Central and Eastern Europe (CEE), Global Recession and Foreign Direct Investment (FDI)

The oncoming global recession is unlikely to adversely affect FDI flows into Eastern Europe.

Part I. The Republic of Macedonia – A Case Study (2007)

Ever since its reluctant declaration of independence in 1991,Guest Posting Macedonia occupied the bottom of the list of countries in transition from Communism, as far as absolute dollar figures of FDI go. At 80.6 million USD, FDI in 2003 barely budged from previous years. In 2004, FDI reached 139.5 million USD, only to shrink to 116.2 million USD in 2005. Discounting the sale of ESM, the electricity utility, FDI remained static in 2006 (total FDI was 350.7 million USD or 124.7 million USD, without ESM).

Yet, this is a misleading picture. Macedonia was and is no worse off than other countries in Eastern Europe.

According to UNCTAD’s World Investment Report 2007, FDI in Macedonia, as a percentage of gross fixed capital formation, shot up from 9.7% in the decade of the 1990s to 32.4% in 2006 (compared to 36.4%, the southeast European average; 20.8% the average of all countries in transition; and 12.6% the global average figure).

Macedonia’s FDI stock reached 2.437 billion USD, or 39% of GDP (compared to 42.2% as the southeast European average; 25.3% the average of all countries in transition; and 24.8% the global average figure).

Macedonia’s Inward FDI Performance Index, based on 12 economic and policy variables, climbed from the 86th to the 64th place out of 141 economies surveyed. Its Inward FDI Potential Index also improved from 115 to 106.

Throughout this period, foreign enterprises, profitable overall, consistently hired new employees and wages in the sector stabilized at c. twice the average salaries in local businesses.

Thus, as far as FDI goes, Macedonia’s performance, though far from stellar, was and is above the regional and global averages. The World Bank put it succinctly, as it summarized the period PRIOR to the assumption of power by the new government:

“Macedonia’s rankings either improved or stayed steady for all available scored rankings, and it tracked closely with the regional averages for all rankings. According to the World Economic Forum’s Global Competitiveness Report for 2006-07, the three most problematic factors for doing business are inefficient government bureaucracy, access to financing, and corruption. Macedonia was one of the top 10 Doing Business reformers, jumping up 21 places. The most significant improvements were in the following indicators: Starting a Business (where the paid-in minimum capital requirements were dropped from 111% to 0% of GNI per capita), Dealing with Licenses, and Trading Across Borders.”Other indicators lead to the same conclusion: while Macedonia’s image and perception as a business destination and the business climate have improved considerably under Gruevski’s government, in reality, not much else has changed.

Consider the following numbers, pertaining to Macedonia:

Control of Corruption Indicator, published by the World Bank: 113 (2006) vs. 111 (2007)

Country Credit Rating, published by Institutional investor: 85 (2006) vs. 84 (2007)

Index of Economic Freedom, published by The Heritage Foundation and the Wall Street Journal: 75 (2006) vs. 71 (2007)

Quality of National Business Environment Ranking, issued by the World Economic Forum in its Global Competitiveness Report: 87 out of 121 countries.

Only the World Bank’s Doing Business Ranking jumped from 96 (2006) to 75 (2007). Yet, even this indicator hides some unpalatable truths: Macedonia has deteriorated in certain respects. It is more difficult and cumbersome to hire workers, to register property, to obtain credit, to protect investor rights, and to enforce contracts. In any case, this indicator has more to do with public relations, expectations, and psychology, rather than with the hard facts on the ground.

And the hard facts are:

Macedonia is not ready to absorb and accommodate foreign investors and their capital. It still has a long way to go. This government has put the cart before the horses;

The youthful, populist, and inexperienced administration is overwhelmed and ill-equipped to deal with its obligations towards and promises to foreign investors. Decision-making bottlenecks (especially in the office of Vice-Premier Zoran Stavreski) conspire with red tape and blatant favoritism to render nightmarish both greenfield and brownfield ventures.

