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Direct Marketing

 Direct marketing uses consumer-direct channels to

reach and deliver offerings to consumers without

 Direct marketing is growing and offers consumers key


 Firms are recognizing the importance of integrated direct

marketing efforts.

Direct marketing techniques
• Direct mail - material distributed via the postal service to
a recipient’s home or business to promote a
• Direct response advertising - standard broadcast and
print media designed to generate a direct response, e.g
an order or personal visit.
• Telemarketing - a direct personal, verbal approach via
some kind of written or visual method.
• Mail order - the purchase of products featured in
advertising or selected from a catalogue.
• Teleshopping - home based shopping.
Direct mail - the advantages

• Targeting - for example using the post code, targeted

campaigns can be developed using geographical /
demographical criteria.
• Personalisation - large numbers of personalised
mailings can be undertaken regularly.
• Response rates can be high.
• Flexibility of creative scope.
• Can hold attention of reader/recipient.

Applications of telemarketing
• Generate leads.
• Screen leads before follow up.
• Arrange opportunities for representatives.
• Direct sales.
• Encourage cross / up selling.
• Dealer support.
• Account servicing.
• Market research.
• Test marketing.
Hunter Business Group: Team TBA

 STAR OIL, 1992 - primary business of selling gasoline
was facing stiff competition
 Tire, Battery and Accessory business was providing an
unusual support
 The presence of Star Branded TBA products multiplied
the gasoline sales 4 times
 TBA product line was unprofitable
 top management wished to discontinue the TBA product
line but could not

HBG formed a TBA team and made following changes:-

 Reduction in no. of FSRs from 83 to 18 (16 from team TBA and 2

from Star)
 Direct Mail, Telephone orders and Field Sales force was integrated
to give a consistent and better communication to the dealers
 It was agreed that operating costs would be halved to 17.75% of
revenue within an year
 Star would not receive any profit below $20 million sales. However,
above that 2% of revenues were given to Star
 Vendors were consolidated on value delivery and not only price

HBG estimates that the business will take a hit in 1994
due to Persian War and conversion of gasoline repair
shops to convenience stores.

The total sales will be only $16 million and taking the
COGS, remaining costs put a constraint on marketing and
direct selling budget of $1.34 million.

Strategy 1 – Freezing the fixed assets
Strategy 1

% of '93 % of '94
1993 revenues 1994 revenues

Revenue 20 16
COGS 16 80 12.8 80
Gross margin 4 20 3.2 20
Operating Cost 3.55 17.75 2.84 17.75

Fixed Cost 1.5 42.253521 1.5 52.8169

Sales and Marketing Cost 2.05 1.34

Operating Income 0.45 2.25 0.36 2.25

 Fixed costs cannot be changed – Since the rent, misc.
expenses in HQ and salaries of office personnel is
 Since, none of the facilities is shut down, the revenues
can be generated easily more by volumes and customer
loyalty can be tapped more easily

 Sales expenditure is the lowest - $1.34 million
 Salaries and sales force has to be cut which will have serious
demoralizing issues
 The no. of Gold a/c conversions will also go down subsequently
and this will hit the margins even more
 Field sales force cannot be eliminated entirely since the Gold a/c
conversion is majorly possible because of field services. Also, the
effectiveness of telemarketing and direct mailing as against FSRs
is questionable
 Expanding telemarketing and direct marketing facility would ensue
even more fixed costs and loss of face and customer loyalty if the
move fails (sunk cost)

 Strategy 2 – Keeping the Fixed costs at 40-45%
Strategy 2

% of '93 % of '94
1993 revenues 1994 revenues

Revenue 20 16
COGS 16 80 12.8 80
Gross margin 4 20 3.2 20
Operating Cost 3.55 17.75 2.84 17.75

Fixed Cost 1.5 42.253521 1.28 8

Sales and Marketing Cost 2.05 1.56 9.75

Operating Income 0.45 2.25 0.36 2.25

 Fixed cost expenses go down to $1.28 million as against
$1.5 million in the first strategy
 The expenses on the side of TBA team will have to be cut
which does not necessarily mean a reduction in the
reimbursements of FSRs and their nos.

 $1.56 Million will be left for the sales and
marketing which is still less than the salaries to
be paid.
 Sales force has to be cut
 The FSRs cut back may also lead to cut backs on
other fields like direct mailing and tele marketing

 Strategy 3 – Hybrid Approach

Strategy 3

% of '93 % of '94
1993 revenues 1994 revenues

Revenue 20 16
COGS 16 80 12.8 80
Gross margin 4 20 3.2 20
Operating Cost 3.55 17.75 2.84 17.75

Fixed Cost 1.5 42.253521 1.2 7.5

Sales and Marketing Cost 2.05 1.64 10.25

Operating Income 0.45 2.25 0.36 2.25

 Reduce sales and marketing and fixed costs by 20%.
This leads to maximum allowable marketing spend of
$1.64 million out of the all the three scenarios
 Fixed costs are the lowest at $1.2 Million of all the three
 This gives them a leeway to adopt strategies to adopt the
gross contribution margin to reward the FSRs instead of
revenue approach
 No. of Gold A/c can be increased suitably in order to
maximize revenue stream and hence, the assortment of
TBA products

 Terminating C & D accounts is not a good suggestion
since they generate good revenues.

 Tires and Batteries may be the highest contributors to

revenues but very few dealers sell them.

 Smaller dealers prefer to avoid them since it

becomes a scenario of ‘all eggs in one basket’.

 Follow the hybrid strategy by keeping the fixed costs at 80% of
original costs
 Totally eliminate FSRs from B dealers. These dealers must be
serviced solely by direct mailing and telemarketing only
 Sales compensation structure should be changed to gross
contribution margin approach which will ensure that the salesmen pay
from themselves by getting higher prices from the dealers. For this
brand image must be strong and the products must have a pull.
 Concentrate on converting all A and AA into gold a/c.
 FSRs should be concentrated only on A and AA dealers. This way we
eliminate a lot of cost associated and possibly nos. also
 Segment D can be totally eliminated since they have the highest E/R
ratio (7.64, under perfect conditions)