As of August, the National Do-Not-Call (DNC) Registry launched by the Federal Communications Commission a year ago contained approximately 62.5 million phone numbers, with more than 57% of adults telling a Harris Poll that they've jumped aboard.
Regulatory action against telemarketing had been building since 1991, according to Tim Searcy, executive director of the American Teleservices Association (ATA), an industry group headquartered in Indianapolis. State after state had enacted legislation restricting its use. But the FCC's registry was, for many, the crowning blow.
“What are they going to do to us next?” was the first reaction from Wayne W. Winn, president and owner of Hometown Restyling in Hiawatha, Iowa. “Part of the problem,” Winn notes, “is they picked certain industries and let others still telemarket. But it's also a change in the times.” Winn says telemarketing, which once produced 95% of Hometown Restyling's leads, now generates between 20% and 25%.
Uphill Battle, Unwinnable War? Winn's story will be a familiar one to many replacement companies all over the United States. Kim Renstrom, vice president of marketing for K-Designers in Sacramento, Calif., has also seen telemarketing diminish as a source of new business. Whereas the company's Sacramento phone room once produced 97% of K-Designers' leads, it now generates about 80%.
Murray Gross, chairman of U.S. Home Systems, one of the biggest companies in the home improvement industry, found he couldn't make the numbers hitting his desk in Lewisville, Texas, pay off from any angle. So in January 2004, Gross shut down his whole telemarketing operation. “We used to write a lead every 45 minutes,” he says, “and that had dropped to one almost every four hours. The hostility was growing significantly. Even if the homeowners weren't on a DNC list, they were more vociferous about their feelings toward the annoyance.”
Paul Despenas, vice president of marketing at Midwest Construction & Supply in Mason City, Iowa, blames the market. “It really wasn't the government that did this,” he says. “It was that companies overused the tactic. Remember how you used to get one or two calls a week? Then everybody from credit card companies, banks, cell phone services, Realtors — they all climbed in the arena. Suddenly you got 22 a week. People got tired of getting beat up,” he says.
New Role for the Phone Room Replacement contractors who continue to use telemarketing have taken various steps to cope with the new situation. Winn, for instance, increased his marketing area to compensate for the fewer available names. He maintains a phone room staff of six to eight people and now funnels show and event leads their way. “Who better to work on warm leads than somebody who's used to cold calling and getting a lot of rejections?” he says.
He's also tweaked his script. When a homeowner's “not interested” in setting an appointment, the telemarketer invites him or her to stop in the company showroom. Lead tracking shows that an average of five people each month respond to that invitation, out of which Winn says he can count on three qualified leads and usually close on one deal. Average price tag: $9,000 per job.
The better news for Winn's bottom line is that with 30% of leads now coming from repeat or referral business, marketing costs have dropped from around 20% of revenue to about 8%.
Like many contractors, Despenas praises telemarketing for its ability, way back when, to produce a predictable number of leads in a given time frame. But three years ago, he convinced others in the family-owned business to take a page from the customer service management philosophy and adopt the softer, call–mail–call sales approach. The idea is to let previous customers and telemarketing respondents who suggested the telemarketer call again later know that Midwest Construction just completed a job in the area and then offer free printed information. If the resident agrees, telemarketing follows up the mailer with another phone call to get a salesperson to the home.
Still, much as he's making lemonade from lemons, the shrinking number of people available to call forced Despenas to ax the telemarketing day shift in May. But he continues to telemarket as part of his total lead mix, in part because Midwest Construction offers a number of products.
“If you sell only windows, you're limited to how much interest you can get in a single call. And we can run an operation like this because our average job pays a lot higher than just, say, a gutter job,” Despenas says.
Sticking it Out Renstrom began fine-tuning the technology of telemarketing back in 1990, when K-Designers initiated an internal DNC list. She had predictive dialers and database scrubbing in place when DNC laws began hitting the books. Because the company does business in 17 states, Renstrom feels her opportunity to reach households that remain eligible for phone calls is better than for those with more limited market areas.
“The biggest effect the law had on us is that, in order to support the same size sales force and do the same volume, we spread ourselves a bit more geographically,” she says. K-Designers continues to maintain 180 part-time callers and in fact moved into a larger facility last August.
As with many home improvement companies, the decline in telemarketing has caused K-Designers to be wary of putting too many eggs in any one lead generation basket. Now that telemarketing generates 80% of leads, the goal is to reduce that to between 50% and 60% and spread the marketing budget out among other lead sources, such as direct mail. Also, like other companies that still do cold calling, Renstrom's staff has developed a healthy respect for each phone number still available, taking care not to call too often. And she pays a lot more attention to conversion rates now that the marketing base isn't infinite.
“I think two things will happen as a result of the laws,” she says. “A lot of fly-by-night companies will go out of business, which makes it easier for ethical, legitimate contractors. Eventually that will make it less expensive once again for those who stick it out.”
