June 2006 - The Fulfillment Factor

At today’s fulfillment centers, storing and shipping products isn’t the half of it. Their gold mine of information and metrics can make or break a DR campaign.

By Jack Gordon

Steve Edelstein calls the fulfillment operation “the foundation of every direct marketer’s business.” He may be prejudiced, as managing director of Fosdick Fulfillment Corp. of Wallingford, Conn., but he has a point. “If the product doesn’t go out the way it’s offered to the customer,” he says, “you’ll hear from the customer every time.”

By the same token, though, processing and shipping orders to buyers is only the foundation of the fulfillment business; it is far from the whole story. The fulfillment house is the buyer’s main point of contact with the product supplier, and thus, a treasure trove of information and metrics that can make or break a direct response (DR) marketing campaign. This applies in spades if the fulfillment house also operates the campaign’s call center.

Thanks to advances in computer technology, fulfillment houses have become much better and faster at feeding that priceless information to the marketer and to the agencies that handle “creative” and media buying. Ask practically any fulfillment executive about the single biggest change in the business over the past few years, and the answer will boil down to this: Clients can get much more information, in many more forms, a whole lot faster than ever before.

And the data collected and reported by the fulfillment house will be better protected against potential fraud and identity theft, adds Rollie Froehlig, citing another major change in the business over the past five years. “Security is a much bigger issue,” says Froehlig, president of National Fulfillment Inc. of Lebanon, Tenn. “Marketers are more aware of the obligation to protect customer data. There are new procedures in place that weren’t thought of a few years ago.”

Hal Altman, president of Motivational Fulfillment Inc. of Chino, Calif., summarizes the faster/better change as a switch to “electronic daily reporting,” often on a 24-hour web site available to the client. This allows DR marketers to “review all phases of their fulfillment anywhere, any time,” Altman says. Marketers can review their inventory daily and get information that lets them plan their media buys more efficiently. “Combine that with a more sophisticated reporting system for continuity and installment programs,” he says, and data that once took days to compile is now available almost instantly. “The client is able to do business in real-time.”

Real-time reporting is enormously valuable to marketers, says Andy Arvidson, owner of Imagine Fulfillment Services (IFS) of Torrance, Calif. “With detailed data right at your fingertips,” he says, the marketer and its agency can analyze customer orders and a campaign’s financial performance, enabling accurate, up-to-the-minute sales forecasting. “And if you’d like to analyze customers by state or geographic region to [prepare] a direct mailer or an e-mail blast,” Arvidson adds, “the information is right there.”

Though DR marketing has always been a metrics-driven business, Edelstein reflects that “it used to be very ‘siloed.’” Marketers and agencies, he says, “ordinarily didn’t work closely with the fulfillment house or even the call center. The call center, merchant processing, fulfillment, the print buyer, the TV buyer-it all used to be separate. Now it’s integrated.”

Today, marketers and agencies are “consumed by metrics,” Edelstein says. “For years, we sent out reports, but the only thing people looked at was, ‘What are my sales?’ Now they’re slicing and dicing data, and putting together different scenarios-not because they want to but because they have to. Media is more expensive, product costs are higher, backend costs are higher-you have to be smarter now to succeed.”

One reason the direct response business is getting tougher, most fulfillment executives agree, is that traditional brick-and-mortar retailers are flooding into the DR space. “Larger, more cash-sufficient companies tend to drive up media costs, pricing out the pure DR players,” observes Douglas Bushong, president of The Jay Group, a fulfillment house based in Lancaster, Pa. “We’ve already seen this with the pharmaceutical verticals moving [into direct response television advertising], eating up lead-generation time and brand-awareness time on the air.”

Pharmaceuticals are far from the only examples. “We’ve seen a huge shift in brick-and-mortar retailers moving to the DRTV medium to create brand awareness and drive more foot traffic into stores,” Bushong says. He points to products ranging from Procter & Gamble’s Swiffer WetJet mop and Clorox’s Oxygen Action cleaning solution to lead-generation campaigns for Mutual of Omaha insurance and the Toyota Tercel.

So enthusiastic have major retailers become about direct response marketing, says Froehlig, that “my business today is probably 30 percent Fortune 1000 companies. Years ago, they wouldn’t have dreamed of doing DR.”

Even among smaller DR players, Froehlig says, “the marketing model prevalent today has changed so that after [a DR campaign], you take the product to retail.” As for “the big guys,” he says, they now use DR to promote products already in retail stores.

