Network Marketing - Enrichment or deception?

TABLE OF CONTENTS

1 INTRODUCTION
1.1 Background and Motivation
1.2 Problem
1.3 Purpose of the Study
1.4 Limitations

2 THEORETICAL FRAMEWORK
2.1 Economical Perspective
2.1.1 Current Situation of German Retail Trade
2.1.2 Current Trends in the Retail Industry
2.1.3 Future Trends
2.1.3.1 Future Developments in Retail Industry
2.1.3.2 Future Developments in the Wholesale Industry
2.1.3.3 Future Trade Strategies
2.2 Channels of Trade
2.2.1 Trade function
2.2.2 Development of Trade
2.2.3 Retail Industry
2.2.3.1 Definition
2.2.3.2 Types of retailers
2.2.4 Wholesale
2.2.4.1 Definition
2.2.4.2 Types of wholesalers
2.2.5 Direct Marketing
2.2.5.1 Definition
2.2.5.2 Objectives and Advantages
2.2.5.3 Types of Direct Marketing
2.2.5.4 Facts about Direct Marketing
2.2.5.5 Future Development of Direct Marketing
2.3 Network or Multi-Level Marketing
2.3.1 Definition
2.3.2 The History of Network Marketing
2.3.3 Facts about Network Marketing
2.3.3.1 From a company’s perspective
2.3.3.2 Customers
2.3.3.3 Sales Partners
2.3.3.4 Selection of Network Marketing Companies
2.3.3.5 Demarcation of Direct Marketing
2.3.3.6 Delineation of Franchise
2.3.3.7 Delineation of Pyramid Scheme
2.3.3.8 Difference of NWM from Traditional Sales channels
2.3.4 Differentiation of ethical and unethical companies
2.3.5 Opportunities and Risks
2.3.5.1 Opportunity in Network Marketing
2.3.5.2 Risks in Network Marketing
2.3.5.3 Relationship in NWM
2.3.6 Strategies in Network Marketing
2.3.6.1 Internet Usage
2.3.6.2 Industry-choice
2.3.6.3 Customer retention
2.3.6.4 Business Ethics
2.4 Relationships—the Core of Network Marketing

3 METHODOLOGY
3.1 Literature Search
3.2 Research Approach
3.3 Data Collection
3.4 Data Analysis
3.5 Methodological Problems

4 RESULTS
4.1 Web based Questionnaire
4.1.1 Respondents
4.1.2 Results
4.1.2.1 First part - general questions
4.1.2.2 Second part - people working for network marketing business
4.1.2.3 Third part - people who left the network marketing business
4.2 Personal interview
4.2.1 Introduction
4.2.2 Results

5 ANALYSIS AND DISCUSSION
5.1 Web based-questionnaire
5.1.1 First part - general questions
5.1.2 Second part - people within a network marketing business
5.1.3 Third part - people who left the network marketing business
5.2 Personal Interview
5.3 Combined Analysis

