Telemarketing

Author: Alan C. Dube

Date: 8/29/95

Telemarketing

Introduction

This paper presents a comprehensive analysis of telemarketing, defining what telemarketing is and discussing the methods used to manage the process, the components of a telemarketing organization, and the information technology required to run an efficient operation. The paper concludes with some brief examples of how telemarketing was successfully used by several corporations, and addresses factors that affect the future use of telemarketing by the business community.

Telemarketing Defined

Burns (1987) defines telemarketing as "human resources combined with telecommunications technologies in order to increase sales, profits, customer service, and productivity in a professional manner" (p. 1). Telemarketing has two sides -- inbound and outbound. Inbound telemarketing (e.g., catalog orders, technical support) is mostly run through 800 toll-free IN- WATS (wide area telecommunications service) numbers. Outbound telemarketing (e.g., charity and credit card solicitations) uses OUT-WATS lines (Newton, 1993). Telecommunications equipment, such as automated outbound dialers, voice processing technology, and automatic call distributors, have been developed to automate and enhance most telemarketing applications.

The use of telemarketing as an effective sales and service tool is widespread. Statistics indicate that the yearly sales of goods and services by phone totals well over $150 billion, with a projected annual growth rate of 15-20% between now and the year 2000. Nearly 265,000 U.S. companies will be using telemarketing in the near future. Two factors have primarily fueled this growth:

While costs of all other marketing media have dramatically risen, telemarketing costs have gone down.

New developments in telemarketing technology have made it more attractive than other marketing methods, especially when used in conjunction with conventional methods as part of an overall marketing campaign (Linchitz, 1990).

Given these success factors, the question is not "why" companies should use telemarketing, but "how" it should be implemented.

Methodology

Making the Decision

As with any business decision, the decision to use telemarketing should be made only after a careful and detailed needs and return-on-investment (ROI) analysis. The use of telemarketing should fit into a company's overall business plan, objectives, budget, and culture. The market share that telemarketing will capture, which could be either national or local depending on the scope of the business objectives, should be estimated. The market should be known, segmented, and identified to provide a clear understanding of its customer demographics. The costs of alternative methods of conducting business (e.g., direct mail, mobile sales force, etc.) should be compared to the projected telemarketing costs. Above all, the product or service to be sold using a telemarketing campaign should fit in with the technique; Direct selling of livestock, land, or custom-tailored suits over the phone does not make a whole lot of sense.

Internal vs. external servicing.

Once the analysis is completed and the decision to use telemarketing has been made, the next step is to determine the start-up costs of a telemarketing effort. Because the support technology involved with telemarketing, such as computers, software, databases, phone equipment, and human communicators, is so expensive, a decision by management needs to be made upfront: Should telemarketing be developed and done internally, or should an experienced, external telemarketing service center be used?

There are distinct benefits to using an external telemarketing organization: lower risk, technological and professional experience, quick setup time, and expertise in communication. The main benefit of developing an internal telemarketing capability is that of control: product differentiation and specialization, list and campaign confidentiality, and long-range planning (Blanc, 1988). Generally, developing a telemarketing function internally is more cost effective over a long period of time. The internal vs. external decision should be ultimately reached based on a company's size, sales volume, the complexity of its products and services, its competitors, the size of its sales force, and its expectations for growth.

The Telemarketing Center

The heart of a telemarketing unit within a company is the telemarketing center. Here the telemarketing staff, directed by a telemarketing manager as a clustered group, generates a high volume of calls and activity. Gone are the "boiler rooms" of the past: Special attention is now paid to the ergonomics of the call center in order to maximize productivity, job satisfaction, and sales. Workspace needs to be spacious (especially if computers are used), private and quiet, but somewhat open to allow direct supervision and monitoring of telemarketing activities. Lighting should be keep as natural as possible to help reduce stress, tension, and fatigue. Chairs should be comfortable, and headphones should be used to allow the telemarketer to enter orders or capture information about the customer into a telemarketing system.

Staff selection and training.

