Junk Mail…Does It Really Work?

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The picture displayed is a recent collection of our typical Monday weekly ‘junk mail’ delivery…yes all 31 pieces of advertising flyers, brochures and catalogues…all rubber-banded together in the one pile…lucky it fit into the mailbox frankly.

My observation from the past year or so seems there is no let up in general volume of junk mail and current volumes are the most I have ever seen – although it did seem to die down considerably some years back (at least in our area), and so I pose the question of it having a renaissance.

But can any business have the ability to measure a junk mail programs success. I’ve filtered through the internet and there is very little study done in this area so I am putting forward my own assumptions and calculations. But first, here’s what I could find….

A Study By the University of Sydney (back in 2012) concluded…

There are plenty of reasons that people do not like junk mail.

“It’s bad for the environment, it is unauthorised use of private property for commercial gain – it’s my mailbox, doesn’t belong to any of the retailers, how dare they use my property for their commercial gains?” says Charles Areni from Sydney University’s marketing department.

“I don’t know how many times you come home from a walk and you find all these things stuffed in your mailbox and you can’t get to the regular mail. Where’s the bill that I have to pay? Well it’s stuffed in between all this junk mail, I can’t even find it.”

Professor Areni has been studying the effectiveness of junk mail. His research, which is about to be published in the Journal of Marketing Communications, measured the effectiveness of direct marketing campaigns for larger discount stores.

He says there is a reason junk mail persists in an age where there are so many alternatives: apparently, it works.

“They definitely got bang for their buck,” he said.

“In one case a sandwich toaster sales increased tenfold when that product was featured at a discounted price in the mail catalogue compared to when it was not featured, and of course we varied both the timing of the catalogues and which stores featured that product and we found a reliable increase and it was a huge one.”

He says it almost certainly works for other types of retailers too. But how can it be effective when so many people say they throw it out as soon as they find it?

Professor Areni says it is because just enough people find a catalogue for an electronics store in their letterbox when they want to buy a television, for example.

He says the catalogues show up in the right letterbox often enough to make it worthwhile.

“It is annoying because probably 95 per cent of what we get in our mailbox is entirely irrelevant, it is junk, but that 5 per cent that is relevant to what we’re planning to buy or where we’re planning to shop, it provides sales, and that’s why retailers are going to continue doing it,” he said.

So, out of all that, there’s a suggestion that 5% of people are reading something in the advertising that’s relevant to a buying decision they may soon be making, or a shop they plan to visit.

 

OK, So lets say I’m a local area retailer and I have 5000 homes in my local area to distribute to…and that’s 5000 homes I’m allowed to deliver to (that dont have ‘No Junk Mail’ on them)

Assumption 1. Volume and Repetition

So most would agree that a ‘one off’ mail delivery would be rather ineffectual, and so a campaign of somewhere around 4 – 5 weekly deliveries would be needed to create an appropriate awareness and prompt a buying action. So I’m sending out 5000 brochures, 4 times, spaced a week apart, making a total of 20,000 brochure deliveries.

Assumption 2. Quality of Design and Offer

There is no doubt that no matter how many times you send out advertising messages, if you have a bad message/offer designed and displayed poorly, it will have little or no effect. So this assumptive campaign has good design and a standard/typical discount sales offer.

Assumption 3. Product Gross Profit

My sales offer is 10% off storewide (OK, so not that well thought out). My average sales price is $50 and as I have a 100% markup on my cost price (common mark up, but often more) my full RRP sale generates $25 Gross profit. However, the 10% off sale means I will be losing $5 off my average $50 sale price therefore reducing my Gross profit down to just $20 per sale ($25 – $5).

Assumption 4. Campaign Response

This is a tough one to be precise at. I have seen figures bandied around that suggest a 1% effectiveness to a 5% effectiveness. I’m going to set my response rate at 0.5% cumulated over the 4 mail-outs. So the last mail-out will have a 2% success response (response being a sale at the average price)

Assumption 5. Program Costs

I am familiar with printing and delivery costs, so using an average of quotes from 4 printing providers, The 20,000 A4 flyers will cost me $910 (incl.)

Delivery charges around our neck of the woods is common at $40 per 1000, therefore giving a campaign total of $800 (incl.)

Accordingly, my total mail-out campaign cost will be $1,710 (incl.)

Therefore, knowing the above will cost $1710 and my average gross profit per sale is $20, I will need to make 86 extra sales to break even (1710/20).

So, week 1.
5000 brochures to 5000 homes delivered, giving a 0.5% response – 5000/0.5% = 25 sales

Week 2.
5000 brochures to 5000 homes delivered, giving a 1.0% response – 5000/1.0% = 50 sales

Week 3.
5000 brochures to 5000 homes delivered, giving a 1.5% response – 5000/1.5% = 75 sales

Week 4.
5000 brochures to 5000 homes delivered, giving a 2.0% response – 5000/2.0% = 100 sales

Based on those assumptions, and the key assumption would be the campaign response rate, I would return 250 extra sales for the 4 weeks. Thats an extra 164 sales over the campaign break-even point (250-86) therefore providing a net campaign profit of $3,280 (164 sales x $20) – That’s a 91% ROI

Of course we could scale up or down certain figures in the assumptions and get very different results. Ie:

  1. 0.5% response was not cumulative then there would only be 100 extra sales over the campaign which is still 14 sales over break even ($280)
  2. Based on the 250 sales, if my average sale was increased to $75 with a 10% discounted gross profit, I would have a $30 GP per sale and therefore my campaign net profit would be $5790
  3. As above, if my average sale was just $30, then with an adjusted and discounted sales price I would have a $12 GP per sale – multiplied by 250 sales still gives a net campaign profit of $1,290. ($3000 – $1710)

Of course, there are more effects on the business than a short term campaign profit. There is the extra customers it brings in and if you have good business and customer service practices, then they will have a considerably higher ‘lifetime value’ to your business, plus the branding you would get from such a campaign.

What I do find interesting is that major retailers such as Coles/Woolies/Kmart/Target etc. have been ‘junk mailing’ to the letterbox for years. I guess with all their resources and analytics they must know what works and what doesn’t…?

What are your thoughts….

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