In a long-running arbitration, the country was slapped with multimillion dollar damages payable to the Greek investors in Okta. This did not deter the government from conflicting vocally and publicly with Macedonia’s other large investor, the Austrian EVN, owner of the electricity utility;

To its credit, the government has reformed the tax system, introduced a flat tax, and reduced the tax rates, all laudable. But it is still illegal for foreigners to own land and real estate (as individuals) and all but impossible to trade in the local stock exchange. The government has only now resorted to tackling these archaic limitations;

The country is dysfunctional. No institution works properly: the cadastre, the courts, law enforcement agencies, the civil service are all in chaotic disarray. Even the banking system, despite a decade of FDI, is rudimentary. Infrastructure of all sorts is dismal, though improving. The government’s anti-corruption drive is much lauded but highly politicized and one-sided, aimed as it is exclusively at the hapless politicians of the opposition. Macedonia’s laws are not geared to welcome and assimilate foreign investment, foreigner businessmen, and foreign workers;

Macedonia lacks skilled manpower. The education deficit is pervasive. More than half the adult population has eight years of schooling or less. A multi-generational brain drain saps the country’s vitality and prospects in the global information economy of the 21st century. Contrary to the government’s claims in its “Invest in Macedonia” campaign, costs and taxes associated with wages are among the highest in the world.

The country suffers from other problems: a huge informal economy, skyrocketing consumer and enterprise indebtedness, ominous asset bubbles in both the stock exchange and the real estate market, a crippled middle class and crippling poverty and unemployment rates, an unmanageable and increasing trade deficit (c. 20% of GDP), and a whopping current account deficit offset only by remittances from Macedonian workers abroad. The global credit crunch constitutes a major threat to polities with such precarious finances.

Geopolitical instability (in Kosovo) is exacerbated by the current Macedonian regime’s jingoism, its overt and manipulative religiosity, and greenhorn fickleness. Within the last year, Macedonia has considerably retarded its chances to enter NATO and the European Union (EU), having clashed unnecessarily and spectacularly with Greece, Serbia, Bulgaria, and the Albanian minority at home.

Despite a slew of expensive PR and advertising campaigns; the appointments of two ministers and the formation of a special agency to deal with FDI; incessant trips abroad by every functionary, from the prime minister down; and innovative marketing initiatives – FDI figures for 2007, at c. 180 million USD (c. 3% of GDP), are a major disappointment. Moreover, a sizable part of Macedonia’s FDI is in construction, retail, financial services, and trade, economic sectors with minimal contribution to future growth.

In comparison, FDI doubled in decrepit, post-bellum Serbia, to 4.5 billion USD in 2006. Croatia garnered 3.6 billion USD (2.7 billion euro) – twice the 2005 figure. Even strife-torn Bosnia-Herzegovina, under a EU peacekeeping mission, attracted 2.9 billion USD (2 billion euros). Bulgaria absorbed 6.5 billion USD. FDI amounted to 10% of Balkan GDP in 2006.

The conclusion is inescapable: Macedonia has failed in its bid to attract FDI. This is not the first time that Macedonian politicians and their downtrodden and destitute people prefer the fantasy of foreign saviors to the hard slog of painful and much-needed reforms at home. The current prime minister, Gruevski, served in the government of Ljubco Georgievski, whose nostrum and panacea to Macedonia’s economic woes was dollops of money, supposed to be funneled via illusive Taiwanese investors. The person most identified with this policy, Vasil Tupurkovski, now faces criminal charges.

Gruevski can learn many lessons from the debacles wrought by his predecessors. It is not too late to get his priorities straight: reforms, education, domestic investment, and employment first, and only then an open invitation to foreigners to come and invest in Macedonia.

II. Foreign Direct Investment FDI 2000-2003 in Eastern and Central Europe

How will the credit crunch of 2007 affect foreign direct investment in Central and Eastern Europe? What if it develops into a full scale recession in the West and especially in the USA?

It is instructive to study the effects on the region of a previous recession at the beginning of the decade (2000-2002).

The brief global recession of the early years of this decade – which was neither prolonged, nor trenchant and all-pervasive, as widely predicted – had little effect on Central and Eastern Europe’s traditional export markets.

The region were spared the first phase of financial gloom which affected mainly mergers, acquisitions and initial public offerings. Few multinationals scrapped projects, scaled back overseas expansion and cancelled long-planned investments.

According to a 2003 report by the Vienna Institute of Economic Studies, FDI flows to the countries of central Europe were halved in the first quarter of 2002, despite their looming membership in the European Union (realized in May 2004). During 1999-2003 export transactions were frequently delayed and privatizations attracted scant interest.Net FDI flows in 2003, says the EBRD, came to a mere 7.2 billion euros, compared to 22.6 billion euros in the preceding year.