Good telemarketers must have specific qualities to succeed. Among these are voice quality (i.e., tone and diction), integrity, persistence, and the ability to handle rejection, constructive criticism, adjust quickly to situations, deal with a rapid pace, and get along with difficult people (Linchitz, 1990). Once a staff with such qualities is selected, they must be trained on time management, product knowledge, equipment operation, and data-capture procedures. Role playing exercises are often used to motivate telemarketers and prepare them for production environments and variety of inbound and outbound assignments.

Inbound Telemarketing

Inbound telemarketing has become prevalent in corporate America as a means of extending customer service, and is especially effective when combined with a direct mail or television advertising campaign and 800 toll-free access. Most consumers prefer to conduct business with companies that offer inbound service, and are more likely to conduct future business as a result of a previous "successful" customer-service contact (Burns, 1987).

Inbound telemarketing is often used to take orders, but can also be an effective way to answer consumer questions and requests for product information, and obtain information about the consumer. An inbound number offers consumers a way to get a quick response when they want it, saving time and money, as well as building goodwill. The benefits of an inbound system are important to the telemarketing unit and corporation as well: it maximizes revenue-producing calls while minimizing nonproductive calls, and allows for tracking of an inbound call (usually by question, zip code, specific 800 numbers, extensions, or names) to measure the success of the campaign. The growth of the catalog and "shop at home" industries can be attributed to advances in inbound telemarketing technique and technology.

Outbound Telemarketing

Many corporations view outbound telemarketing as an intrusion on the consumer, and thus avoid the practice. However, outbound telemarketing, when properly executed, is no more intrusive than a personal call from a field salesperson. Outbound telemarketing is an inexpensive way to initially contact the consumer, or to follow up on an inquiry or direct-mail response. It is also one of the quickest ways to improve a company's cash flow.

Companies who engage in outbound telemarketing can minimize any disruptions by properly managing how and when they contact a potential customer. Outbound operations need to pay strict attention to customer data, determining what products should be offered and how often the customer should be contacted, based on consumer demographics. Telephone lists need to be constantly updated and purged in order to avoid triggering a rush of consumer complaints and unwanted attention from regulatory agencies.

Know the Customer

Prospect lists.

The best way to know the customer is to build and maintain a list of prospects. Lists can be compiled or purchased from a variety of sources, such as internal customer data, list brokers, list compilers (e.g., Dun and Bradstreet), trade magazines, organizations, affinity groups, and the public record. Prospects can be targeted based on their market segmentation and preferences. Linchitz (1990) notes that a prospect list should have a hierarchy assigned to it to help avoid a "shotgun" approach in developing a telemarketing strategy:

Current Customers. They have a strong current relationship with the company and are a likely source of additional sales in the near term.

Former Customers. They have a prior relationship and a buying history.

Referrals. They are usually suggested by a third party, usually a satisfied customer.

Qualified Prospects. They have responded in some way to the organization.

Cold Prospects. They have no relationship with the organization, and a relationship must be built.

Analyzing and categorizing the customer, also know as data base marketing, is a sophisticated way of creating new customers and cross selling new products to an existing customer base. The customer information gives the telemarketing organization the maximum flexibility in segmenting and targeting a telemarketing program. The information allows telemarketers to target the market, not just telephone them. Once the "best customer" is identified, the telemarketer should use a series of choreographed instructions (scripts) to help close the sale.

Scripting: qualification and response.

Scripting gives the telemarketer the ability to qualify and draw a potential customer into a dialogue, providing a roadmap for information, situations, and responses. It is also the main method by which a telemarketing organization can control the content and delivery of the intended message. Telemarketing scripts give telemarketers an edge because they guide each stage of the call in a logical order, enabling telemarketers to anticipate what will happen during a call and providing a reference for handling any contingency. Scripts are usually structured to provide for interaction and build a pattern of acknowledgment. Scripts rely on "power" words to drive the dialogue and often appeal to ego, logic, and visual and emotional impact. Since telemarketing calls are usually short, a script ensures that the telemarketer uses the time productively and consistently communicates information that will encourage the consumer to act immediately.

The Information Technology

Brock and Lanier (1989) note that the marriage of computer and telephones within the business environment was inevitable from the start. Telemarketing is about reaching markets, generating and qualifying leads, and then closing sales and maintaining relationships in a timely manner. Given the complexity of the information, and the magnitude of the process being handled, telemarketing organizations are increasingly turning to computers and telephony equipment to automate and improve their operations.

