While direct mail has seldom been used within the FMCG sector in the past, evidence shows that it can be an effective channel for FMCG brands, particularly in the current environment. More and more organisations are recognising the value in using customer data to drive marketing communications, spurred on by the pressure to increase the effectiveness of communications and the demands that media fragmentation is placing on reaching consumers cost-effectively.

You’d be hard pressed to attend a marketing seminar or open a marketing magazine these days without hearing about media fragmentation. There are more TV channels, radio stations, magazine titles and newspapers than ever before. And while television audiences are shrinking, the costs keep rising. People are harder to reach cost-effectively.

There’s also been a lot of noise in recent years about the measurement of marketing. Shareholders and boards are demanding marketers demonstrate the return on marketing investment. Indeed the Australian Marketing Institute has been working for the past couple of years on developing a set of metrics by which to measure marketing activities. Measuring the effectiveness of marketing is of paramount importance for organisations. In the recently released 2007 Starcom Media Futures Survey, all national advertisers emphasised the importance of ROI measurements to inform them of the effectiveness of their campaigns.

At the supermarket there are more brands than ever before competing for shelf space and share of shopping basket. Product life cycles are becoming shorter, driven by the demand for increasing product innovation and variety. Brand proliferation and shortened life cycles mean there is less budget to deliver results. The spread of supermarket house brands across more and more categories is placing incredible pressure on FMCG brands to remain noticed and relevant to consumers. Indeed the growth of house brands has become the number one concern of retailers, according to a recent ACNielsen survey of 130 senior executives from packaged goods companies.

Compounding these changes in media consumption and at the supermarket, consumers are changing their shopping and purchasing habits. People are working longer hours and, due to the increase in mobile phone and computer technology, often remain ‘at work’ even when they are at home. In many two-parent households, both parents work. All this leaves little time for recreational activities like TV viewing. Eight seconds is all the time the average person spends looking at products on the supermarket shelf, once they have determined their need for an item, and the decision on which brand to buy actually takes less than two seconds. The key challenge for brands is to have won the battle of choice before the customer even enters the supermarket.

In a nutshell, FMCG brand managers are doing it tough. And increasingly they are looking to data-driven marketing as a solution. Organisations such as Nestlé and Unilever have in recent years recognised the value in data driven marketing.

Rebecca Gloede, customer manager – Coles Group from Unilever Australasia, explains, “Within Unilever, consumer data is taking a greater role in day-to-day brand communication as we strive to build stronger relationships with our brands.”

But the evolution of data-driven marketing within the FMCG sector has not been without its challenges. “The amount of data within FMCG has often been a barrier,” admits Gloede. “Potentially tens of millions of purchase occasions can occur in a 12-month period, across millions of consumers and dozens of brands.”

Advancements in data technology and analytics have, however, significantly improved the situation. “In more recent times, better data interrogation and segmentation have enabled the mass of data to be fine-tuned so that specific consumers, such as lapsed users, can be targeted through direct mail with specific offers,” says Gloede.

And when it comes to sending targeted communications to consumers, the letterbox remains an ideal way to reach them and influence their behaviour. Almost 90 percent of Australians receive addressed mail each week and people take notice of and act on mail – even promotional mail, where 70 percent of the promotional mail received by households is either read, filed or passed on to someone else in the household, according to the Roy Morgan Single Source Survey.

Gloede sees the main advantage of direct mail as its targeting. “The key benefit is to be able to specifically target discrete groups of consumers with specific communications, tailored to their situation – usage habits, demographics, etc.” She goes on to say that the developments in laser printing have enabled individuals to be cost-effectively approached in a personal way with a relevant message.

Direct mail is also a perfect vehicle to close the sales loop. “One of the key challenges facing FMCG marketers is gaining a strong emotional connection with consumers that serves to not only build the brand image and reputation, but also to serve as a call to action to buy the product,” says Gloede. “TV and glossy magazines go a long way to build the emotional appeal of the brand, but this may not necessarily translate to conviction of purchase at the point of sale. This is where direct mail can play a strong role – by being able to directly target specific consumers with an offer that will entice them to commit at the point of sale.”

