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The traditional way of marketing a product or service is to advertise it and wait for customers to show up. But if you want to build sales quickly in a measurable manner, you need to try a more direct approach by finding out which consumers are likely to be interested in your offer and talking to them directly.

This is the essence of direct marketing - a medium that combines an intelligent use of data with communication via a range of channels, such as mail, telephone, email, the web and even text messaging. British businesses spend £37bn on direct activity every year, according to the Direct Marketing Association (DMA), with nearly three-quarters of all companies that post a turnover of more than £1m using it.

One reason for the medium's popularity is its ability to make an instant impact on a firm's bottom line. A prime example of this effectiveness is provided by the city of Stockton-on-Tees, which wanted to entice more visitors to its free arts festival. Each year it sent event brochures to local households, but only a fifth of the recipients attended the festival, meaning the lion's share of the marketing budget for the event was going to waste.

Two years ago, the city changed its strategy. Direct agency Rocket Science began to target affluent people outside the area. This increased visitor numbers by a third, bringing in an extra £800,000 of custom for local businesses. 'We achieved that despite having the same budget as previous years,' says Reuben Kench, head of arts and culture at Stockton Council.

As well as acquiring new customers, direct marketing offers a powerful method of creating loyalty - an especially valuable asset as consumers become increasingly brand- promiscuous. By providing an effective channel for regular communication between brand and customer, it helps to strengthen the relationship.

'Direct marketing allows you to build a personal dialogue with consumers one at a time. That helps you understand how a particular individual thinks, feels and behaves,' says Marco Scognamiglio, chief executive of WWAV Rapp Collins London, which has recently been working with the NSPCC. The agency's activity for the charity has included sending donors regular newsletters explaining how their money is helping.

Boots, too, has found direct marketing an important way to build loyalty, as it fights to retain its share of female consumers. The high-street retailer has been working with direct agency Craik Jones Watson Mitchell Voelkel to send personally addressed communications flagging up the value of health and beauty products appropriate to the life-stage of each recipient. The initiative delivered a return-on-investment of eight to one, stimulating incremental revenue of between £4m and £9m.

Data management

In the past, the process of carrying out direct marketing consisted, in essence, of companies buying a list of names and mailing everyone therein, fuelling complaints about junk mail. However, there are now strict rules about what marketers can do with information about consumers.

'Collecting data without knowing what you are going to do with it is a common mistake, and can lead to legal infringements,' warns James Northway, head of Carat Data Planning.

The Data Protection Act, for example, imposes restraints on the collection and use of data. Consumers can also sign up to the DMA's Mailing Preference Service so that they can opt out of receiving unsolicited direct mail. There are similar Preference Services for telephone and electronic communications - and it is essential to remove from your lists any names that are on those Preference Services. Getting consumers' permission to contact them is not just a legal requirement, it is also sound practice. The trick is to be relevant, targeting only those people or businesses who have a potential interest in your offer.

'You need to make sure that you're angling where the fattest fish are in greatest quantity. That way you'll get a very healthy return on your investment,' says Chris Freeland, client service director at Tullo Marshall Warren (TMW).

Specialist suppliers can provide lists of prospects compiled from sources such as subscribers to a particular magazine or website. Brokers can help you source the right list for your needs - but it is important to check that the data is recent. 'If you're marketing baby food, there is no point targeting a mum who purchased baby clothes two years ago,' says Claire Hart, director at Caspian Partnership.

Another problem to look out for is duplication, as it may be that the same consumer details have been collected twice, but with slight variations - for instance John Smith and J Smith. You should also use special suppression files to weed out people who have died or moved house.

Pinpointing targets

Once your lists have been compiled, the next step is to identify the hottest prospects. Start by creating a profile of your typical customer in terms of age, gender and level of income. Postcode data will provide useful clues such as property values and socio-economic groups, whereas lifestyle data will tell you things such as the car they drive and the newspaper they read.

With this information to hand, you can then analyse your prospect file to identify the people who look most like your existing customers. The data can be further segmented to ensure that different types of consumer are approached in the most appropriate way for their age, gender and background. Personalising direct messages heightens their impact, and can be done cost-effectively through digital-printing techniques allowing letters and brochures to be varied by recipient.