Hardware and software.

The hardware required to power a telemarketing information system is dependent upon the size and scope of the operation. Advances in personal computer (PC) and server technologies have put mainframe power into the corporate environment, without mainframe cost. PCs and servers operating on local area networks (LANs) allow telemarketers to work within a shared database, capturing and interpreting the data needed to run the day-to-day operations, and giving management the information to make proper marketing decisions. This "client-server" arrangement also allows the telemarketing group to function within an automated office environment, using electronic mail to communicate within the company, and fax technology to communicate information to prospective and current clients outside the organization. Mainframes are often not a viable or typical option for a telemarketing organization due to their size, cost, integration issues, and maintenance. Mainframes are often used as an input into a telemarketing system, and are used to store the outputs of a telemarketing operation into a "data warehouse" that intern feeds other corporate systems.

There are three basic choices for telemarketing software, each offering various degrees of flexibility and cost effectiveness:

Development tools approach. Pieces of software are used to build a custom system. This offers flexibility but requires extensive technical knowledge and assumes that the telemarketing organization has identified all of the problems and requirements for an automated package, and has the time and money to build a system.

The turn-key approach. Hard-coded or "canned" packages that come ready to use, but often lack the flexibility needed to tailor the application to the specific needs of the organization.

Fully developed systems/customization tools approach. These are systems that come ready to use with a basic core group of application functions or templates, and also allow customization within the product using a scripting language or development environment (Brock & Lanier, 1989).

The software options can range from the low end (e.g., Act! and Telemagic) to the high end (e.g., Brock Activity Manager (BAM) and The Close System). Telemarketing systems are usually selected based on their cost, flexibility, functionality, growth features, integration with telephony/office-automation systems, and utilization of a standard database management system. At a minimum, the software should have the ability to handle requests for product data, customer profiles, call tracking, list and contact management, and script development. An important feature of any telemarketing system is its ability to provide reports on two levels: telemarketing representative statistics and campaign statistics. The application should also be able to handle ad-hoc queries, and a variety of activity reports.

Thus, the hardware and software must have the ability to capture and present data that is key to the success of the organization, and should be integrated with all components of the telemarketing system to ensure proper coordination and management.

Automatic call distribution.

Automatic call distributors (ACDs) have created a revolution in the way inbound calls are handled and managed. An ACD allows a company to control how the calls are received, delayed, and distributed to the staff. An ACD also provides reports to help balance the level of service with the demand. ACDs are often used with readerboards, allowing telemarketers and supervisors to get up-to-the-minute information about call queues, so that resources can be allocated accordingly (Bodin, 1994).

ACDs usually allow for call monitoring, allowing supervisors (from a management station) to check the progress of the telemarketing staff and ensure that approved practices are adhered to and training needs are met.

Predictive dialing.

Dawson (1994) notes that the predictive dialer is fast becoming the "glue" that holds that call center together. Predictive dialers are an automated method of making many outbound calls without human initiation, and then passing the calls to a telemarketer as the calls themselves are answered by a potential customer. Enormous gains in productivity are made as predictive dialers screen out answering machines, busy signals, and non-completed calls. More time is spent on the phones actually talking to customers, which translate into more sales for the company. Predictive dialers now have the ability to directly update an ACD or telemarketing system, noting the status of the call, and any follow-up action that may be required.

The "blended" call center.

The result of advances in information systems, ACDs, predictive dialers, and the integration between them is that a telemarketing center can now function both as an inbound and an outbound operation as needed. This gives telemarketing organizations the flexibility to use their agents in either mode, given that training needs are adequately covered. This "blended" approach will progress industry by industry as efficiencies gained by their early proponents will put their competitors on notice (Bodin, 1994).

Conclusions

Why Telemarketing Works

Telemarketing works because it is more efficient and cost effective than running a comparative field sales operation, allowing for many customers to be reached in a relatively short time. Telemarketing allows for direct control of sales efforts, as well as intelligence gathering about the customer, to allow management to react more quickly to changes in the marketplace. Information technology can be used to enhance, automate, and simplify the telemarketing process, allowing for the tracking of prospects and leads over a long period of time. Telemarketing can be used effectively to expand a company's market and improve its customer relations. Above all, telemarketing is a versatile business tool: once telemarketing is in place, it can be adapted to conduct surveys, make appointments, check credit, and qualify the customer. With proper management support, telemarketing can greatly contribute to a company's success and profitability.

