Telemarketing: Overview

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The telephone was first used as a sales tool in the early 1900s, when industries such as steel and financial services began to employ the new device to contact current and potential customers. It was not until the late 1970s, however, that telephone technology became sophisticated enough for centralized call centers to make sense economically.

Telemarketing, as it has come to be known, began in the early 1980s. In 1981, total business expenditures for telemarketing exceeded the dollars spent on direct-mail advertising for the first time; by 1987, spending on telemarketing was more than double that for direct mail ($41.2 billion vs. $17.2 billion), according to the American Telemarketing Association.

Growth trends

Several trends contributed to the growth of telemarketing during the 1980s. These included the ever-higher cost of personal sales calls, which made telemarketing more attractive, especially in a business-to-business environment; advances in telecommunications, computers and database management, which decreased costs and increased efficiency; consumer acceptance of 800 numbers, which led to a rise in inbound telemarketing; and a growing body of successful inbound and outbound telemarketing campaigns, which led more companies to try the phone as a sales tool.

By 1985, there were 50 telemarketing service agencies in the U.S.—some companies used these third-party calling centers while others set up in-house operations—that employed a half-million people. A decade later, the number of agencies had grown to 900, with 60% having staffs of 50 or more; total agency employment was 4.5 million. The number of telemarketing operations, in-house and outsourced, in the U.S. rose from fewer than 80,000 in the early 1980s to 565,000 in 1995.

By the mid-1990s, U.S. businesses, including financial service, technology, automotive, insurance and telephone companies, spent nearly $90 billion a year on telephone marketing. The ATA estimated that the telephone generated more than $280 billion in sales of goods and services to 81 million Americans.

By the beginning of the 21st century, virtually all consumer marketers had set up 800 numbers for inbound telemarketing purposes. This toll-free service allowed consumers to call with questions, an occasion that often provided the marketer additional sales opportunities. Since 1967, when AT&T Corp. introduced the first 800 number service, the dialing prefixes have been expanded to include 888 and 877. In 1980, AT&T introduced the first 900 number service, which requires callers to pay a fee for use-usually an upfront charge followed by per-minutes rates-but allows them to voice their opinions as well as receive information.

Meanwhile, outbound telemarketing remained strong for both business-to-business and business-to-consumer purposes. As of 2000, there were approximately 69,500 in-house and third-party call centers in the U.S., according to Datamonitor, an international market research company; the Direct Marketing Association estimated industry employment at 5.6 million and sales of goods via telephone marketing at approximately $585 billion.

More than 1 million calls per hour

In 2000, the top 10 telemarketing companies together had the capacity to make more than 1 million calls per hour. That capacity is continually enhanced by new technologies such as predictive dialing, an automated system that allows sales representatives to spend their time only on calls that are answered rather than on dialing and waiting for the phone to ring, and computer-telephone integration, which allows sales representatives to access information about the customers with whom they are speaking.

Telemarketing is increasingly entwined with both database marketing and Internet-related sales efforts, which allows a closer match between the corporate message and the consumer's desires, translating to higher sales. The Internet has boosted the number of inbound telemarketing calls, as consumers turn to the Web for customer service and information on purchases and then use the telephone to order.

Despite this progress, the industry has not been able to shake the disreputable image that has persisted since its earliest days. In the late 1990s, the U.S. Justice Department estimated that telemarketing fraud cost consumers $40 billion to $50 billion each year, or about 10% of the legitimate sales over the telephone at the time. As of 2000, annual fraud costs had increased to an estimated $60 billion.

Con artists tend to target older Americans for phone fraud. In 1999, the American Association of Retired Persons (now known by the acronym AARP) estimated 56% of telemarketing fraud victims were age 50 or older; this group accounted for 36% of the population.

In the late 1990s, AARP began a campaign to fight fraud. The U.S. Postal Inspection Service, the Federal Trade Commission, the Department of Justice and other organizations joined in with a campaign called Project Know Fraud. A postcard warning consumers about telemarketing fraud and how to protect themselves from it was sent to 118.8 million addresses and was promoted by President Bill Clinton in his weekly radio address.

Aside from outright fraud, telemarketing also endures a bad reputation because many people simply do not like to have their lives interrupted by sales calls. A 2000 Shopper Report survey found that 93% of U.S. households polled wanted to stop receiving telemarketing calls entirely (not just at inconvenient times such as dinnertime) and that 85% felt strongly about their opinion.

Name removal lists

The DMA telephone name removal list grew from 900,000 to 2.5 million names in less than a year in 1999, nearly as many as the 3 million on the DMA's mail preference service file, which is intended to reduce the amount of "junk mail" received by consumers. By 2000, the telephone removal service was up to 3.2 million names. The DMA attributed the growth to the use of predictive dialers, which may cause panic in call recipients because, if no operator is available, the line goes dead when answered, leading recipients to assume that they are the target of prank callers or thieves.

In 2000, several states set up their own do-not-call lists, each with significant penalties. New York, for example, required all telemarketers to purchase a copy of its list and fined them $2,000 for each listed name they call. Tennessee had a similar list with the same penalty, for which 380,000 residents, or 20% of the 1.9 million residential telephone service subscribers in the state, signed up soon thereafter.

In October 2003, the National Do Not Call Registery was launched by the Federal Trade Commission. More than 50 million phone numbers had been registered before the Oct. 1 start date.

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