In his article, Rieck provides copywriters with nine important tools for their copywriting tool boxes.  These nine tools are just a few of the many copywriting tools required to write sales letters that motivate consumers to respond to your offer.

Other tools discussed in previous newsletter articles include:

• Storytelling format
• Callouts
• Underlining
• Handwritten margin notes
• The Johnson Box
• The P.S.
• Word length (smaller words are better)
• Sentence length (shorter is better)
• Paragraph length (shorter is better)
• Letter length (long versus short letters)
• Closing
• Signature

When crafting your sales letter, don't overlook the importance of the signature at the bottom.  Too often, letters either omit the name of the sender or show the name of a non-existing person.  Why is this?

In most instances company executives don't want their name appearing at the bottom of a sales letter for fear of receiving phone calls and letters from recipients.  This is a very shortsighted perspective but a real one, nonetheless.

Every sales letter should come from a real person at your company.  The sender's signature can be scanned or a signature font selected to give the impression that the letters are hand-signed.  Using a different color ink - often blue - for the signature is another way to imply authenticity.

Determining "who" should sign the letter is an important decision.  Should it be the company president, an executive vice president, the sales manager, a branch manager, or someone else?  It really depends on the situation.  There is no one right answer to this question.

For example, let's assume a bank is introducing a new product via a direct mail campaign to both customers and prospects.  Letters going to prospects might be signed by the bank's president while letters to current customers might be signed by the local branch manager. 

One approach to this dilemma is to consider whose name and signature you would prefer to see at the bottom of a sales letter from a company whose products and services you buy and use. 

In the final analysis, the right answer can only come from testing.

And above all, make sure the letter signer reads and approves your letter before it gets mailed to the target audience.

It's safe to say that the sales letter is the most critical component of your envelope direct mail package.

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Focus On Design

"Nobody sells like a satisfied customer" goes the old marketing axiom.

Hence the value of word-of-mouth or viral advertising.

What better way to capitalize on this bit of marketing truth than to build your ads around a customer testimonial.

This is the approach being taken by the marketing folks at USAA - the large financial services company located in San Antonio, Texas. 

From its humble origin as a simple automobile insurance company in 1922, USAA has grown to become - according to its website - "the only fully integrated financial services company in America." 

Today, member-owned USAA offers over 150 products and services to over 5.6 million members world-wide . . . and all from one office in San Antonio.  That's right - a mega-bank with only one branch. 

Your newsletter editor began seeing the USAA ads in his local newspaper, The Sacramento Bee, several months ago.  They now appear quite frequently, with each one promoting a different product or service.

The first ad shown below, promoting the USAA rewards card credit card, appeared in the Sunday, October 15, 2006 issue of the Bee.  As you can see, the ad is one giant testimonial from a couple who've been USAA members since 2000. 

This particular ad, measuring 5 ¾" x 10 ¼" is smaller than the earlier newspaper ads which measured a robust 10 ¼" x 11 ½."

Similar testimonial ads appeared on both the inside front and back covers of USAA's 48-page, Fall 2006, issue of its members magazine.  The second ad shown below appeared on the inside back cover.

Note how the copywriter uses the customer's testimonial quote as the headline for each ad.  Using customers to do the company's selling is a powerful approach to marketing.

For many years USAA's primary approach to marketing was direct mail . . . and today the company continues to aggressively use direct mail to solicit new customers and cross-sell to existing customers.

As a USAA member since 1970, your newsletter editor can attest to the marketing prowess of this innovative and aggressive company.  Hardly a week goes by without a piece of mail arriving at your editor's home.

The company's recent move into mass media marketing with its consistent use of the unique testimonial ads is further proof of its marketing expertise.

You can learn more about USAA by visiting the company's website at http://www.usaa.com.  For more customer testimonials, click on the "Member Testimonials" link near the top of the home page.

Consistently rated one of the top financial services companies in the nation, you can learn more about the many top ratings by clicking on the link "Awards and Ratings" appearing near the top of the home page.