The ATA's Searcy agrees that the current situation isn't horrendous. Adjustments amount essentially to re-engineering. That doesn't mean, however, that regulatory pressures are going away. “The reality is that this is an ongoing march against the [telemarketing] industry that hasn't stopped with the federal DNC,” he says, noting that the next step may be to eliminate exemptions already in place, such as the existing business relationship clause.
Enforcement Picking Up Steam On May 14, backed by donation dollars mainly from replacement contractors and the time share industry, the ATA filed a request for a Supreme Court hearing on the legality of the Do-Not-Call Registry. Searcy says he won't know whether it's successful until late fall. But although he's suing on the grounds that the law is unconstitutional, until such time as the high court agrees, he advocates that the ATA's 600 members adhere strictly to the rules.
Fines — $11,000 for each federal DNC violation — are the reason. And with the rise of what lawyer D.S. Berenson calls “telemarketing lifers” who make their living sitting by a phone to catch errant sales calls, the situation has taken an ugly turn. “We are now handling close to a dozen clients around the country, and none of these are what I would normally have considered to be [inclined to violate the law],” says Berenson, Washington, D.C., managing partner of Johanson Berenson LLP, a national law firm.
A second concern is that once you, a home improvement company with a phone room, run afoul of federal rules, officials are entitled to ask about any of your other business practices. “The great risk for the replacement contractor may not be, ‘Did I violate the predictive dialing?' but, ‘Did I violate any other state or federal laws?'” Searcy warns.
And with enforcement picking up steam, “a lot of firms are playing the lottery on this,” he says.
Luckily, most mistakes stem from blind ignorance, a forgivable offense before the judge. Federal and most state telemarketing legislation features safe harbor provisions that say that if you're doing your best to comply, the error is presumed inadvertent. Compliance includes posting a DNC policy, training telemarketers in it, and scrubbing lists to remove registry names (every 30 days starting in 2005). “The goal of the federal legislation is not so punitive as to shut down telemarketing entirely,” Berenson explains. “The point is not to say you must be foolproof in your methodology. We rely on the inadvertent-error defense quite a bit, and we've gotten a lot of clients off scot-free.”
Of course, that scot-free doesn't include legal fees. You'll shell out several thousand dollars at a minimum every time you put on a suit and show up at the courthouse. Some of the ATA's members have hired compliance officers specifically to monitor their telemarketing operation, auditing everything from calling hours to predictive dialing patterns, and to assess risk. This option costs between $40,000 and $100,000 for an additional salary on your payroll, taxes and benefits notwithstanding.
That's a bit of a luxury for contractors like Despenas, who instead invests in upgrading his dialer, cleansing data, and tracking diligently via MarketSharp software. All require daily involvement, “so compliance is a little more labor intensive right now,” he reports.
At K-Designers, each person in the call center is trained weekly in how to handle accidental calls. In addition, Renstrom insists that her list vendor screen each purchase against both the national and all state registries. And, as a last safety net, company IT staff members rescreen the data before the information is loaded in the dialer each week.
Winn says he's gone back to hand dialing for leads.
On the Horizon The restrictions on telemarketing are not the end of the world for established businesses like Home-town Restyling. “In our market, 50% of the people we used to call, we can no longer contact by telephone,” says Winn. “Which means my competition can't contact them either,” he notes. “So we just have to be better marketers.”
To fill the void in leads, Winn is using door-to-door canvassing. Since October 2003, he's sent employees into neighborhoods, dressed in company shirts, to ask if anyone is interested in a free estimate for a new sunroom, windows, or siding. “More than 50% of the leads we get are on the DNC list, but they grant us permission to call them this way,” he says. It's one of 26 lead sources he uses throughout the year. “I wouldn't go back to the days of 95% telemarketing,” he insists. “I like the mix better.”
Similarly, in the past five years, Despenas has redirected money from outbound telemarketing to slowly build his television and radio ad presence. And through an aggressive advertising insert program, he's used his print campaigns to create a private database of phone numbers exempt from the laws. Call-in leads, predictably, have jumped “way up.”
Renstrom says K-Designers hasn't gotten an acceptable return from broadcast, but that doesn't rule out another run at it. Meanwhile, she's experimenting with free gift offers that entice people to the company's Web site and is also using Internet referral agencies like Service Magic. Cooperative direct mail marketing campaigns with home improvement companies that offer products that complement those of K-Designers are also on the drawing board.
Nearly all of those tactics keep U.S. Home Systems' Gross chugging along after closing his 230-person telemarketing operation in Boca Raton, Fla. And despite the fact that his large regional reach means the marketing department shoulders more demand for custom messages in these direct mail brochures and television spots, his results have been positive. The first quarter of 2004 saw lead costs down from the same quarter in 2003.
So was the telemarketing shake-up positive or not? “Well, I don't know,” Gross says. “From my position, I still think it was a negative, although we've had positive results from it. Only time will tell.” —Julie Sturgeon is a freelance writer based in Indianapolis.