impact on consumer behaviour. Making the case up front for marketing investment is becoming the real challenge.

An ever-more microscopic analysis of past results by segment, by channel, by project, has led us into a downward spiral of introspection that can only hold back direct marketing's influence in the future. We have become so caught up in getting the cost per contact down to a level where a 1 per cent response can still provide a return, that we are missing the central benefit and promise of direct marketing.

Surely direct marketing's great promise lies not in the short-term numbers game, but in the idea of creating more profitable customer connections based on real insight into different customers' needs, different customers' potential, and the appropriateness of different channels through the customer journey.

Only by understanding these issues can marketing investment be optimised.

And surely with this understanding, we ought to be able to move from a simple historical analysis of success or failure to a more forward-looking process for planning expenditure. I happen to believe that we can.

Now pay attention - here comes, as Jennifer Aniston would say, the science bit. When it comes to making marketing investment decisions, we may need to make tough choices about which brands to support, which customer segments to target or which channels to develop. One would like to believe that the application of marketing funds to a particular brand or customer segment would have a positive impact on revenues.

It is commonly accepted that this revenue response will follow an "S-shaped curve". From a base level of revenue, the application of marketing investment will generate an increase until a saturation point is reached, at which point no matter how much more investment is made, revenues will no longer grow (unless a new market paradigm is created). It is apparent that the steeper the curve, the greater the rate of return.

This type of curve, or Marketing Investment Response Function as we call them, can be deduced for all brands in a portfolio, or all potential customer segments to be targeted, thus providing the basis for intelligent comparative choices to be made. There may be contribution or margin issues to take into consideration but these can also be mapped in the same way. Clearly, accurate plotting of the potential Marketing Investment Response Functions is the clever bit. To do this we employ three key tools. Historical data analysis and econometric modelling certainly. Second, something called Delphi, and, finally, a technique that seems to have been abandoned in recent times - real market tests.

The Delphi process is the interesting bit, originally developed for the US military for forecasting the impact of decisions in complex environments, and now a methodology used in business planning. Used in a workshop format, involving all potential stakeholders in the client's business, it brings the intuitive skills of the marketer to bear on the extrapolations developed by the statisticians. It allows "what if?" scenario planning to take place - "what if I transferred 10 per cent of my budget from Segment A to Segment B?" Or (dream on!) "what if I doubled my investment behind Brand X?"

This process combines the statistical rigour associated with direct marketing today with the entrepreneurial spirit typified by the great direct marketing pioneers.

In a world of finite or shrinking resources, and an ever-expanding choice of weapons in the armoury, this type of planning is of incredible value, and can bring a greater degree of certainty of success than the more "hunch-based" approach - "try it, see what happens and hope we can improve next time".

This is only part of the story, of course. Having decided where the investment should go, the question remains how best to spend the money. But that's the creative bit, and the model for that is a little more informal. However, by following a robust process for making those difficult investment choices in advance, perhaps we can loosen the creative leash a little and allow ourselves to produce work that really connects with the consumer.

The ingrained principles of the best direct marketers, to interrogate customer differences or channel effectiveness to establish how we create profitable long-term customer connections, will stand the industry in good stead for a future in which marketing investment will come under increasing scrutiny. Direct marketing and direct marketing agencies will continue to prosper because they provide clients with what they are surely looking for more than ever today - creativity that works and commercial responsibility.

I bemoaned earlier the abandonment of real market tests, a technique which is at the heart of direct marketing. But in today's commercial environment, perhaps there simply isn't the time or the willingness to "try and see".

The new accountability is in planning the future rather than measuring the past.


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