Next time your company is considering a newspaper and/or magazine ad campaign, remember the power of USAA's testimonial ads.

Let your satisfied customers do your selling for you.

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Marketing Terminology Made Simple

Consumers prefer the products they already own to new products - even if the new products are better.

It's called the "endowment effect." 

It's a major reason why most new products struggle for acceptance, with many ultimately failing.

The "endowment effect" and "status quo bias' were introduced in the article by John T. Gourville, "Eager Sellers & Stony Buyers - Understanding the Psychology of New-Product Adoption," which appeared in the June 2006 issue of the Harvard Business Review.

In a prelude to his article, Gourville notes, "Many innovations fail because consumers irrationally overvalue the old and companies irrationally overvalue the new."

Last week was the first of six installments covering this article.

If you read last week's first installment, you may elect to skip down to the bold subhead which reads:  The Psychology of Gains and Losses.

First time readers should continue reading.

Gourville, an associate professor of marketing at Harvard Business School, begins his article, "More than a century ago, Ralph Waldo Emerson is reported to have said, 'If a man can write a better book, preach a better sermon, or make a better mousetrap than his neighbor, though he builds his house in the woods, the world will make a beaten path to his door.'

"If only marketing innovations were that simple.

"In today's hypercompetitive marketplace, companies that successfully introduce new products are more likely to flourish than those that don't.  Businesses spend billions of dollars making better 'mousetraps' only to find consumers roundly rejecting them. 

"Studies show that new products fail at the stunning rate of between 40% and 90%, depending on the category, and the odds haven't changed much in the past 25 years.  

"In the U.S. packaged goods industry, for instance, companies introduce 30,000 products every year, but 70% to 90% of them don't stay on store shelves for more than 12 months.  Most innovative products - those that create new product categories or revolutionize old ones - are also unsuccessful.

"According to one study, 47% of first movers have failed, meaning that approximately half the companies that pioneered new product categories later pulled out of these businesses.

"Consider three high-profile innovations whose performances have fallen far short of expectations:

• "Webvan spent more than $1 billion to create an online grocery business, only to declare bankruptcy in July 2001 after failing to attract as many customers as it thought it would.

• "In spite of gaining the support of Apple's Steve Jobs, Amazon's Jeff Bezos, and many high-profile investors, Segway [See sidebar on Dean Kamen's Segway scooter in last week's issue] sold a mere 6,000 scooters in the 18 months after its launch - a far cry from the 50,000 to 100,000 units projected.

• "Although TiVo's digital video recorder (DVR) has garnered rave reviews since the late 1990s from both industry experts and product adopters, the company had amassed $600 million in operating losses by 2005 because demand trailed expectations.

"After the fact, experts and novices alike tend to dismiss unsuccessful innovations as bad ideas that were destined to fail.  But surely that's too simple an explanation.  If these innovations are so misguided, why isn't it obvious before the fact?

"Webvan was backed by seasoned retailers, executives, and investment bankers, but it was nonetheless a spectacular failure.

"While the Segway and TiVo stories have yet to play out fully, both company executives and industry analysts were far more optimistic about those innovations than they should have been.

"Why do consumers fail to buy innovative products even when they offer distinct improvements over existing ones?  Why do companies invariably have more faith in new products than is warranted?

"Few would question the objective advantages of many innovations over existing alternatives, but that's often not enough for them to succeed.  To understand why new products fail to live up to companies' expectations, we must delve into the psychology of behavior change.

"This article presents a behavioral framework that explains why so many products fail and outlines some actions that companies can take to improve their chances of success.

"New products often require consumers to change their behavior.  As companies know, those behavior changes entail costs.  Consumers incur transaction costs, such as the activation fees they have to pay when they switch from one cellular service provider to another.

"They also bear learning costs, such as when they shift from manual to automatic automobile transmissions.  People sustain obsolescence costs, too.  For example, when they switch from VCRs to DVD players, their videotape collections become useless. 