A study conducted in the UK confirms the impact that mail can have on sales within the FMCG sector. The research, undertaken by Dunnhumby for Royal Mail, demonstrated that direct mail can increase sales by 21 percent, representing an average two percent brand share gain and almost five percent more consumers. More significantly, there was an average long-term in-store sales uplift of 12 percent, which suggests a shift in behaviour. The study reviewed communications sent by 31 leading FMCG brands that included categories such as hair care, pet foods, coffee, cleaning products, canned foods, condiments and snack foods.

While the case for direct mail may be strong, it can still be a challenge for some FMCG brands to take the first step. With limited brands having undertaken direct mail historically, its application may not be fully understood within this sector and some organisations may be reluctant to change the proven model, one that has traditionally been focused above the line. Also, establishing a customer-centric marketing model can take time, and this sector (as the name suggests) is renowned for wanting things to move quickly.

One way that FMCG brands can jump on the direct mail bandwagon, if they are wary of going it alone, is through the Coles Group and its FlyBuys database. In 2005 the Coles Group established a data warehouse across its entire group of companies to capture daily transactions. This data was combined with the FlyBuys database to provide a thorough understanding of FlyBuys and non-FlyBuys customers. The data is updated daily in terms of transactions and there is now over two years worth of data down to the individual product purchased as well as where and when that purchase took place.

Kate Nurse, campaign business manager at the Coles Group, explains, “In the past, if you wanted to buy a list of potential FMCG prospects, it was often out of date and expensive per contact. FMCG marketers can now access the FlyBuys database, which has all the names and addresses of their prospect customers as well as up-to-date transaction history.”

This type of information is useful for organisations seeking to better understand the behaviour of their customers. By having this in-depth knowledge at an individual level, FMCG brands are able to target their campaigns and communicate with their customers one-on-one, rather than having to rely on mass channels.

“Generally, FMCG marketers are unable to communicate one-on-one with their customers,” says Nurse. “They tend to use TV, radio and other above the line media that are often hard to measure and make it difficult to reach their core customer.”

Nurse sees the key benefits in using direct mail as its ability to profile, target and measure marketing activities. “Businesses can target exactly who they want to talk to, they can profile different segments of customers and they can measure their activities – all the while limiting their cost exposure,” she says.

Coles segments and profiles the database to ensure the right targeting and develop postcard templates, which are emailed to the client’s agency. The copy and creative is developed by the agency and sent back to Coles. Coles then manages the printing and mail processing as well as providing the reporting and analysis.

And, so far, direct mail appears to be paying off for the FMCG brands that have used it. Coles has conducted over 30 campaigns to 3.5 million FlyBuys customers. “We’ve now been running for over 18 months and already we’re achieving around an average overall 10 percent response rate. We’re very excited with the results we’re seeing,” says Nurse.

“One particular campaign we did for Unilever was to build loyalty of the entire Dove range by targeting existing and lapsed Dove soap purchasers. We achieved a great result of 16.9 percent response rate versus a 4.1 percent control group response. Thats a lift of 12.8 percent or, in simple terms, the offer was taken up by almost one in five targeted customers. We always use a control group that contains similar customers who do not receive the promotion.”

Another success story was a postcard mailing for Continental that achieved a response rate of 23.6 percent against a control group response of 15.6 percent. Other brands that have also had success with FlyBuys and direct mail include Vogel, Finish, Pedigree and Sunsilk.

In considering direct mail, Gloede provides the following advice for other FMCG brands. “Collect data in the most efficient manner – online, for example – to reduce data entry costs and collect lots of it! Then use good packages to interrogate the data to identify key segments to target. Don’t try to reach everybody all the time.”

Although it has previously been overlooked by FMCG brands in the past, direct mail is now demonstrating its strength in this sector. More and more organisations like Unilever are realising the powerful results that can be gained through a better understanding of their customers and using this knowledge to drive personal communications. It will be interesting to watch this sector, as well as other traditional above the line sectors, over the next few years, to see just how many brands will turn to direct mail as an effective way to help achieve their marketing objectives.