Direct response garners biggest piece of marketing budget

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Almost half (42.9%) of b-to-b marketers' total budgets go to direct response communications, while 16.1% is allocated to brand advertising and 13.7% to trade shows, according to the Direct Marketing Association's first benchmarking survey focused exclusively on the b-to-b space.

"Regardless of how you segment the budget, direct response takes the most budgetary allocation, more than twice as much as any other form of marketing," said Yoram Wurmser, research manager-research and market intelligence at the DMA.

Within direct response, direct mail receives the largest budget share (27.5%), followed by online marketing (18.8%). Trade shows and catalogs garner 15.9% and 15.7%, respectively. Telemarketing gets 12.1% and new media—RSS, blogs and the like—just 1.5%.

Among other findings, 65% of resources are devoted to new customer acquisition and 35% to retention. Citing conventional wisdom and his experience as a former client-side marketer, Wurmser said it is more expensive to acquire new customers.

"It's much easier and more effective and cheaper to retain customers," he said.

However, the proportions are not the same when it comes to revenue.

"Generally speaking, direct marketers have found that you're more likely to get more of your revenue from existing customers," said Peter Johnson, VP-senior economist-research and market intelligence at the DMA. "You get an imbalance where the promotional [investment] is skewed in terms of acquisition, but the revenue payoff is ultimately skewed in favor of retention."

Johnson added that "every marketer has to ask themselves: 'Is my allocation of budget between acquisition and retention where it should be?’ "

"The question should be if so much of your revenue comes from existing customers, why spend anything on acquisition?" he said. "But in the real world, customers do go away. You're always losing customers and they have to be replaced by new customers. You'll probably spend more on acquisition than you would like in an ideal world, but it's not an ideal world," Johnson said.

Ruth Stevens, president of Emarketing Strategy, a b-to-b direct marketing consultancy, said she was disappointed but not surprised that companies are not investing more on retention marketing.

"That's where your profits come from and you need to spend accordingly," she said. "Marketing communicators I think get attracted to the glamour of prospecting when, in fact, the revenue comes from current customer marketing."

Michael Lintell, director of future of mailstream for corporate strategy group at Pitney Bowes said that one of the reasons more marketing resources are directed toward acquisition is heightened focus on growth in organizations. "Putting more resources up front into acquisition marketing supports companies' initiatives around growth," he said.

Lintell said once a business relationship exists, there is often more focus on lesser cost channels for retaining that customer. "The use of other channels and a broader mix of other channels for retention which are not as costly can often be employed," he said. E-mail is one example of a less costly channel for retention. "E-mail is a lot cheaper than direct mail but tends to be less effective [for acquisition]," Lintell said. "If you have an existing relationship, retention marketing by e-mail is more welcome by the customer."

The results of the study were first presented at the DMA's annual Direct Marketing to Business Conference in Orlando last month [April 17, 2007]. The survey was fielded online in January and February and had 299 respondents.

This report is intended to be the first in a new program of b-to-b research the DMA is undertaking. "There's a whole new agenda here that this report sets the table for, and now with a better picture of the b-to-b landscape, we can look for additional insights that will help b-to-b marketers," Johnson said.

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