"All of these are economic switching costs that most companies routinely anticipate.

"What businesses don't take into account, however, are the psychological costs associated with behavior change.  Many products fail because of a universal, but largely ignored, psychological bias:  People irrationally overvalue benefits they currently possess relative to those they don't. 

"The bias leads consumers to value the advantages of products they own more than the benefits of new ones.  It also leads executives to value the benefits of innovations they've developed over the advantages of incumbent products.

"That leads to a clash in perspectives:  Executives, who irrationally overvalue their innovations, must predict the buying behavior of consumers, who irrationally overvalue existing alternatives.

"The results are often disastrous:  Consumers reject new products that would make them better off, while executives are at a loss to anticipate failure.  This double-edge bias is the curse of innovation."

The rest of the article is presented under the following five subheads:

1.      "The Psychology of Gains and Losses

2.      "Building a Behavioral Framework

3.      "Balancing Product and Behavior Changes

4.      "Accepting Resistance

5.      "Minimizing Resistance"

This week we'll cover what Gourville wrote about the psychology of gains and loses.

The Psychology of Gains and Losses

According to Gourville, "Companies have long assumed that people will adopt new products that deliver more value or utility than existing ones.  Thus, businesses need only to develop innovations that are objectively superior to incumbent products, and consumers will have sufficient incentive to purchase them.

"In the 1960s, communications scholar Everett Rogers called the concept 'relative advantage' and identified it as the most critical driver of new-product adoption.  This argument assumes that companies make unbiased assessments of innovations and of consumers' likelihood of adopting them.  Although compelling, the theory has one major flaw:  It fails to capture the psychological biases that affect decision making.

"Gains and losses.  In 2002, psychologist Daniel Kahneman won the Nobel Prize in economics for the body of work that explores why and when individuals deviate from rational economic behavior.  One of the cornerstones of that research, developed with psychologist Amos Tversky, is how individuals value prospects, or choices, in the marketplace. 

"Kahneman and Tversky showed, and others have confirmed, that human beings' responses to the alternatives before them have four distinct characteristics.

"First, people evaluate the attractiveness of an alternative based not on its objective, or actual, value but on its subjective, or perceived, value.

"Second, consumers evaluate new products or investments relative to a reference point, usually the products they already own or consume.

"Third, people view any improvements relative to this reference point as gains and treat all shortcomings as losses.

"Fourth, and most important, losses have a far greater impact on people than similarly sized gains, a phenomenon that Kahneman and Tversky called 'loss aversion.'

"For instance, studies show that most people will not accept a bet in which there is a 50% chance of winning $100 and a 50% chance of losing $100.  The gains from the wager must outweigh the losses by a factor of between two and three before most people find such a bet attractive. 

"Similarly, a survey of 1,500 customers of Pacific Gas and Electric revealed that consumers demand three or four times more compensation to endure a power outage - and suffer a loss - than they are willing to pay to avoid the problem, a potential gain.  As Kahneman and Tversky wrote, 'losses loom larger than gains.'

"The endowment effect.  Loss aversion leads people to value products that they already possess - those that are part of their endowment - more than those they don't have.  According to behavioral economist Richard Thaler, consumers value what they own, but may have to give up, much more than they value what they don't own but could obtain.  Thaler called that bias the 'endowment effect.'

"In a 1990 paper, Thaler and his colleagues describe a series of experiments they conducted to measure the magnitude of the endowment effect.  In one such experiment, they gave coffee mugs to a group of people, the Sellers, and asked at what price point - from 25 cents to $9.25 - the Sellers would be willing to part with those mugs. 

"They asked another group - the Choosers - to whom they didn't give coffee mugs, to indicate whether they would choose the mug or the money at each price point.  In objective terms, all the Sellers and Choosers were in the same situation:  They were choosing between a mug and a sum of money.

"In one trial of this experiment, the Sellers priced the mug at $7.12, on average, but the Choosers were willing to pay only $3.12.  In another trial, the Sellers and the Choosers valued the mug at $7.00 and $3.50 respectively.  Overall, the Sellers always demanded at least twice as much to give up the mugs as the Choosers would pay to obtain them.