6 SUMMARY AND CONCLUSION

7 REFERENCES
7.1 Literature
7.2 Websites

LIST OF FIGURES

FIGURE 01. GROSS DOMESTIC PRODUCT ANNUAL DATA FROM 1999 - 2008

FIGURE 02 UNEMPLOYMENT RATE FROM 1991 TO 2009

FIGURE 03. POPULATION DEVELOPMENT OF GERMANY FROM 1950 - 2050

FIGURE 04. BENEFITS OF DIRECT MARKETING

FIGURE 05. ADVANTAGES OF DIRECT MARKETING

FIGURE 06. DIRECT SELLING VERSUS INTERNET PURCHASING

FIGURE 07. TURNOVER DIRECT SELLING WORLDWIDE 1988 - 2007

FIGURE 08. DEVELOPMENT OF SALES FROM 1994 - 2004

FIGURE 09. NUMBER OF SALES PARTNERS WORLDWIDE 1988 - 2007

FIGURE 10. DEVELOPMENT OF SALES PARTNERS FROM 1994 TO 2004

FIGURE 11. DEVELOPMENT OF DIRECT MARKETING

FIGURE 12. PROPORTION OF THE TOTAL POPULATION WORKING IN DIRECT SELLING

FIGURE 13. OPTIMAL DEVELOPMENT IN NETWORK MARKETING

FIGURE 14. THE ORDER OF BRANCH IMPORTANCE IN NETWORK MARKETING

FIGURE 15. MOTIVATION FOR STARTING A DIRECT MARKETING BUSINESS

FIGURE 16. AVERAGE INCOME IN DIRECT MARKETING

FIGURE 17. COMPARISON INCOME AND TIME UTILISATION

FIGURE 18. PYRAMID SCHEME

FIGURE 19. THE TRADITIONAL SALES CHANNEL

FIGURE 20. THE SALES CHANNEL IN NWM

FIGURE 21. EXAMPLE NETWORK BY NEWMAN

FIGURE 22. RELATIONSHIP NETWORKS

FIGURE 23. PARTIES AND LINKS IN AMAZON’S NETWORK

FIGURE 24. RESULTS OF ONLINE QUESTIONNAIRE - LEVEL OF EDUCATION

FIGURE 25. RESULTS OF ONLINE QUESTIONNAIRE - WORKING IN A NETWORK MARKING COMPANY

FIGURE 26. RESULTS OF ONLINE QUESTIONNAIRE - AVERAGE MONTHLY INCOME IN NETWORK MARKETING

FIGURE 27. RESULTS OF PERSONAL INTERVIEW - LEVEL OF EDUCATION

FIGURE 28. IMPORTANCE OF PERSONAL CONSULTING

LIST OF TABLES

TABLE 01. DEVELOPMENT OF TRADE FROM 1999 TO 2008

TABLE 02. MAJOR STORE RETAILER TYPES

TABLE 03. MAJOR TYPES OF WHOLESALERS

TABLE 04 OVERVIEW DEFINITION DIRECT MARKETING

TABLE 05. IMPORTANT DATES REGARDING NWM

TABLE 06. SELECTION OF THE BEST-KNOWN NMOS

TABLE 07. MAIN DIFFERENCES BETWEEN DIRECT MARKETING AND NWM

TABLE 08. CHANCES IN NETWORK MARKETING

TABLE 09. RISKS IN NETWORK MARKETING

LIST OF ABBREVIATIONS

illustration not visible in this excerpt

GLOSSARY

illustration not visible in this excerpt

1 INTRODUCTION

In this chapter, the background, motivation, and problem description of this thesis topic is presented. The purpose and limitations of the study are also presented.

1.1 Background and Motivation

Relationship marketing is an approach which aims at retaining customers. Throughout history, people have used relationship marketing to expand their businesses. Moreover, some producers began to sell their products without intermediary trade directly to final consumers with the help of sales representatives. In order to gain a competitive and strategic cost advantage, the producers dispensed with traditional advertising. This procedure shows the positive aspects of relationship marketing.

The original concept of NWM is based upon trust amongst people and the importance of personal recommendations. Moreover, network marketing is a marketing approach which benefits from relationships. The objective of this approach is to create a positive image of NWM through customer satisfaction. This procedure ensures the economic success of any network marketing company.

NWM, in general, is conceived of a constantly growing business. Nevertheless, an ambivalent societal perception of network marketing exists. “The problem, in general, is that the activity of recruiting people […] is socially and psychologically unacceptable to most people in our society (Bloch, 1996, p. 18).” It cannot be concluded if the success of NWM is due to relationship marketing.

Within this thesis, I analyse if network marketing is enrichment for people - this means how the perception of network marketing is in the society as well as from people within NMO and further, whether NMO deceives people in order to achieve profit.

