Chapter 5: The Value of a Name

Overview

The names and addresses of ultimate consumers have always been valuable in direct marketing, if you know how to use them. But not all names are valuable.

In the last 20 years, we have discovered that the names and addresses of purchasers of packaged goods sold in retail stores have almost no value. This is because you can’t profitably use direct mail to get people to buy packaged goods in retail stores.

What could I do with a clean, household database of all the families in the United States that use Ivory Soap? I could lose a lot of money. Database marketing is incremental. You are already selling Ivory Soap in retail stores. Your assumption is that, by sending direct-mail messages, you might sell a little bit more Ivory or a little bit more of another P&G product, perhaps 10 percent more. When you look at the cost of direct mail, you will soon learn that you are dead wrong. Ivory Soap is selling in some supermarkets at $1.29 for four bars. The profit on those four bars is obviously tiny. A 10 percent increase would be even tinier. A good response to direct mail is 2 percent. There is no way that direct mail could possibly increase sales sufficiently to pay for itself when promoting most packaged goods.

This is true not only for Ivory Soap but for almost everything sold in a supermarket, office supplies store, hardware store, or department store. Manufacturer after manufacturer has tried promotions with rebates by direct mail. They have collected thousands of consumer names and addresses in this way. None of them has figured out a way to make money from those names.

That does not mean that consumer names are worthless for direct mail. Catalogs obviously work extremely well. Supermarkets profitably send circulars that get customers to come back, or to shop on Tuesday night. Names of parents of new babies are very valuable indeed. What does not work well is the two-step direct-mail process for regular packaged goods: Send consumers a direct-mail letter inviting them to go to a retail store to buy the product. If you use TV, radio, or print to do this, it works like gangbusters.

Why are the names of packaged goods purchasers worthless? There are several reasons:

• Certificate redemption is very slow—it takes up to 6 months to find out what is happening.

• To make a profit, you need repeat sales (low margin). You can’t redeem a certificate for every sale, or you would go broke. So you never find out about the subsequent sales.

• There is no way to figure out if you are succeeding. When people buy packaged goods at a retail store, their purchase may be captured by the store when the product is scanned. If the store has a proprietary card, it may know that Helena Hughes bought a tube of Crest toothpaste on August 17. But the store won’t tell Crest about it because of privacy considerations. The small amount that Crest might pay for the information would not compensate for the bad public relations if Helena found out that her name was being used and complained about it publicly. Retail stores simply will not sell this information. They have been burned, and they know better.

• Crest doesn’t want the information, anyway, because it can’t figure out how to use it to make a profit.