"Similar experiments with goods as diverse as lottery tickets, hunting licenses, and fine wines have shown that people demand two to four times more compensation to give up products that they already possess than they are willing to pay to obtain these items in the first place.  This shows that people irrationally overvalue goods in their possession over those they don't have by a factor that is very close to three.

"Status quo bias.  Kahneman and Tversky's research also explains why people tend to stick with what they have even if a better alternative exists.  In a 1989 paper, economist Jack Knetsch provided a compelling demonstration of what economists William Samuelson and Richard Zeckhauser called the 'status quo bias.' 

"Knetsch asked one group of students to choose between an attractive coffee mug and a large bar of Swiss chocolate.  He gave a second group of students the coffee mugs but a short time later allowed each student to exchange his or her mug for a chocolate bar.  Finally, Knetsch gave chocolate bars to a third group of students but much later allowed each student to exchange his or her bar for a mug. 

"Of the students given a choice at the outset, 56% chose the mug, and 44% chose the chocolate bar, indicating a near even split in preferences between the two products.  Logically, therefore, about half the students to whom Knetsch gave the coffee mug should have traded for the chocolate bar and vice versa. 

"That didn't happen.  Only 11% of the students who had been given the mugs and 10% of those who had been given the chocolate bars wanted to exchange their products.  To approximately 90% of the students, giving up what they already had seemed like a painful loss and shrank their desire to trade.

"Other experiments have demonstrated the existence of the status quo bias in people's choices relating to investments, automobiles, and jobs.  Those experiments also reveal that the status quo bias intensifies over time.  While Thaler and his colleagues estimated the extent of loss aversion to be approximately a factor of two when students had owned the coffee mugs for a short while, other researchers have found that the magnitude of the bias rises, over time, to a factor of approximately four.

"Interestingly, most people seem oblivious to the existence of the behaviors implicit in the endowment effect and the status quo bias.  In study after study, when researchers presented people with evidence that they had irrationally overvalued the status quo, they were shocked, skeptical, and more than a bit defensive. 

"These behavioral tendencies are universal, but awareness of them is not."   

Next week we'll present what Gourville wrote about building a behavioral framework.

Harvard Business Review

Reprints of Harvard Business Review articles are available, online, for a fee at http://www.hbr.org.  If you wish to obtain a copy of Gourville's article, request Reprint R0606F.

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About Marketing ROI

ROI tip of the week:  Know which company websites are the most consumer-friendly, easy to navigate, and consumers like most so you can learn from these sites. 

For example, a recent website study by the Customer Respect Group found that the Intel and Sears sites treat customers best, while the Wells Fargo site rated highest for site usability.

This information appeared in the article by Melissa Campanelli, "Review:  Intel, Sears Treat Customers Best," which appeared in the September 18, 2006 issue of DM News.

Campanelli writes, "Intel and Sears Roebuck treat online customers best, according to the Customer Respect Group's annual review of the 100 largest U.S. companies.

"The report analyzed the largest 100 companies as defined by Fortune magazine in April.  Intel and Sears had scores exceeding 7.5 on a 10-point scale.  The average rating for companies was 5.7.

"'Sears did generally well across the board in terms of trust aspects, customer communications and their site being relatively easy to use,' said Terry Golesworthy, president of Customer Respect Group (www.customerrespect.com).  'Intel was basically better than Sears in terms of usability and privacy and trust, but they weren't as good in communications.'

"Customer Respect Group, Ipswich, MA, published the review September 11.  The study assigns each company a Customer Respect Index rating, which is a qualitative and quantitative analysis of a customer's experience when interacting via the Internet.

"It tracks usability, such as how usable the site is to a range of users; communication, such as the company's willingness to provide customer service in one-on-one communication to respond to specific questions; and trust, such as whether the site can be trusted with consumers' data.