1.2 Problem

According to Bhattacharya and Mehta (2000, p. 361), “Network Marketing Organisations (NMO) [...] has grown in importance over the last few decades.” For example, Avon, a well-known network marketing company, is ranked number 67 in the Best Global Brands 2009 (Interbrand, 2009). Furthermore, over “70 % of direct-sales revenues are generated by network marketing organizations (Bhattacharya and Mehta (2000, p. 361).” Network marketing is a huge global industry, “a personal selling away from fixed retail locations (Muncy, 2004, p.47),” where strong social networks and relationships are the basis for the success. The estimated worldwide sales resulting from network marketing approaches is $90 billion (Muncy, 2004, p.47). The focus of NWM is on people and congenial and trustful encounters. Relationships between people are one reason why network marketing is a growing business in recent years. Currently, over 60 million people work in the network marketing business worldwide (Zacharias, 2008, p. 29). NMOs depend on personal selling and a compensation plan for their sales force. The compensation plan includes rewarding sales agents for buying and selling products, as well as the turnover generated by their new partners in their downline. NMOs do not interview or hire distributors, nor do companies pay distributors a salary or provide benefits (Coughlan, 2004, p. 3). Usually, recruiting and selling is done within the sales partners’ social circle As mentioned, NWM uses peoples’ social networks, communities and relationships, which are all very important to consumers. People trust recommendations and warnings given by friends, family, and/or business partners for example (Dreyer and Kreß, 2004, p. 9). Cova and Cova (2002, p. 598) define community as: “a group of people with something in common, for example the district of residence or occupational interest.” Mittelstaedt (2004) claims, that emotional space affect consumer behaviour. Additionally, Dreyer and Kreß (2004, p. 9) state that 80% of “purchase decisions are based on emotional factors such as sympathy and trust” and further, that “recommendations and word-of-mouth propaganda are the most important form of communication in the world of business.”

In contrast to traditional marketing, network marketing does not rely on advertising in the same manner as traditional retail. However, consumers lack of knowledge about direct and network marketing. Consumers are more aware of traditional companies who invest large amounts of money in traditional marketing in order to attract customers. According to the traditional marketing, e.g. advertising, customers have become, due to advertising oversaturation, more aware about what they can do in order to avoid advertising. “Advertising can only convey a limited amount of information out to consumers [...] (Muncy, 2004, p. 48).” Therefore, companies are unable to reach all customers in their intended ways. Hence, companies often start to use direct marketing to fill the gap of reaching all customers, for example, by collecting data of their customers with the objective to “target their most valuable prospects more effectively, tailor their offerings to individual needs, improve customer satisfaction and retention, and identify opportunities for new products or services (Hagel III and Rayport, 1997).”

Bhattacharya and Mehta (2000, p. 262) state that the lives of NMO distributors often revolve “around parties, meetings, rallies, conventions and other occasions organized under the banner of NMOs” and have no outside lives. However, NMOs seem to attract people nevertheless, as according to Dreyer and Kreß (2004, p. 10), network marketing provides the chance to achieve a five-figure income. However, Buchhorn (2004) states that money is not the driving force for pursuing a particular career. More important for many are more intangible values, such as the challenge involved in a particular job or personal and work recognition (Dreyer and Kreß, 2004, p.21).

Therefore, I chose the topic of this Masters Thesis: “Network Marketing - Enrichment or Deception?” in order to illustrate what is the catch about network marketing and whether NWM is enrichment or deception for the people

1.3 Purpose of the Study

The main purpose of this thesis is to give a theoretical overview of direct marketing and more specifically, network marketing. Furthermore, the aim is to evaluate the importance of relationships in NWM. Finally, a practical approach to show:

If there is an acceptance of NWM in the society as well as an understanding of NWM amongst people with little or no contact with NWM. This data was collected through the use of an online questionnaire.

What people drive to work in the field of NWM? This data was also collected through an online questionnaire from people already working in NWM. In a self-experiment to prove the theoretical aspects of network marketing and the importance of relationships between people.

1.4 Limitations

The study is limited to a theoretical overview of direct marketing and NWM and an empirical section which prove the data from the theoretical section. Despite the topic network marketing, I do not discuss in this paper, 1) marketing or compensation plans of NMOs, 2) the legal situation for NWM in Germany, and 3) growing social aspects of cocooning or clanning.

Research was hindered due to the fact that some data for NWM, such as reports or statistics were only available by purchase. Therefore, this thesis represents research focused on literature available without cost. .

Even though a pilot study was conducted, it is not possible to eliminate misunderstandings of questions. Moreover, it could not been verified whether the questions of the online questionnaires were interpreted as intended by the author.