Success Stories

Many companies are taking advantage of the benefits of telemarketing. Grolier, the encyclopedia magnate, got into telemarketing in 1978. By 1981, telephone sales had exceeded their door-to-door operation. Grolier sold 1.5 million encyclopedias over the phone, accounting for more than $40 million in revenue. Xerox has had major success with their direct-response operation in Henrietta, New York. Using direct mail with a coupon and 800 number, Xerox has sold thousands of expensive office copiers, without having to send field sales representatives out to close the sales. 3M uses a telemarketing center to assist customers with equipment problems. After calling an 800 number, the customer works with a skilled technician, who has access to an equipment-information database, to resolve any issues. More than 30% of the cases have been closed in a matter of minutes, thus resulting in tremendous savings in service costs. TELERx Marketing, a telemarketer serving the healthcare industry, has had phenomenal success using computerized telemarketing. For one client, TELERx representatives logged 4,790 hours on the phone, resulting in sales of more than $2.5 million. With an initial marketing investment of $286,000, the ROI was 8.7 to 1, a rate superior to that achieved by most conventional field-sales forces (Bencin & Janovic, 1989).

Factors That Affect the Future of Telemarketing

Public perception.

The success of telemarketing is not without its problems. Telemarketing suffers from bad public perception, brought on by media coverage of how telemarketing companies have misused the practice to cheat the customer: bogus travel agents in Florida giving away "free" or "discounted" trips to anyone who is willing to pay $500 through a credit card, and commodities brokers giving a hard sell for coffee futures to farmers in Kansas (Fielding & Drummond, 1991). At the least, telemarketers are often considered to be nuisances and crooks who invade people's privacy at inopportune times trying to obtain personal information or sell overpriced junk.

Of course, telemarketers such as these are the exception and not the norm. Many legitimate telemarketing organizations exist, both as internal business units and external service bureaus, to provide a valuable service to the public. Organizations must overcome the public's misconceptions of telemarketing by using good target lists, calling at appropriate hours, and delivering good customer service. However, telemarketing abuses, especially when used to prey on and manipulate helpless victims, have caught the attention of the state and federal governments.

Legislation.

As a result of abusive practices and consumer complaints, several tough laws have been enacted at the state and federal levels to protect the consumer and regulate the telemarketing industry. Among them are laws that: require telemarketers to pass by consumers who take exception to the practice; regulate auto-dialed recorder message players; limit monitoring of telephone conversations; restrict the calling hours; limit the use of lotteries or contests; limit access to 900 numbers; require non-profit telemarketers to disclose amounts collected; and require registration of a telemarketing concern with a state government agency. The legislation has spawned a new public awareness of the pitfalls of telemarketing, making the consumer more savvy about telemarketing in the process. Many consumers now screen calls to avoid the outbound telemarketer, or have installed devices to detect their inbound telephone numbers.

New technology.

Perhaps the greatest threats to the traditional use of telemarketing in the future are advances in interactive technologies: the internet, multimedia, and video on demand. These new technologies give retailers a new and perhaps better medium to reach the consumer for inbound and outbound processing. Many companies have authored a world-wide "web" page on the internet, providing consumers with a dizzying array on information and the ability to order products online. Efforts are underway to provide internet access through the television and reduce the reliance upon the slow mosaic interface of the web. Multimedia and CD-ROM applications are gaining in popularity, providing consumers with a video catalog and electronic ordering information. Video-on-demand test beds in several locations across the U.S. have met with an enthusiastic response. Bernier (1995) notes that these mediums have been and will continue to be successful due to the consumer's desire to remain anonymous and maintain privacy.

Many companies do not yet fully understand the revenue streams or impact of these new "come to me" marketing mediums. As a result, telemarketing will remain to be a force in the short term. After all, people are social animals and will always have the need to communicate and speak with each other. The new technologies may even be used to compliment an inbound telemarketing campaign. However, technologies such as these, coupled with the public relations and legislative threats, may soon mark the end of traditional telemarketing as it is currently known.

References

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