Submag, Inc., uses direct-mail promotion to sell magazine subscriptions. Magazine publishers pay Submag $3.12 for each new subscription. Submag’s costs include the expenses of printing, addressing, and mailing each direct-mail advertisement plus the cost of using a mailing list. There are many suppliers of mailing lists, and the cost and quality of different lists vary.
Submag’s marketing manager, Shandra Debose, is trying to choose between two possible mailing lists. One list has been generated from phone directories. It is less expensive than the other list, but the supplier acknowledges that about 10 percent of the names are out-of-date (addresses where people have moved away.) A competing supplier offers a list of active members of professional associations. This list costs 4 cents per name more than the phone list, but only 8 percent of the addresses are out-of-date.
In addition to concerns about out-of-date names, not every consumer who receives a mailing buys a subscription. For example, selective exposure is a problem. Some target customers never see the offer—they just toss out junk mail without even opening the envelope. Industry studies show that this wastes about 10 percent of each mailing—although the precise percentage varies from one mailing list to another.
Selective perception influences some consumers who do open the mailing. Some are simply not interested. Others don’t want to deal with a subscription service. Although the price is good, these consumers worry that they’ll never get the magazines. Submag’s previous experience is that selective perception causes more than half of those who read the offer to reject it.
Of those who perceive the message as intended, many are interested. But selective retention can be a problem. Some people set the information aside and then forget to send in the subscription order.
Submag can mail about 25,000 pieces per week. Shandra Debose has set up a spreadsheet to help her study effects of the various relationships discussed earlier and to choose between the two mailing lists.
a. If you were Debose, which of the two lists would you buy based on the initial spreadsheet? Why?
b. For the most profitable list, what is the minimum number of items that Submag will have to mail to earn a profit of at least $3,500?
c. For an additional cost of $.01 per mailing, Submag can include a reply card that will reduce the percent of consumers who forget to send in an order (Percent Lost—Selective Retention) to 45 percent. If Submag mails 25,000 items, is it worth the additional cost to include the reply card? Explain your logic