The Vienna Institute erroneously predicted a particularly bleak year for Poland and a Czech economy redeemed only by sales of state assets in the energy sector. Yet its statistics failed to cover reinvested profits. These amounted to $1.5-2 billion in Hungary alone – equal to its average annual FDI.

In reality, the picture was mixed. Forecasts prepared in November 2002 by the United Nations Conference for Trade and Development (UNCTAD) showed marked declines in FDI in Moldova, Estonia, Hungary, Poland, Slovakia, Macedonia and Ukraine. Flows rose in Albania, Bulgaria, the Czech Republic, Latvia, Lithuania and Slovenia, and remained unchanged in Bosnia and Herzegovina, Croatia, Romania and Russia, said UNCTAD.

Foreign direct investment (FDI) in Lithuania grew by at least 15 percent in 2003. Its FDI stock – accumulated in its decade of independence – exceeded c. $4 billion, or c. $1000 per capita, as early as end-2002. Pace has picked up dramatically in the past six years in many second-tier investment destinations in central and east Europe, including Slovakia, and formerly war-torn Macedonia and Armenia. Of the latter’s $600 million in post-communist foreign inflows – two thirds have been placed since 1999.

Prime investment locales, like the Czech Republic, or Hungary, are still attracting enthusiastic fund managers, multinationals and bankers from all over the world. In a startling inversion of roles, Russia became a net exporter of FDI. According to official figures – which are thought to under-report the facts by half – Russia invested abroad more than $3 billion every single year since 2000. This is double the figure in 1999 and translates into $300-500 million in annual net outflows of foreign direct investment.

Moreover, the bulk of Russian capital spending abroad is directed at rich, industrialized countries. The republics of the former Soviet Union see very little of it, though Russian stakes there have been growing by 25 percent annually ever since the 1998 meltdown. Russia’s energy behemoths compete, for instance, with western mineral and oil extraction companies in Kazakhstan and Azerbaijan.

Levels of worldwide FDI declined by more than 50 percent – to c. $730 billion – between 2000 and 2001. Yet, astoundingly, the major downturn in emerging markets’ FDI in 1999-2002 had largely bypassed the region. Net private capital flows – both FDI and portfolio investment – shot up six-fold from $1 billion in 2000 to $6 billion a year later. Most of the surge occurred in the Balkans and the Commonwealth of Independent States (CIS).

According to the European Bank for Reconstruction and Development (EBRD) in its Transition Report Updates, the region grew by 4.3 percent in 2001 and by 3.3 percent p.a. the years after. In 2006 alone, eastern Europe’s GDP shot up by 6.2% and FDI flows amounted to $50 billion. This performance as projected to have been repeated in 2007. This is way more than most developed and emerging markets managed. Eight countries in central and east Europe drew rating upgrades, only two (Moldova and Poland) were downgraded.

Some countries fared better than others. Slovakia sold, in March 2002, 49 percent of its gas transport company for $2.7 billion. Slovenia booked yet another record year in 2002 due to the long-deferred privatization of its banking sector and to the sale to foreign investors of assets originally privatized to cronies, insiders and communist-era managers. The Slovenian Business Weekly correctly expected the country to draw in more than $600 million in 2002 – up 50 percent on 2001.

In the western Balkans, only Croatia stood out as an inviting and modernization-bent prospect. Yugoslavia (Serbia and Montenegro) reawakened, too. It has privatized cement companies and rationalized the banking sector with a view to becoming a preferred FDI destination. In the first 6 months of 2002, it garnered $100 million in realized deals and another $60 million in commitments.

Ironically, during the brief global recession, Romania and Bulgaria (both of which joined the European Union – EU – in 2007) were laggards, though intermittent privatization in both countries was counterbalanced by cheap and skilled workforces in their growing and labor-intensive economies. Macedonia spent those years futilely reviewing, with a view to annulling, at least 30 suspect privatization deals. This did not endear its kleptocracy to anyhow reluctant multinationals.

Per capita, FDI stock is highest in the Czech Republic ($3000), Estonia ($2600) and Hungary ($2400). These are followed by Slovenia ($2000), Slovakia ($1800), Croatia ($1700) and Poland ($1200). All, with the curious exception of Croatia, have joined the EU in 2004.

