Telemarketing is the process of using the telephone to generate leads, make sales, or gather marketing information. Telemarketing can be a particularly valuable tool for small businesses, in that it saves time and money as compared to personal selling, but offers many of the same benefits in terms of direct contact with customers. In fact, experts have estimated that closing a sale through telemarketing usually costs less than one-fifth of what it would cost to send a salesperson to make a sale in person. Though telemarketing is more expensive than direct mail, it tends to be more efficient in closing sales and thus provides a greater yield on the marketing dollar.
Telemarketing is especially useful when the customers for a small business's products or services are located in hard-to-reach places, or when many prospects must be contacted in order to find one interested in making a purchase. Although some small businesses operate exclusively by telephone, telemarketing is most often used as part of an overall marketing program to tie together advertising and personal selling efforts. For example, a company might send introductory information through the mail, then follow-up with a telemarketing call to assess the prospect's interest, and finally send a salesperson to visit.
Telemarketing can be either inbound or outbound in scope. Inbound telemarketing consists of handling incoming telephone calls—often generated by broadcast advertising, direct mail, or catalogs—and taking orders for a wide range of products. Representatives working in this type of telemarketing program normally do not need as much training as outbound reps because the customer already has shown an interest by calling in.
Outbound telemarketing can be aimed directly at the end consumer—for example, a home repair business may call people in its community to search for prospects—or can be part of a business-to-business marketing program. Representatives working on this side of the industry generally require more training and product knowledge, as more actual selling is involved than with inbound operations.
Major applications of business-to-business telemarketing include selling to existing accounts, outbound new account development, inbound order processing and inquiry handling, customer service, and supporting the existing field sales force. As the costs of field sales continue to escalate, businesses are using telemarketing as a way to reduce the cost of selling and give more attention to marginal accounts. Telemarketing programs can be either handled in-house by a company or farmed out to service bureaus. Operations range in size from a one-person in-house staff member at a small business to a major corporation or service center that may have as many as 1,000 telephone stations.
One of the advantages telemarketing has over other direct marketing methods is that it involves human interaction. According to Robert J. McHatton in Total Telemarketing, "used correctly and by professionals, the telephone is the most cost-efficient, flexible and statistically accountable medium available. At the same time, the telephone is still very intimate and personal. It is individual to individual."
Although telemarketing has been the center of some controversies—ranging from scams run over the phone to a number of legal issues that have been the center of debate at both the state and national levels—the industry continues to grow. In fact, the American Telemarketing Association found that spending on telemarketing activities increased from $1 billion to $60 billion between 1981 and 1991. By the mid-1990s, telemarketing accounted for more than $450 billion in annual sales, a figure that is expected to continue to rise through the foreseeable future.
TYPICAL TELEMARKETING USES
Although telemarketing can be used as a stand-alone operation, it often works best as part of an overall marketing effort. Companies considering the use of telemarketing have to look at such factors as: which products and services are candidates to be sold by phone; whether telemarketing can be used to increase volume through upgrading the sale; how the process can help qualify prospects, define the market, and service existing accounts; and whether telemarketing can help generate new business. Some of the roles telemarketing can be used to fulfill include: selling, generating leads, gathering information, and improving customer service.
SELLING Telemarketing can either supplement or replace face-to-face selling to existing accounts. It can complement the field sales effort by reaching new customer bases or geographic markets at relatively low cost. It can also be used to sell goods and services independently, with no field sales force in place. This method often is used for repetitive supply purchases or readily identifiable products, though it can be effectively applied to other products as well.
The inside sales force can be used to replace direct contact for marginally profitable customers. A general rule of thumb in business says that 20 percent of customers account for 80 percent of sales, so conversely the remaining 80 percent of customers generate just 20 percent of sales. But businesses must keep in mind that marginal does not necessarily mean unprofitable. And the existing customer base is perhaps the most important asset in any business; sales increases most often come from current accounts, and it generally is less costly to maintain current customers than to search out new business. Telemarketers can give these reliable customers the attention they deserve. The reps can phone as often as needed, determine the customers' purchasing cycles, and contact them at appropriate reorder times.
