Optimizing Direct Mail Effectiveness Through Predictive Modeling

Alissa Henderson is a Direct Marketing Strategist and Kaitlin Wren is a Data Analyst for the Data, Insights and Research department at Strategic America.

Direct mail has long been a prominent marketing tactic, but with the recent increase in postage costs, companies are rightfully questioning its effectiveness in reaching customers. At Strategic America, we decided to put direct mail to the test by utilizing data-centric strategies to determine its impact on our clients’ key performance indicators (KPIs) and whether it is still effective for our clients despite the cost increases.

The test

In Q4 of 2023, we initiated a hold-back test in four selected markets to gain comprehensive insights into the current role of direct mail in the customer journey. We ran our normal marketing tactics in the designated territory but only sent direct mail to half of it. Our goal was to see if direct mail provides an overall lift to the quantity and quality of leads, sales, cost per lead, and overall return on marketing investment.

We identified four markets to execute the hold-back test. The zip codes were split evenly for each territory considering sales and gross leads from 2021-2023 to ensure a fair test. We mailed half of the zips in the territory (DM Target Group) and did not mail the other half of the territory (Hold Back Group). We split our overall spend, giving 100 percent of the direct mail budget to the DM Target Group and evenly splitting the rest of the marketing budget between the two groups, ensuring the Hold Back Group didn’t receive direct mail, but still received other marketing tactics.

Key findings

The results proved to be insightful. The DM Target Group exhibited a notable increase in several crucial metrics — including a 12% boost in leads, a 25% surge in sales and a 20% rise in won leads. However, we also saw a higher cost per lead and a lower return on marketing investment. This was to be expected given the higher cost to run direct mail in the DM Target Group. When we compared these results to the same test run in 2018, however, the difference was greater. This is largely due to the many increases in paper and postage costs over the years.

Despite the cost challenges, our findings reaffirmed the effectiveness of direct mail as a marketing tool. Moving forward, we advocate for using direct mail in a more highly targeted manner to help control expenses and optimize return on marketing investment. By using a more sophisticated approach in targeting efforts, it will allow us to better meet the needs of potential customers and gain a competitive edge in the market.

Harnessing predictive modeling for enhanced marketing

We developed a regionalized, socioeconomic predictive model to identify prospective customers’ high confidence. This model uses key data elements that provide insight into consumer behavior, financial status and household characteristics, which are crucial for predicting the likelihood of conversion. The result is a highly accurate prospecting tool with a 90% predictability rate, helping our client target the right audience — thereby improving marketing efficiency and boosting sales outcomes. Implementing this model for one of our home products and services clients increased the response rate fivefold.

In conclusion, our experiment underscored the value of direct mail in the marketing landscape. By combining data-driven insights with predictive modeling, companies can refine their targeting strategies, enhance customer engagement and stay ahead of the competition in an evolving market environment.