Why Response Rates Are the WRONG Way to Evaluate VDP Success.
[dropcap]S[/dropcap]ince VDP (variable data printing) was introduced more than a decade ago, the focus has been on response rates. Early market research claimed average response rates of 40% or more, and marketers achieving 20 to 30% response rates were trumpeting them loudly. Soon, these double-digit numbers became the standard by which marketers evaluated all VDP campaigns. If they didn’t see upwards of 20% response, they considered the campaign a failure. After all, with VDP more costly per piece than traditional direct mail, they figured that such response rates should be the norm.
As VDP marketing has matured, however, marketers have learned that response rates are often the wrong way to evaluate the success of a VDP campaign. And not only are 30 to 40% response rates not the norm, but they don’t need to be.
All About ROI
The success of a VDP campaign is all about ROI, not response rates alone. You can have a modest increase in response rate, but a huge boost in ROI. Let’s look at some hypothetical numbers.
In a traditional campaign, you might mail 50,000 full-color pieces at a cost of $.10 per piece to print. The average response rate to mass mailings is 0.5 to 1.5% so splitting the difference, that’s 500 responses. With each response resulting in a $75 order, that’s $37,500 in revenue from $24,500 in printing and postage. That’s not even a 2:1 ROI.
In a VDP campaign, however, mailings are often not sent to everyone in a database (unless the application is a financial report or similar application that, by design, goes to the entire customer base). Rather, the database is culled for a desired demographic for that campaign. By virtue of the highly qualified respondent base, this increases the likelihood of a higher dollar value order.
Let’s assume that the mailing has now decreased to 10,000 pieces, at $1.50 apiece. Even if the response rate increases to a mere 6% because the dollar value of the order is higher, the revenue generated is now $75,000 at a cost of $18,900 in printing and postage. That’s a 4:1 ROI! And the total costs of the campaign were 25% less than the traditional mailing.
That’s with only a 6% response rate and an average order boost of $50. Most well-designed programs will have higher response rates.
Of course, these examples are over-simplified and do not take into account the costs of design or database development and preparation. The point is simply that with even what would be considered an “unacceptably low” response rate, on a well-designed campaign, the ROI can still be spectacular. If you are dealing with high-value products, such as mutual funds, automobiles or jewelry, the average dollar order could increase substantially. Imagine the increase in ROI when you sell 3% more mutual funds or diamond bracelets.
How Do You Measure Success?
It’s also important to evaluate the success of a VDP campaign in light of the success of your previous campaigns. One banking institution, for example, was thrilled with a 3.0% response rate because its previous static campaigns had averaged only 0.4% In terms of its goals, which were to increase business customer sign-ups for its Internet-based banking administration, the bank was thrilled. And isn’t that what it’s all about?
Keep in mind that it’s not the response rate alone that determines ROI, but also total campaign cost and dollars generated per order. When developing a VDP campaign, remember to consider your goals (whether to generate revenue, to improve government compliance or to boost sign-ups to programs) and evaluate the success of the campaign in light of those goals, not some arbitrary desired response rate.