The influx of traditional retailers may be a headache for pure DR players but for fulfillment houses, it’s an opportunity. Where once they shipped products almost solely to individual buyers, Froehlig’s operation and others now routinely ship to stores and distribution centers as well. “I call that the golden problem,” he says.

Edelstein points out, however, that combining DR campaigns with retail sales adds complexity to the data-management issue and pushes fulfillment houses further into the role of integrated communication centers. For instance, he cites Certa’s Perfect Day Sleeper mattress, sold mainly through resellers but also, beginning last year, via DRTV, radio DR and print.

“Certa needs information about all those channels,” Edelstein says: “media dollars spent, expenses of fulfillment vs. margins, inventory, how DR balances with the retail channels.” He calls it a “phenomenal logistics exercise,” further complicated by the timing required to build an individual bed and coordinate accessories “so that everything arrives at the same time.”

Technology also is changing the way buyers begin their transactions with DR marketers. Customers who dial the 800-number in response to a DR advertisement now sometimes find themselves dealing with an interactive voice response (IVR) or speech-recognition system instead of with a human agent.

Handling a call via IVR can be cheaper than paying a person, even if the person is in India or the Philippines. As far as most fulfillment executives are concerned, however, the jury is still out with regard to these systems’ effectiveness and the variables that determine whether IVR is a good choice for a particular campaign.

“We switch to an IVR system when we are overloaded with calls or when we’re closed,” says Altman. “Our clients are split on the success of IVR vs. live operators at the point of order. Some are even testing one against the other. I think it’s too early to say that one method is the clear winner. Cancellations, returns and, of course, conversions of calls to sales still have to be studied.”

As for what types of products or campaigns lend themselves well or poorly to IVR and voice-recognition systems, however, Altman sees some patterns emerging. For instance, he says, “I believe that products with a continuity upsell or multiple installment payments [are sold more effectively] by live operators.”

The prevailing opinion is that IVR works best for inexpensive DR products for which the offer is very clear and uncomplicated. “If IVR is right for your product, it can work extremely well,” says Arvidson. “But the [sales] process must be simple and fast, and the offer must be very clear. Otherwise, you’ll just increase the costs to your customer-service lines.”

If the product needs a lot of explanation or if it has a high price point, Arvidson says, you’re probably better off with a human operator. But regardless of the product or the offer, the design of the IVR system is critical, he adds.

To avoid frustrating buyers, a well-designed system “should get the customer what is needed in a few simple steps. Some IVR systems allow callers to switch to live operators during business hours, which can be the best of both worlds,” Arvidson notes.

Bushong offers a different caution. “The marketing of consumer goods is intended to create a connection between the consumer and the product,” he says. When callers speak to a live operator, “that presents the opportunity to create an ‘experience’ and build the brand by [letting the consumer] walk away feeling appreciated and valued. This is very hard to deliver with an IVR or other non-human technology.”

Smart DR marketers don’t just want to hear what’s going right with their campaigns. They want to know what customers are complaining about. Here is where the fulfillment center’s role as a source of immediate and ongoing information is especially vital.

For one thing, Edelstein points out, fast action based on accurate data about customer complaints can keep those complaints from “escalating to a federal agency.”

Altman points out that complaints come in many forms. Customers can express specific dissatisfaction with the product, or they can be unhappy because they found it cheaper at a retail outlet. “But consumer complaints also come in disguised as simple returns,” with no explanations offered, he says. In that case, more digging is necessary. Whatever the problem, alarm bells should go off immediately at the fulfillment center, and communication with the marketer should be swift and sure.

How does that work? “If we find a pattern in the calls complaining about the quality or appearance of the product, we immediately stop shipping and inform our clients of the concern,” Altman says.

Depending on the problem, the fulfillment house can run a quality check on the remaining inventory in the warehouse. In the case of cosmetics and ingestibles such as vitamins or weight-loss products, Altman says, “we keep track of every bottle or tube by manufacturing-lot number and expiration date. If there has to be a recall, we can limit it by only dealing with the product involved by date and lot number. And we can contact our client the same day these complaints come in to see what action they want us to take.”

Capabilities like that make the fulfillment house a critical partner in a DR campaign. But the potential can be tapped only when communication lines are wide open between the marketer and the fulfillment house-and when the marketer actually pays attention to something besides, “How are my sales?”

Jack Gordon is editor at large for Electronic Retailer magazine. We would appreciate your feedback. To submit comments, please e-mail the magazine at [email protected].


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