The conclusions drawn from the empirical results and analysis have been interpreted as best as possible by the author.

2 THEORETICAL FRAMEWORK

This chapter includes a review of the current German perspective on the economy. Furthermore, three forms of trade, such as retail, wholesale, and direct marketing will be discussed. Moreover, network or multi-level marketing as well as a general overview of social relationships, the core of network marketing, is presented.

2.1 Economical Perspective

Within this section, the German perspective on the economy and the current situation of German retail trade is presented. Moreover, current trends in the retail industry will be discussed. Finally, future trends within the economy are addressed generally.

2.1.1 Current Situation of German Retail Trade

In recent years the environment for retailing in Germany became difficult. The two most important influencing factors will be briefly described below (Zentes, 2007, p.59):

Gross Domestic Product

Since 2000, economic growth in Germany has declined or stagnated with the exception of small periods of economic recovery in 2006 and 2007, where the German economy prospered. However, in 2008, the German economy started to decline again (Destatis, 2009b, p.7).

The following figure shows the development of the German GDP from 1999 to 2008:

illustration not visible in this excerpt

Figure 01. Gross Domestic Product Annual Data from 1999 - 2008 Unemployment Rate

In conjunction with the slow economic growth Germany has over 3 million unemployed citizens, and the number is increasing. These unemployed people can only set limited impulses to the consumption (Zentes, 2007, p.59).

The figure below shows the average unemployment rate in Germany from 1991 to 2009 (Statista, 2010).

illustration not visible in this excerpt

Figure 02 Unemployment Rate from 1991 to 2009

Business Situation

According to Abberger (2009, p.3), in October 2009 the German economy is continuing to recover from recession. Within the slow recovery, there are different cycles for wholesaling and retailing for October 2009. Wholesaling remains in a negative climate but the business climate for wholesaling is improving. This improving business climate could be anticipated, for example, by eased inventory pressure and expectation of stable prices in future. Retailing, in contrast, is in a negative and deteriorated business climate due to price pressures, for example, in food and beverages, as well as expectations of future price concessions (Abberger, 2009, p.4).

2.1.2 Current Trends in the Retail Industry

According to Gruber (2004, p.9), three major trends in retail industry exist: Technological development, internationalisation and globalisation as well as changes in society and consumer behaviour.

Technological Development

Gruber (2004, p.11) states that with progressive development in information and communication technologies, changes in retailing as well as in the retailing market itself will occur. These changes could be either internal or external. For example, by providing information or using information and presentation terminals in order to inform customers. The prospective development could lead to a shift from traditional brick and mortar business, such as Barnes & Noble to electronic commerce, such as Amazon.com (Gruber, 2004, p.17).

Internationalisation and Globalisation

Increasing globalisation and international competition affects trade in general. Reasons for the change in retail industry can be found in different sectors, such as economic, political or technological sectors. One example of the change in retail industry is homeland market saturation. Furthermore, these three sectors are interdependent on each other (Gruber, 2004, p.19).

Changes in Society and Consumer Behaviour

In general, consumer behaviour is subject to constant and continuous change “These changes are defined as a change in values of consumer behaviour and is characterised by changes in intrinsic values, opinions and settings [...] (Gruber, 2004, p. 22).”

Salzmann (2007, p.15) shows that the current trend in consumer behaviour is twofold. On one hand, an experience-expectation of consumers exists with the objective of a personal consumptive experience - even in times of economic instability. On the other hand a “more for less”- expectation exists. Consumers want “more for less,” which means getting an emotional surplus without paying for this surplus.

Another reason for such changes is the increase in German life-expectancy due to improved living conditions. For example, the life span in Germany in 1881 was 35.6 years for men and 38.4 years for women. By 2004, the life-span had increased to 75.9 years for men and 81.5 years for women (Destatis, 2006, p.38). Furthermore, there is a projected population decrease by 2050, as shown in the fig. 03, which will lead to a change in society as well as in consumer behaviour. Two different projections exist. The first, with a 10% decrease is shown in yellow line and the second, with a 17% decrease is shown in purple. These two projections depend on the demographic development in Germany (Destatis, 2006, p.15).

illustration not visible in this excerpt

Figure 03. Population Development of Germany from 1950 - 2050

2.1.3 Future Trends

In this section, future trends, future developments in the retail and wholesale industry, and future trade strategies are briefly presented.