In making such a consolidation between a direct and inside sales force, the company must be careful in determining which accounts should stay with field sales and which should be handled by telemarketing. Some businesses start their telemarketing operations with just small or inactive accounts, gradually increasing the size of accounts handled.
LEAD GENERATION Through telemarketing, a company can compile and update lists of customer prospect leads and then go through these lists searching for sales leads. Telemarketing can screen the leads and qualify them according to priority, passing the best leads to the field sales force for immediate action. The inside sales force also can identify the decision maker with the buying power and set up appointments for the outside sales force.
GATHERING INFORMATION Telemarketing can provide accurate information on advertising effectiveness, what customers are buying, from whom they're buying, and when they will buy again. It is also commonly used in conducting surveys.
IMPROVING CUSTOMER SERVICE Studies show it costs five times more to win over a new customer than to keep an existing one. By using telemarketing as a main facet of customer service, companies can go a long way toward keeping customers happy.
In addition, when used in conjunction with current computer technology, a telemarketing program can be analyzed in terms of costs and benefits, using quantitative data on the number of contacts, number of presentations, total sales, cost per sale, and income per sale.
ESTABLISHING A SUCCESSFUL PROGRAM
Not all telemarketing programs are successful. Improper execution, unrealistic goals over a short time period, oversimplification, and lack of top management support have caused the ultimate failure of more telephone sales programs than can be imagined. Like any marketing strategy, telemarketing takes time to plan and develop. It takes time to gain confidence in the message, to identify weak areas, and to predict bottom-line results. Some of the most common telemarketing mistakes include: not considering telemarketing as an option; not giving it a total commitment; not utilizing the proper expertise; failing to develop a proper database; improper human resource planning; lack of proper scripts and call guides; lack of quality control; and failing to understand the synergy with other direct marketing disciplines. As Richard L. Bencin wrote in Strategic Telemarketing, "management must understand and agree to the necessary personnel and financial resources, as well as the time required for program development and testing. Telemarketing and related direct marketing techniques can work astoundingly well. But they need a real chance to demonstrate that success. It doesn't happen over a couple of weekends."
Experts agree that companies must be careful in forming telemarketing goals and objectives. Some of the most important factors for success include: developing a complete marketing plan with built-in criteria for accounting and analysis; writing scripts, sales outlines, and presentations to be performed; establishing training and hiring procedures for both supervisors and sales personnel; analyzing and evaluating campaigns, personnel, and cost effectiveness; having support and commitment from management for the telemarketing's role in the overall marketing effort; establishing reachable goals; and placing a continuous emphasis on follow-up.
IN-HOUSE VS. OUTSIDE SERVICE BUREAU
When establishing a telemarketing program, a company has the option of setting up the operation in-house, or subcontracting it to an outside service bureau. Both have advantages and disadvantages. In-house programs usually are better if products and/or services require extensive technical expertise to explain. They also can be better for firms making a long-term commitment to telemarketing. Service bureaus, on the other hand, can help firms that need around-the-clock coverage for inbound programs, are supporting television ad campaigns, or are running a seasonal marketing program.
SERVICE BUREAUS One of the main advantages of service bureaus is that they can likely offer lower costs. By grouping programs from several different companies, service bureaus can generate sufficient volume to reduce labor and telephone costs, which make up a majority of total costs. They can also get a program started more quickly because they have experienced telephone reps on staff, along with necessary equipment.
When 24-hour coverage is needed on an inbound telemarketing program, it probably is more cost effective to go with a bureau. When setting up an outbound program, the experienced managers at a bureau can help a company avoid making mistakes and often can accurately project call volumes and sales per hour. Service bureaus also can help with testing new programs and have a greater ability to handle demand peaks.
On the downside, several client companies often must compete for a service bureau's attention, and for firms that share service with a broadcast advertiser whose response rates are underestimated, that can be a decided drawback. Stability of service bureaus has also been a problem at times.
IN-HOUSE OPERATIONS The main reason companies decide to run their own telemarketing campaign is that they can maintain total control over all facets, including hiring and firing, scripts and presentations, budgets, advertising, and compensation and incentive policies. When telemarketing programs are kept in-house, phone reps have ready access to company information, so they can confirm delivery, authorize credit, and suggest alternatives to out-of-stock items.