The total realized FDI in 2000-2002 in central Europe amounted to more than $50 billion, with Poland and the much smaller Czech Republic attracting the most ($14 billion each), followed by the Slovak Republic ($7 billion) and Hungary ($5 billion). The regional FDI stock comes to a respectable $100 billion.

Southeastern Europe (the politically correct name for the Balkans), excluding Greece and Turkey, attracted rather less – c. $12 billion in realized FDI in 2000-2. Croatia topped the list with $3.8 billion, followed by Romania ($3.3 billion), Bulgaria ($2.3 billion), Macedonia ($1.1 billion), Yugoslavia ($0.7 billion) and Albania and Bosnia-Herzegovina ($0.5 billion each).

Yet, the Balkans, impoverished and war-scarred as it is, accumulated a surprising $22 billion in FDI stock. According to the 2003 Investment Guide for Southeast Europe, published by the Bulgarian Industrial Forum, the share of FDI per GDP is much higher in the Balkans than it is, for example, in Russia. In 2001, the ratio was c. 5 percent in Bulgaria, 7.5 percent in Croatia and about 12 percent in Macedonia.

The former USSR as a whole enjoyed $57 billion in FDI between 1991-2002. The bulk of it went to Russia ($23 billion) and the Baltic states ($8 billion). In 1999-2002, Ukraine absorbed $1.9 billion in FDI flows – one half the receipts of the puny Baltic trio: Lithuania, Latvia and Estonia. Belarus and Moldova scarcely registered, each of them with barely above three fifths the FDI in Albania, or ravaged and precariously balanced Bosnia-Herzegovina.

The weight of FDI in the local economies cannot be overstated. Two fifths of the exports of countries as disparate as the Czech Republic and Romania are produced by foreign affiliates. In some countries – like Romania – 40 percent of all sales are generated by foreign-owned subsidiaries. The banking sectors of many – including Bulgaria, Croatia, the Czech Republic and Macedonia – are mostly owned by outside financial institutions.

Foreigners bring access to global markets, knowledge and management skills and techniques. They often transfer technology and train a cadre of local executives to take over once the expats are gone. And, of course, they provide capital – their own, or gleaned from foreign banks and investors, both private and through the capital markets in the west.

Initially, foreign investors provoked paranoid xenophobia almost everywhere in these formerly hermetically sealed polities. Deficient legal and regulatory frameworks, rapacious insiders, venal politicians, militant workers, opaque and politically compromised institutions, disadvantageous tax regimes and a hostile press obstructed their work during the first half of the 1990s.

Yet, gradually, the denizens of these countries came to realize the advantages of FDI. Workers noticed the higher wages paid by foreign-owned plants and offices. The emergent class of shareholders, invariably members of the powerful nomenclature, having sucked their firms dry, sought to pass the carcasses to willing overseas investors. Currently – with a few notable exceptions, such as Belarus – multinationals and money managers are actively courted by eager governments and keen indigenous firms.

Proofs of this grassroots turnaround in sentiment and priorities abound.

FDI is a good proxy for a country’s integration with the global economy. It is an important component in A.T. Kearney and Foreign Policy Magazine’s Globalization Index. The Czech Republic made it in 2002 to the 15th place (of 62 countries), higher than New Zealand, Germany, Malaysia, Israel and Spain, for instance.

Croatia in 22nd rung and Hungary in the 23rd slot compare to Australia (21) and outflanked the likes of Italy (24), Greece (26) and Korea (28). Slovenia was not far behind (25), followed by Slovakia (27), Poland (32) and Romania (40). Even hidebound Ukraine made it to the 42nd place, ahead of Sri Lanka (44), Thailand (47), Argentina (48) and Mexico (49). Russia lagged the rest at the 45th location.

A.T. Kearney’s Global Business Policy Council – a select group of corporate leaders from the world’s largest 1000 corporations – publishes the FDI Confidence Index. It tracks FDI intentions and preferences. Its September 2002 edition ranked 60 countries which, together, account for nine tenths of global FDI flows. The companies interviewed were responsible for $18 trillion in sales and seven out of every ten FDI dollars.