2.1.3.1 Future Developments in Retail Industry

Nowadays, retailing operates in a constantly changing environment. The changing of environment leads to both threats (e.g., fierce competition) and opportunities for retailing (e.g., fast changing consumer demographics, lifestyles and shopping patterns (Kotler and Armstrong, 2006, p.408). In order to be successful, retailers must take the following retailing developments into account, such as growth of nonstore retailing, retail convergence, the rise of mega-retailers, growing importance of retail technology, global expansion and retail stores as “communities” (Kotler and Armstrong, 2006, p.409).

Growth of Nonstore Retailing

In addition to brick and mortar retailers, consumers have many other options for buying products, namely, via mail-order, television, telephone, and online-shopping. Therefore, to retain their share of the market, brick and mortar retailers provide their customers with direct retailing channels.

Retail Convergence

Retail convergence is the “merging of consumer, products, prices, and retailers [...] (Kotler and Armstrong, 2006, p.410).” The segmented approach which includes, for example, discount stores and specialty stores, is losing significance and is switching to a consolidation. Not sure if that is write. This convergence leads to increased competition and difficulties in differentiated offerings. However, small companies and independent retailers are thriving within this process in niche markets.

The rise of Mega-Retailers

The advantages of mega retailers over small retailers include their superior information systems and buying power. Mega-retailers can consequently offer larger merchandise selections and greater savings to consumers. Mega retailers are shifting the balance of power between retailers and producers in favour of the retailer. One example of such a mega-retailer is Wal-Mart.

The growing Importance of Retail Technology

Retail technologies, such as computer-aided analysis, are important competitive tools. Advanced information technologies are used, for instance, to produce better forecasts on the market or competitors, control inventory costs, and order electronically from suppliers.

Global Expansion

In order to escape mature and saturated home markets, many retailers with strong market positions and unique brands, such as McDonalds or Coca-Cola, are expanding internationally.

Retail Stores as “Communities”

A resurgence of establishments, which provide social meeting places, is currently underway. This trend relates due to the increase in ” people living alone, working at home, or living in isolated and sprawling suburbs (Kotler, 2006, p. 413)”.

2.1.3.2 Future Developments in the Wholesale Industry

According to Kotler and Armstrong (2006, p. 418), wholesaling remains vulnerable due to “fierce resistance to price increases and the winnowing out of suppliers who are not adding value based on cost and quality.” However, progressive wholesalers try to meet the changing needs of their suppliers and target customers even in the face of “rising costs on the one hand and demand for increased services on the other.” To achieve the needs of supplier and customers’ a consistently, improvement of services and reductions of costs is necessary. Examples of increased services offered by wholesalers include details about retail pricing, cooperative advertising or marketing, and management information reports.

As stated in section 2.1.31, technological improvement, such as computerized, automated, and online systems, is also mandatory for wholesalers who wish to remain competitive.

2.1.3.3 Future Trade Strategies

Zentes (2007, p.35) states that several factors influence the strategic alignment of trade. These factors are both political, legal and technological conditions and dynamics in trade and competitive strategy. Furthermore, Zentes (2007, p.36) develops five main indicators for future trade strategies, such as competitive strategy orientation, social responsibility, globalisation, supply management and trade marketing, described in the following subsections.

Competitive Strategy Orientation

In general, strategic competition orientation is to achieve an outpacing strategy, which means leading the market in terms of costs, quality and service.

Social Responsibility

Despite an increasingly competitive environment, social responsibility, with regards to ethical, environmental and cultural issues has become an important factor in the strategic orientation of companies.

Globalisation

Within the framework of globalisation, social responsibility is related to global outsourcing, such as, to open new markets in Asian developing countries. Further factors important for globalisation of trade include the emerging markets in general; market skimming, and the management of foreign organisations.

Supply Management

Supply management is becoming more important due to global outsourcing. Furthermore, supply management is regarded as a process of corporate or institutional buying, the management and evaluation of suppliers, and other factors such as the management of materials and the management of services inputs.