TMW, for example, developed distinct direct mail creatives for Nissan to promote three car ranges, with an accompanying letter compiled from no fewer than 250 variations.

'People have many different reasons for wanting to buy,' says Sara Field, database controller at Nissan GB. 'This is an effective way to reach them without the expense of creating many different communication pieces.' Cold-calling prospects on the telephone is another variant of direct marketing, but one that is tricky to do well. The number of people blocking such calls is rising rapidly, but there is nothing to stop you calling existing customers, as long as it is related to the product or service already bought. A courtesy call to check that a product was received or that a service is working will engender goodwill and could mean a more receptive welcome to a sales offer in the future.

Email newsletters are another useful medium for keeping in touch with customers and prospects, as long as they have opted to receive them. Last year Citroen used the method to drive traffic to its website. Its agency, Syzygy, spent 12 months analysing the behaviour of visitors to the site, such as the point at which they logged out and the brochures they requested. It then developed a set of tailored emails which could be sent to opted-in visitors at each of these key stages. As a result of the emails, the recipients' group was found to have made significantly more purchases than a control group and were twice as likely to complete a dealer search and visit the offers section.

Marked response

DRTV is another much-used direct marketing tool for capturing data and starting a dialogue. An execution run last year by MC&C on behalf of Asthma UK led to 26,000 calls, with most callers opting in to receive further communications and 2300 making donations over the telephone.

Combining direct with other types of advertising is also an effective strategy. Draft recently carried out a campaign for Oxfam that combined direct mail with other media such as TV and press ads, as well as inserts, posters and internet advertising. 'Direct marketing is no longer just about stuff you receive through the letterbox,' says Erminia Blackden, joint head of planning at Draft London. 'It is much more an attitude of keeping in touch, which means you can use a variety of channels.'

In a similar vein, Proximity London ran a campaign for the BBC to persuade students to buy a TV licence. It sent a mailing to university students who did not have a licence, but also distributed posters, leaflets and application forms on campuses.

Evaluation has shown that campaigns of this type generate nearly twice the sales of advertising alone, and are 50% better than just advertising and direct mail running together. 'The increase in sales was almost triple that forecasted,' says Louise Houba, campaign manager at BBC TV Licensing.

Direct marketing requires a certain level of expertise to be carried out well, and can require specialist help, particularly in the use of data. Its advantage is that it is guaranteed to raise sales, making it an essential tool for almost any business.

CASE STUDY - DUDLEY COLLEGE OF FURTHER EDUCATION

In order to make its marketing budget go further, Dudley College of Further Education dropped the blanket marketing approach used by most of its peers and adopted analysis techniques to achieve precise targeting.

Consultancy Rocket Science cleaned and de-duplicated the college's adult student database, whittling down the 34,000 records by almost half. It then segmented students by demographic and lifestyle characteristics. The analysis showed that its students tend to be young, of average affluence, and married with 2.4 children. They also work in craft or trade occupations and enjoy practical activities such as DIY and home computing.

The next step was to create a matrix of local post-code clusters with the greatest proportion of people matching this profile. By focusing on these, the college achieved an increase of 19% in enrolment levels across all targeted areas. It also reduced the number of brochures it distributed, knocking 23% off its budget.

'This was a radical departure, but by taking a leap of faith we achieved a higher enrolment level while spending less,' says Hilary Jakovlevs, assistant principal marketing at the college. 'There is no doubt that adopting a targeted approach has had a significant impact on the effectiveness of our marketing.'

DIRECT MARKETING - DOS AND DON'TS DO segment your data and target those who are most likely to respond

DO test a sample of your data, perhaps comparing different lists to see which generates the highest number of responses

DO integrate direct marketing with other media to help reinforce your message

DO evaluate the campaign to ensure you are getting good return on investment

DON'T incur penalties by contacting people who have signed up to a service to block marketing communications

DON'T waste money sending mail to the same person twice, or to people who have died or moved house

DON'T use a one-size-fits-all creative, but modify your message to appeal to different segments

DON'T forget to analyse your responses and use the information to improve future campaigns.