Revealingly, central and east European countries made it to the first 25 places. Poland, right after Australia, preceded Japan, Brazil, India and Hong-Kong, for instance. The Czech Republic, Hungary and Russia – closely grouped together – were found more alluring than Hong-Kong, the Netherlands, Thailand, South Korea, Singapore, Belgium, Taiwan and Austria. Russia – whose economy improved dramatically since 1998 – leaped from beyond the pale (i.e., below the top 25) to 17th place. Hungary moved from 21 to 16.

The report concludes with these incredible projections:

“Russia … could well be a target for almost as many first-time investments as the United States … China, Russia, Mexico and Poland combined … are expected to accumulate about one quarter of all proposed new investment commitments.”

This is part of a more comprehensive trend:

“Europe has become the most attractive destination for first time investments. More than one third of global executives are expected to commit investments for the first time in Europe over the next three years 2003-6 (especially in) Russia, Poland and the Czech Republic.”

A relatively new phenomenon is cross-border investments by one country in transition in another’s economy and enterprises. At four percent of Slovene FDI stock, the Czech Republic has invested in Slovenia as much as the United States, or the United Kingdom. Slovenes and Bulgarians have ploughed capital into the banking, industrial and food processing sectors in Macedonia. Hungarians in Serbia, Czechs in Romania, Croats in Slovenia – are common sights.

Traditional FDI destinations feel threatened by the surging reputation of central and, to a lesser extent, east Europe. In a series of articles he published on radio Free Europe/Radio Liberty prior to the EU’s enlargement eastwards, Breffni O’Rourke summed up Irish anxieties expressed by his interviewees thus:

“There’s a certain unease developing in Ireland as the 10 Central and Eastern European candidate countries move toward full membership in the European Union. The Irish are not unaware that the Czechs are heirs to a fine tradition of precision manufacturing; that the Poles are considered quick-thinking and innovative; that Bulgarians have a way with computers; that the Baltic nations have powerful Scandinavian supporters; and that Romania has extraordinarily low costs to offer investors. In fact, rising costs – in comparison to the Eastern candidate nations – are one of Ireland’s main worries. The question troubling the Irish is: Could incoming Eastern member states prove so attractive for foreign investment that the country would find itself eclipsed?”

According to UNCTAD, global FDI flows amounted to a record 1.5 trillion USD in 2007. Southeast Europe and the CIS (Commonwealth of Independent States) enjoyed robust, record-setting inflows, the seventh year in a row (up 41% on 2006 to a new record of 98 billion USD), emanating mainly from transnational corporations. Capital went to both extraction industries and privatization deals.

But 2007 appears to have been the swan song of FDI. Cross-border M&A (Mergers and Acquisitions) activity – the locomotive of FDI – virtually collapsed in the last quarter of 2007. Increasing risk aversion throughout the global financial system may result in the drying up of credit. Inflation – or, rather, stagflation – is again rearing its ugly head. Wildly fluctuating exchange rate won’t help, either.

Nikola Gruevski’s Way Out

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Direct Response Advertising

“A Powerful Direct Response … Guide that Can … Double or Triple the Number of New Clients Your Bring Into Your Business Online or Offline” Contact … … detai

“A Powerful Direct Response Marketing Guide that Can Literally Double or Triple the Number of New Clients Your Bring Into Your Business Online or Offline”

Contact Information
Timothy Little–For details on how to launch a direct response Web site or mail marketing campaign contact me by E-mail [email protected]. For free consultation e-mail the quote form at e-SiteSolutions.com or call me by phone at (989) 463-5951Part 1: Defining Direct Response

Advertising

Direct Response marketing is accountable. It is advertising you can justify and track. Not only is direct response marketing measurable but it can easily be adapted to fit your advertising budget.

The heart of direct response advertising is in the planning,Guest Posting organizing and pricing of the marketing campaign. Small business entrepreneurs must match mailing list selection to prospect profiles and design a campaign that targets the customer. Most importantly, providing follow up service with back-end analysis, fulfillment of orders and inquiries this allows a small business to test and measure campaigns quickly and inexpensively.

A small business financial planner can than focus on the most profitable segments of a campaign. Direct response marketing is efficient its small target groups made up of the most interested prospects for a product or service.