Trade Marketing

Trade marketing viewed different factors such as the company, distribution and location policy. In general, trade marketing is focusing on sales fundamentals, such as the price-, product-, placement- and promotion-policy

2.2 Channels of Trade

The focus of this thesis is on NWM. In order to distinguish network marketing from traditional forms of trade, I here briefly introduce common distribution forms, such as the retail industry, wholesale and direct marketing.

2.2.1 Trade function

Trade functions of a macroeconomic perspective shows which various tasks firms have to fulfil in connexion with the line with distribution of goods as a link between production and consumption (Barth et al, 2007, p.25). In other words, the main tasks facing commercial firms are the qualitative, quantitative and time-based adjustments between production and consumption. Schenk (2007, p.15) states that trade is both the permanent and simultaneous organisation of markets for different suppliers of goods as well as the buying market for different consumers of goods and services. In general, trade fulfils regional functions, time-based functions, quantitative functions, qualitative functions, advertising functions and loan functions (Weis, 2007, Helm, 2009).

Regional

The regional function is for compensation of geographical differences between production and consumption.

Time-based

This is the compensation of time between production and utilization toward the manufacturer (pre-disposability) and customer (stock keeping).

Quantitative

The objective of the quantitative function is to provide consumers with tailored offers.

Qualitative

The objective of the qualitative function is to group individual products or services into the entire product or service line. This generates a greater cost-benefit for the customer.

Advertising function

The advertising function provides consumers with information about type, price and availability of certain products and manufacturers with information about needs of consumers.

Loan function

Loan function is the bridge over of time between purchase and payment.

2.2.2 Development of Trade

In general, from 1999 to 2002 there was a decline in retailing as well as in wholesaling in Germany. The number of employed people in trade industry declined in retailing by 3.5% and in wholesaling by 9.0%. The turnover for retailing and wholesaling increased during this time only 1%. This table does not take price development into consideration (Zentes, 2006, p. 96).

illustration not visible in this excerpt

Table 01. Development of Trade from 1999 to 2008

From 2002 to 2007, both the number of employees and rate of turnover increased in both retailing and wholesaling. In retailing, from 2007 to 2008, there was a decline of employees and the rate of turnover declined by over 1 %. In contrast, wholesaling also saw a decline in the total number of employees, but an increase in the rate of turnover during this same period (Destatis, 2009a, p.401). After 2008, the rate of turnover in wholesaling fell sharply and the rate of turnover in retailing also continued to decline (Destatis, 2009d, 2009e).

2.2.3 Retail Industry

In this chapter, a general overview of the retail industry is given, including a main definition and a description of various retailer types.

2.2.3.1 Definition

According to Kotler and Armstrong (2006, p.397), retailing is not a term which includes only supermarkets such as Kaisers. This term also includes Avon representatives and Amazon.com. Hence, Kotler and Armstrong (2006, p.397) state that “retailing includes all activities involved in selling products or services directly to final consumers for their personal, non-business use.” Retailing usually takes place in retail stores. In recent years, nonstore retailing increased, that includes selling to final customers such as home parties, door-to-door contact and other direct selling approaches.

Liebermann and Zentes (2001, p.6) argue that retailing can divided into the two terms functional and institutional retailing. In the context of functional retail trade it is the understanding of economic activity of the sales of goods to end consumer. Moreover, retail trade, in the institutional retailing meaning of the term, are enterprises which are operating in a functional manner.

2.2.3.2 Types of retailers

According to Kotler and Armstrong (2006, p.397), many different types of retailers exist and new ones are continually emerging. An overview of major retail store types is shown in the table below:

illustration not visible in this excerpt

Table 02. Major Store Retailer Types

2.2.4 Wholesale

In this section, a general overview of wholesale retailers is given, including a main definition and a description of various types of wholesalers.

2.2.4.1 Definition

According to Kotler and Armstrong (2006, p.413), wholesaling “includes all activities involved in selling goods and services to those buying for resale or business use.” Furthermore, “wholesalers buy mostly from producers and sell mostly to retailers, industrial consumers, and other wholesalers.”