Since in-house reps are trained on individual product lines, they can handle highly technical calls no service bureau likely would attempt. Such technical expertise also helps companies maintain effective customer service programs through observation (such as via call monitoring). In addition, it is easier to gain company loyalty from actual employees than from people employed by an outside bureau. The biggest drawback to taking a program in-house is the large capital investment needed to get a telemarketing program started. It involves hiring and training new personnel, purchasing new communications equipment, and dealing with a process that is unfamiliar to many in business.
TECHNOLOGICAL AND HUMAN ELEMENTS
Computers have played an important role in the growth of telemarketing. Access to databases provides phone reps with account histories, stock status, order-taking formats, and other vital information. Besides analyzing data, computers are used for scheduling, scripting, and follow-ups. Computers also can be programmed to automatically dial phone numbers and connect the calls to telemarketers only if they are answered, screen out answering machines, and guide the phone rep through the telemarketing presentation.
While technology plays a vital role in keeping telemarketing cost-effective, the human element is critical in making the effort successful. Unfortunately, many firms still view telemarketing positions as clerical-level jobs staffed by people with few skills, no training, and little understanding of the product or service being sold. Often, the manager of a telemarketing operation is the only person in an organization familiar with the discipline. Some firms, though, have come to realize the importance of the telemarketers, as the firm's image is on the line with every call. They realize the position needs skilled, trained professionals who must be adequately compensated.
For compensation, most companies use a combination of salary, commission, and/or bonuses. Studies indicate that incentives generally aid in sales success, but it is important to link the inducements to the performance desired, be it total sales, calls completed, or presentations given. Some form of quotas also are common so sales reps know what is expected of them. Firms should be reasonable in setting quotas. If the goals are too high, the reps will become frustrated, leading to morale and worker retention problems. Conversely, low quotas can create an environment in which effort is lacking, especially if the compensation package in place is heavily weighted toward base salary.
Telemarketing positions typically show high levels of turnover, in large measure because the majority of interactions with potential customers end in rejection. Working shorter shifts or using computers to prescreen customers can help reduce the amount of rejection telemarketers experience. Training is another important factor. If the individuals that comprise your telemarketing staff are trained to be specific, control the time and pace of conversation, ask questions and listen without interrupting or rushing the customer's response, and respond to objections or concerns in a positive manner, they will experience greater levels of success—and hence, a more positive outlook on their duties.
CONTROVERSIES AND FUTURE OUTLOOK
Unfortunately, telemarketing has been the basis for numerous scams over the years. Federal authorities estimate that con artists using the phone bilk people out of least $1 billion annually. Some analysts contend that the figure may even be closer to $10 billion, as many embarrassed victims shy away from filing complaints. These frauds have given the telemarketing industry much bad press.
Legislators, on both the state and federal levels, have debated a number of proposed laws that could affect telemarketing in the future. For example, some proposed laws would require registration of telephone solicitors in a state. Registration often includes bonding requirements, submission of scripts and/or names of employees, and other administrative devices designed to create a paper trail to track fraudulent marketers. Another type of proposed legislation, known as "asterisk bills," would require the telephone company or state government to keep a list of people who object to receiving unsolicited phone sales calls. Marketers would be required to obtain the list and not call these people. A similar law passed in 1996 mandated that marketers remove from their calling lists the name of anyone who requests that the marketer not contact him or her again.
A number of other proposed bills seek to restrict the hours available to telemarketers, generally limiting calls to no later than nine o'clock in the evening, local time. Still other laws under discussion would prohibit the completion of some types of phone sales unless a written contract is signed and returned by the consumer. Telemarketers generally favor an alternative allowing firms that offer consumers a right of examination and promise a refund to be exempt from such legislation. Finally, many states have considered enacting legislation that would prohibit or restrict the practice of monitoring customer service employees who work over the phone. The telemarketing industry considers monitoring vital to maintaining quality control and protecting consumers, so many firms ask employees to sign a release allowing such monitoring.