Direct mail and direct marketing are sometimes used interchangeably. Direct marketing can be used effectively in many different media’s and is not limited to direct mail advertising. Direct marketing goes far beyond sending self contained mailers. This reality is truer online since, accumulating opt-in permission based names for e-mail promotions can be done at a fraction of the cost of bulk mail marketing campaigns. I can help you during the critical planning stages e-mail me at [email protected] for more information.

Direct response advertising can be used in variations to support marketing and promotional activities for driving traffic to your Web site or inquiries for a product or service

A study recently published in the Marketing section of the Wall Street Journal (December 2002.) Indicates that media spending will shift away from traditional media advertising and switch towards Internet marketing and direct mail since they appear to be more promising. “E-mail marketing is more measurable and is seen as a good value for the money as people get better customer targeting”.
The growth of direct response marketing online and off has grown tremendously over the last few years. The benefits and profit potential online has been recognized worldwide and will be the number one advertising vehicle both online and off for the following reasons.

*Patrick Barwise – London Business School management and marketing.

Benefits drive direct marketing. If you don’t already think of your marketing in terms of benefits, now is a good time to start. Direct marketing is like no other form of advertising since you have control over your message and you control everything color, design, the list, and your budget and payment options.

The flexibility of direct response marketing helps you to broaden your thinking. Precise targeting allows you to search for specific products. The more precise your message is the less money and time you spend on people who are not interested or qualified to use your product. Direct response marketing is an equalizer for a small business. Finally you are able to compete with larger competitors with targeted messages and react quickly to changes in the market because of your small size.

Direct Marketing is immediate and personal. What is more immediate and personal than a letter? New opt-in email technologies allow you to reach thousands of prospects in minutes with a personalized message including name and personal interests.

Direct marketing is a more testable form of advertising. Every mailing campaign you run is an opportunity for you to test something and gain information that can help you improve your marketing. You always have the opportunity to test different lists, offers and packages. You need to have a good tracking program in place to do this effectively.

Part 2: The money is in the list

You can use direct response marketing to build a database. Whenever a prospect buys from you simply add their name and purchase information to your database. The quickest way to build a database is to offer a free electronic brochure embedded on your Web site for example (9 ways to retire 10 years early or free quotes and 30 days of free life insurance.)

The reason for your database is to re-sell to your prospects again and again and test cross selling techniques for free. This brochure can be plugged in to your web site for download or you can personally make an appointment with your prospect and hand them a brochure in person.

There is no doubt that these techniques will help you to achieve success in your marketing efforts. It is important that you plot the destination of your marketing campaigns with a marketing or business plan. Direct marketing results are almost immediate and these results will not help you unless you plan your business objectives. Many companies falter and lose sight of overall goals without a marketing plan to guide them.

Improved Computer capabilities and more recently the internet has made both direct marketing and direct mail more efficient and more effective with database marketing. The way to make direct mail more efficient especially with the rising costs of postal rates and print media is to target prospects with database collections.

The database is a collection of information on customers and perspective customers including their names, addresses, titles and companies. Lists selections can be further segmented by geography or zip-codes, gender, income and commission levels.

Prospects are grouped together with common characteristics to increase marketing effectiveness. The database is used to fit customers with products or services and to aim a precisely written message to a special group of people.

Successful sales professionals know that the more they know about their customers and prospects the better they will be able to sell to them. The same is true in direct marketing and the list is the key resource.

Close list selection and analysis is the first step to ensuring a successful direct response program both online and off. The money is in the list and in this sense the internet has not changed this fact. Today, it is much less expensive to collect and test different offers with the speed of the Internet. This is the same way publishers have sold magazine subscriptions and books since the beginning of the century. The only difference today is that the Internet has made it much faster and cheaper to compile permission based opt-in lists online.

Even a great product at a reduced price would be useless if it is presented to the wrong prospects. You must target your prospect to generate traffic for your product by Web site or mail.

Most lists fall into two categories compiled lists or direct response lists. Compiled lists are phone directories annual membership rosters, and manufacturing directories. Response lists are just as they imply they have responded and purchased a targeted product or service recently, because of this fact they are most likely to purchase a similar item again. Response lists are common for magazine subscriptions or lists of prospects that have purchased life insurance or indexed annuities recently.

Standard Rates and Data Services (SRDS) are directories of response lists. They will include quantities and descriptions of each list for sale.