Liebermann and Zentes (2001, p.5) state that wholesaling can be divided into two terms functional and institutional wholesaling. In the context of functional wholesale trade it is the understanding of the company’s activity of purchasing or distributing goods, for example, to a reseller or bulk buyers, which does not include selling to private consumers. From an institutional perspective, wholesaling is defined by MüllerHagedorn (1997, p. 32), as a practice which includes all institutions whose economic activities solely or mainly belong to wholesaling in a functional way.

2.2.4.2 Types of wholesalers

According to Kotler and Armstrong (2006, p.416), various types of wholesalers exist. The major types are described in the following table:

illustration not visible in this excerpt

Table 03. Major Types of Wholesalers

2.2.5 Direct Marketing

Unlike wholesaling and retailing, direct marketing is a special form of selling and distribution of products to an end consumer. Therefore, direct marketing could not be considered a type of retailing or wholesaling. Direct marketing is a specific form where retailing and wholesaling are combined. According to Krafft et al (2007, p. 4), direct marketing has grown rapidly in the previous year’s which will be discussed later on, and in all major industrial nations is a key component of the entire marketing mix. However, Wirtz (2009, p. 10) states that the content and the understanding of direct marketing has changed. Stone and Jacobs likewise acknowledge the changing nature of direct marketing (2001, p. 4), stating that the continuing growth and development of direct marketing “[...] makes it more difficult to reach a consensus on a standard definition [...].”

2.2.5.1 Definition

Nowadays, various definitions of the term direct marketing exist. For example, Kotler (2002, p. 604) provides a general definition: “direct marketing is the use of consumer-direct channels to reach and deliver goods and services to customers without using marketing middlemen.” Later, different forms of direct marketing such as telephone sales, solicited or unsolicited emails, catalogues, leaflets, brochures and coupons were also included in the definition of direct marketing (Wirtz, 2009, p. 10). Kotler (2006, p.628) as well as Dreyer and Kreß (2004, p. 15) list a personal selling, direct mail, catalogue marketing, telemarketing, interactive TV, kiosks, Web sites, and mobile devices as the major channels of direct marketing with the objective to reach new customers as well as increase the loyalty of their existing customer base (Haupt, 2007, p.55). An example of a company which employs direct marketing is Name of Vacuum Company, who reaches their customers by selling their vacuums directly to their homes as opposed to in a store. Another example of a company using direct marketing techniques is Reader's Digest, who reached 85 million readers with their monthly magazine in 2007 by gathering socio-demographic variables and data relating to buying behavior. Reader’s Digest used their built customer database for individualized direct mail initiatives? (Gummesson, 2008, p.49).

Other understandings of direct marketing are listed in the following table:

illustration not visible in this excerpt

Table 04 Overview Definition Direct Marketing

While the definition of direct marketing has evolved over time, in this master-thesis, the definition from Kotler (2002, p. 604) will be used as the standard definition: “Direct marketing is the use of consumer-direct channels to reach and deliver goods and services to customers without using marketing middlemen.”

2.2.5.2 Objectives and Advantages

According to Krafft et al. marketing are:

- Acquiring new customers
- Building customer loyalty
- Improving customer service
- Reacquiring lost customers
- Selling products and services
- Strengthening branding

Moreover, as can be seen in the figure below, the central beneficiary of direct marketing is the customer (Krafft et al., p.9).

illustration not visible in this excerpt

Figure 04. Benefits of Direct Marketing

Furthermore, Krafft et al. (2007, p.8) argue that the objectives of direct marketing from a company’s perspective can be summated in three words: reportability, measurability and individuality. Additionally, Wirtz (2007, p.31) states, the main tasks of direct marketing are personalisation and integration, for example, of products.

Krafft et al. (2007, p.8) identify other factors which contribute to successful direct marketing techniques, such as reacting to market trends, market dominance in customer niches, increasing effectiveness of, for example, selling products, response to market trends, a clear purpose what the objective is and a controlling implementation.

In the figure below, advantages of direct marketing from the customers’ point of view will be depicted (Prognos AG (2005, p.17; DSO, 2009).

illustration not visible in this excerpt

Figure 05. Advantages of Direct Marketing

[...]