"For site usability, Intel, Johnson & Johnson and Wells Fargo rated highest.  This area included tests for the level of support for users with disabilities.  The top 100 averaged 6.6 for usability. 

"In communications and responsiveness to online inquiries, the best-rated sites belonged to Bank of America, Hewlett-Packard and Sprint.  The top 100 averaged just 4.9.  As for trust, the sites judged best were Procter & Gamble, Intel and IBM.  The top 100 averaged 5.6.

"Other findings from the study:

• "The largest 100 U.S. companies appear to be gathering more personally identifiable information, but the use of that information is changing.  Fewer firms share personal data with outside organizations, but more than half continue to send unsolicited marketing e-mails to those that supply personal information for other reasons.

   

• "Companies made strides in answering e-mail queries but struggle to lower turnaround times.  Only 13 companies consistently sent helpful replies within 24 hours.  Yet the number of helpful replies rose markedly.  This suggests conflicting pressures of rising e-mail volumes and a desire to give helpful replies, a process that sometimes takes too long.

   

• "The companies remain slow in adopting generally accepted Web guidelines to make sites more accessible for users with disabilities.  Only 14 percent provide text in navigation buttons with strongly contrasting colors.  And though creating ALT-tag descriptions for images is considered one of the easiest accessibility aids to implement, only 42 percent of home pages contained one for every image."

Website Access for Users with Disabilities

If your website isn't easily accessible for consumers with disabilities, you should be aware of a recent federal court ruling on this matter.

An update on the access issue was discovered in a separate, front-page DM News article by Melissa Campanelli, "Target Case Raises Bar for Web Businesses," also appearing in the September 18 issue.

The following information appeared in the first three paragraphs.  "A federal ruling Sept.6 requires online businesses to meet the terms of the Americans With Disabilities Act just as offline businesses have had to do under the 1990 law.

"The ruling lets a lawsuit by the National Federation of the Blind against Target Corp. proceed.  The suit in U.S. District Court for the Northern District of California charged that Target's site at www.target.com is inaccessible to the blind and therefore violates the ADA, the California Unruh Civil Rights Act and the California Disabled Persons Act.

"'What this means is that any place of business that provides services, such as the opportunity to buy products on a Web site, is now a place of accommodation and therefore falls under the ADA,' said Kathy Wahlbin, director of user experience for Washington-based Mindshare Interactive Campaigns LLC (www.mindshare.net) and an expert on accessibility."

The entire article is available online on the back issues landing page at http://www.dmnews.com/cms/dm-opinion/dm-views.html.

The Customer Respect Group

The latest survey information on financial services companies is available on the company's website at http://www.customerrespect.com.  On the left-hand side of the home page, click on the link "Latest Industry Reports" under the heading "Browse Research." 

On the landing page, you'll see a box on the right side of the page.  Inside the box click on the link for "Financial Services" and the Fourth Quarter 2006 survey results page will appear.

DM News

DM News is a weekly newspaper devoted to direct response, database, and Internet marketing.  You can obtain a free subscription by visiting the DM News website at http://www.dmnews.com.  DM News Online is available on the same website.

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Bank Marketing Research

Has marketing research finally worn out its welcome?

Can today's results be trusted?

If you are making marketing decisions based on primary or secondary consumer research, you should definitely read today's article.

The fatigue factor was the subject of the front-page article by Jack Neff, "They hear you knocking, but you can't come in," which appeared in the October 2, 2006 issue of Advertising Age.

Neff's subhead reads, "Clutter crises:  Consumers grow weary of marketers and their endless surveys."

Neff writes, "MARKET RESEARCHERS want Rob Pairan, but he doesn't want them.

"The Cincinnati administrative assistant gets two to three market-research calls weekly at home, and he's fed up.  Usually he ends the call quickly.  'Sometimes, when I'm in the mood, I toy with them a little,' he said.  'I pretend I don't understand what product they're talking about.'