Part 3: Direct Marketing Strategy

The offer is often referred to as the deal. This is what people get for there money. Whether you’re planning a direct marketing strategy, evaluating a campaign or writing an ad much of the work revolves around three important elements. The offer the list and the creative and these elements work together or separately to make your direct marketing promotion work.

The offer is the product or service being sold and includes any warranties, guarantees, features, and price and credit terms. The offer could also be the actions someone needs to take to place an order like a shopping cart or form on a Web site or reply card in a bulk mailing.

Offers separate general advertising from direct response. General advertising often excludes the critical information that should always be included in direct response advertising. Direct response puts all the necessary information together in an offer and tells the reader exactly how to respond. People expect offers in direct response advertising. You must give the prospective customer a reason to respond like limited offer or special bonus, since the purchase is impulsive in nature.

Failing to make the offer clear or forgetting to make an offer at all is a common mistake among direct response marketing beginners. The way to get a response to an offer is to make a deal that prospects can’t refuse.

In direct marketing, offers are categorized by the method of payment. Offers with delayed billing and trial periods are soft offers. Asking for a payment up front with a special bonus for paying now by credit card is a hard offer. The payment terms like accepting credit cards online makes a big difference in the response to the offer. Splitting up payments can sometimes make a difference on higher priced items.

Sometimes in direct marketing the elements included in a product can make a big difference in response. The price of an offer should be tested at certain price points. Testing hard offer verses soft offer sometimes can make a big difference in response rates. Always strive to improve your offer by testing different elements of an offer.

Part 4: Direct Marketing Creative

Your actual copy and graphic design is important in direct response but less than a well defined strategy using your offer and a targeted list.

Poor graphic design can hurt your response and professional image. Lavish or unusual artistic techniques may work well for magazines and other types of advertising but would actually distract or lower response rates in direct mail. It would be wise to keep your graphic design to a minimum unless you employ a graphic designer for design or professional photographer to shoot your photography. Direct response advertising is a combination of words, pictures and graphics. The words used almost always must move and persuade.

Write a sales letter for entry-level products or service’s and feature it on your home page. Write a sales letter convincing prospects to send an e-mail requesting a sales representative to contact them. Offer free reports, e-zine to build the list. Personalizing with first name last name, gender zip-code using mail/merge software will increase response and will separate you from the clutter of emails prospects get.

Using a compelling headline that draws your prospect into your letter and promotion can triple marketing response. The headline should be driven by product benefits or solving a problem. Headline offers would be a good item to test in a letter and can pay for it self many times over since this would become your control letter. Newspapers and tabloids use well crafted headlines to sell there publications at point of purchase display’s.

Only a few Web sites use direct response marketing in there copy and the Web sites that have tested sales copy have been successful. Marlon Sanders and Cory Rudl are good examples of internet direct response marketing pioneers. Both have made fortunes selling and testing there books and e-books on the internet using old fashioned marketing techniques. Web sites that sell products and services do better if graphics and flashy programming designs are excluded since they take longer to load which will greatly lower the response unless closely tested.

The focus is writing compelling copy that describes the many benefits and features of products or services. Products that are digital in nature like e-books and MP3 music and software do especially well since the visitor will get immediate satisfaction by checking out with credit card and downloading within a couple of minutes. If you are selling e-commerce web mall items clean digital photography with limited graphics and strong copy featuring benefits like free delivery, guaranteed satisfaction or free downloads will help response levels.

Direct response soft offer trial periods are being used frequently by Microsoft Network and AOL to market there internet services. Like 60 days free with credit card verification. When the competition is fierce and pockets are deep soft offers can be very effective as long as your billing package has been tested and has proved to be effective. Payment variations (credit card, check, installment by phone or emailed by CGI form) may work well for products and services on the internet. This technique used in direct mail would have the opposite effect and may lower response. Testing this feature would give you the best answer.

Sometimes billing prospects for services can triple the response rate. The payment offer can be a crucial element in a direct response campaign and should be evaluated closely, since the pay up rate could possibly break a small business.
Please be sure to contact me for a free quote and guaranteed satisfaction concerning your Direct Response Marketing online or offline promotion at: [email protected]

Timothy Little–For details on how to launch your direct response Web site or mail marketing campaign. E-mail the quote form at my website for a free consultation

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