One of the questions most frequently asked by marketers new to Japan is "Which list or advertising medium will give me the highest response rate?"
I would like to suggest that the question, although well intended, is inappropriate in most cases. Here's why:
If your product sells for Yen40,000, it is certain that you will lose money up front if you must pay Yen100,000 in marketing costs for each order you get. If the cost per order (CPO) is only Yen1,000, you will probably be able to make money hand over fist. But what if the CPO is Yen10,000, or Yen20,000, or even Yen30,000?
Before attempting to estimate response rates, it is imperative that you calculate the highest allowable cost per order (HACPO). This figure may be based on your breakeven point, or on minimum profit expectations. Many companies arbitrarily set the HACPO at an amount equal to the margin between retail and wholesale prices. And HAPCO usually increases as sales increase and economies of scale come into play.
In any event, the HACPO will allow you to determine exactly what media and what response rates will be required to make your marketing effort successful.
Now let's suppose for your Yen40,000 product the HACPO is Yen10,000. Should you use newspaper advertising, magazine advertising, direct mail, or outbound telemarketing to generate sales?
A full page ad in the Nihon Keizai Shimbun will cost you about Yen15 million. At an HACPO of Yen10,000, you will need 1,500 orders to succeed.
A four-color page with a bind-in reply postcard in a national magazine will cost you about Yen1.8 million. At an HACPO of Yen10,000, you will need 180 orders to succeed.
A simple direct mail package will cost you about Yen150 in the mail, postage included. At an HACPO of Yen10,000, you will need a response rate of 1.5% (3 orders for every 200 pieces mailed) to succeed.
An outbound telemarketing phone call will cost you about Yen600 per contact. At an HACPO of Yen10,000, you will need a response rate of 6% (one order for every 17 solicitations) to succeed.
Notice that if the HACPO in this example were to double to Yen20,000, the required response for each of the above media would be cut in half. If the HACPO falls to Yen5,000, the response requirements double.
Response rates are a function of many variables, the four most important of which are: Media, Offer, Creative, and Timing. The marketer has considerable control over the latter three, but each type of direct response media tends to have its own range of reasonable response rates, as follows:
Newspaper Ads (inserts/space) 0.01% to 0.1%
Magazine Ads (full page) 0.05% to 0.5%
Direct Mail (consumer) 0.3% to 3.0%
Direct Mail (business) 1.0% to 10%
Telemarketing (business) 2.0% to 20%
These are arbitrary ranges, based on experience in Japan, which do not take into account targeting, product category, price range, and many other key factors. The ranges are given only as a starting point for evaluating the probability of success of a marketing effort in light of the calculated HACPO.
A certain publisher, for example, recently launched a publication in Japan, whose HACPO indicated a response of 0.4% would be required if direct mail were used. That is well within the range given above. The publisher never asked "Which list will give me the highest response?" He asked "Which lists will make money for me?" In a test of 14 lists, six performed at 0.5% response or better. In future mailings, only the winning lists will be used; all of them will make money.
Another marketer had a business-to-business offer with an HACPO of Yen4,000. Knowing this, it was easy to see that telemarketing would be virtually impossible. Direct mail would be plausible only if postcards were used, thus reducing the cost per mailing to about Yen80 each. On the other hand, advertising in trade magazines with circulations of 90,000 or higher made perfectly good sense. The HACPO allowed selection of media to be made based on the probability of success. It was not a question of "Which media will give me the highest response?"
In general, a low HACPO means you are better off sticking to traditional advertising and retailing, or direct sales. A high HACPO means you can use more exotic (and expensive) promotional techniques. Moreover, companies which make most of their profits off repeat business (credit card companies, frequent flyer programs, tape and record clubs, etc.) can often afford a HACPO which exceeds the net price of their product/service and use any media they choose.
So the next time you plan a direct marketing campaign, start by calculating the HACPO. Then ask not what lists/media can get the highest response, but what lists/media can make you money.