"He's part of a growing nightmare for marketers - consumers with opinion fatigue who reject almost all attempts at poling.  It's a problem so big it brought 30 of the top executives in market research to Chicago on Sept. 28 for a roundtable at the Research Industry Summit for Improving Respondent Cooperation.

"There, the heads of five leading global research companies and top research executives from the likes of Procter & Gamble Co., General Motors Corp., IBM and McDonald's for four hours hashed over a problem stunning in its scope, if uncertain in its impact.

"After all, no one really knows whether people who don't answer surveys are similar to those who do, because they don't answer surveys.  But the industry does know nonrespondents tend to be disproportionately male, black, Hispanic and young (30% of households headed by consumers 25 and younger now only have cellphones and are impossible or highly expensive to reach by phone).

"Though no truly global figures are available, almost every researcher has seen participation erode in recent years, with rates under 10% increasingly common.  Surveys tend to poll the same people over and over, often 'professional respondents' who go hunting for research for dollars.

"Just 0.25% of the population supplies 32% of responses to online surveys, said Simon Chadwick, former head of NOP Research in the U.K. and now principal of Cambiar, a Phoenix consultancy, citing research by ComScore Networks.  More broadly, he said, 50% of all survey responses come from less than 5% of the population.

"That leaves lingering suspicions that survey research may be getting less reliable.  'We're perpetuating a fraud,' Mr. Chadwick said.

"Yet when ComScore presented its findings that only a thin slice of the population accounted for the majority of research, it couldn't sell marketers on paying more for a panel free of professional respondents, said Gian Fulgoni, chairman of ComScore.

"'It's like the hole in the ozone layer,' said Shari Morwood, VP-worldwide market research at IBM.  'Everyone knows it's a growing problem.  But they just ignore it and go on to the next project.'

"Tremendous Issues

"Not all marketers think it's a problem.  'A low response doesn't necessarily lead to a biased response,' said Michelle Salazar, VP-global brand and business research at McDonald's.  'You might be right, but we don't know,' said Jim Lochrie, general director-North American marketing research at GM.  The automaker can consistently get the same results from two surveys, he said, but that doesn't mean both aren't biased the same way.

"P&G can't always get even that much reliability, despite spending $200 million among 600 vendors who do its survey-related research.  Kim Dedeker, VP-consumer and market knowledge at P&G, presented one example in which online and mail surveys on an instant-coffee concept come up with diametrical results.

"'If I had only had the online result in this particular case, I would have taken a bad decision right to the top management,' she said.

"In another case, two surveys a week apart by the same online researcher yielded different recommendations.  'We're having tremendous issues moving from concept to launch,' Ms. Dedecker said.  Research that qualifies projects for millions of dollars in advertising and capital investment sometimes is contradicted by other studies just before rollout.

"While she was careful not to blame online research or specific vendors, she said the problems boil down to 'integrity and methodology,' with respondent-participation problems one possible factor.  'I'm not sure we're aligned on the nature of the disease we're treating,' she said.

"Nor were participants aligned on a solution.  Online research - once touted as a way to improve respondent cooperation - now may be making it worse.  While it's easier to respond to online surveys, it's also easier to crank them out, leading more consumers to tune them out, said Patrick Glaser, director-respondent cooperation for the Council for Marketing and Opinion Research.

"Bill Lipner, chairman-CEO of Insight Express, suggested a $50 million industry war chest to market the importance of participating in market research, which several participants said would be impossible to raise and possibly ineffective.

"VNU's Nielsen Media Research has actually seen respondent rates rise from 36% to 45% in the past five years, said Paul Donato, chief research officer.  That's largely because it pays respondents handsomely for their two-year commitments - so handsomely that Mr. Donato acknowledged that some on the Media Research Council think it may bias results - allowing panelists to buy cable subscriptions and DVRs.

"Ironically, no one in a roomful of market researchers suggested researching what might best persuade nonrespondents to participate, though Dennis Murphy, VP of the technology practice at Directions Research, said it's time to find out how different nonresponders really are from responders - something largely neglected since the 1970s.