September 29, 2003

Gov't Statistics Contradict Inflated Telemarketing Claims

At various times, representatives of the telemarketing industry have claimed that telemarketing is responsible for over $600 billion in annual sales and five million jobs. However, these statistics are clearly inflated. First, the industry groups numbers are generated from closed studies, and the public cannot view the raw data from which the conclusions are drawn. The telemarketing studies cannot be subjected to meaningful peer review because they are drafted in secrecy. Second, if in fact $600 billion in annual sales were made with telemarketing, that would mean that the average US household buys $6,000 of goods and services from telemarketers each year.

Furthermore, the 1997 US Economic Census shows that telemarketing only contributes $20 billion to the economy and just over 500,000 jobs.

1997 Economic Census: NAICS 561422 Telemarketing bureaus, US Census.

Industry-generated studies on the economics of telemarketing are suspect because they employ questionable methods, use broad definitions of sales call activities, and tend to ignore costs that are transferred to the call recipient.

Industry-generated studies on the economics of telemarketing are suspect because they employ questionable methods, use broad definitions of sales call activities, and tend to ignore costs that are transferred to the call recipient. Studies performed on telemarketing by industry groups such as the Direct Marketing Association (DMA) rarely include explanations of study methods or datasets. For instance, shortly after the FTC announced the proposal for creation of a DNC list, a DMA official was quoted as saying: "The FTC must be careful and deliberate in weighing the merits of this proposal because more than 6 million jobs and $668 billion in sales in the United States are at stake." [54] The DMA has not adequately proved how it calculated these figures. These figures appear on the DMA website without any explanation of methods. [55]

Further, even the term "telephone marketing" is defined in a vague fashion: "Telephone Marketing includes all out-bound direct response advertising communications conducted over the telephone using conventional, WATS, private line, or other telecommunications services. This includes all outsourced and in-house telephone marketing designed to immediately sell a product or service, identify a lead, or generate store traffic." [56] A $668 billion figure calculated from this definition appears to include both inbound and outbound telemarketing. Additionally, the figure appears to include business-to-business telemarketing, business-to-consumer sales calling, and solicitations on behalf of non-profit entities. However, the DNC list and other proposals such as requiring the transmission of caller ID would not affect inbound telemarketing. The regulations set forth and complaints made by individuals primarily apply only to business-to-consumer outbound telemarketing. The FCC should not accept the DMA or American Teleservices figures without determining what percentage of sales would pertain to business-to-consumer outbound sales calling only. Additionally, these figures should not be accepted until the methods used to obtain them are adequately explained to the public.

In a recent article from the Washington Post, the telemarketing industry was quoted for the proposition that "people spent $276.6 billion on purchases from outbound telemarketers." [57] If one divides the sales figure by the number of households in the United States using Census statistics, this would mean that the average household spent over $2,600 on outbound telemarketing in 2001. Within a week, the President of the DMA claimed at a convention that: "Americans spend $296.2 billion on outbound telemarketing offers." [58] If that figure is correct, the average household spends over $2,800 on telemarketing. These figures do not comport with reality.

The industry groups' studies on telemarketing also tend to ignore costs that are passed on to the consumer. Some of these costs include time that is lost in answering sales calls, frustration with frequent calls and "dead air" calls, and purchases of anti-telemarketing devices and services. Caller ID, for instance, is one service that is marketed by telephone companies as a measure to combat unwanted telemarketing. Caller ID costs consumers $7.50 a month, and it does not fully address telemarketing because many sales callers purchase phone service that does not transmit Caller ID information. Accordingly, consumers are urged to add another service to Caller ID called "Privacy Director," which is specifically advertised as being effective against telemarketers that do not transmit Caller ID information. Privacy Director from Bellsouth costs $5.95. [59] These monthly charges represent significant costs that are passed to consumers. Private Citizen Inc. estimates that consumers spend $2 billion a year in caller ID services to avoid telemarketing. [60] The industry studies rarely consider these costs when calculating the benefits of the telemarketing industry. [61]

[54] FTC Defends Plan For 'Do Not Call' Telemarketing List, Washington Post, Jan. 23, 2002, at http://www.newsbytes.com/news/02/173871.html.
[55] 2000 Economic Impact: U.S. Direct Marketing Today Executive Summary, at http://www.the-dma.org/cgi/registered/research/libres-ecoimp1b1a.shtml.
[56] Direct Marketing Media Definitions, at http://www.the-dma.org/cgi/registered/research/libres-ecoimpact5.shtml.
[57] Have We Reached the Party To Whom We Are Speaking?; Telemarketers Aren't So Bad. Really. Just Ask 'Em, Washington Post, Oct. 20, 2002.
[58] Wientzen: Legislative Challenges Threaten DM Industry, DMNews, Oct. 22, 2002, at http://www.dmnews.com/cgi-bin/artprevbot.cgi?article_id=21924.
[59] BellSouth Privacy Director, at http://bsol.bellsouthonline.com/cgi-bin/gx.cgi/AppLogic+ProductPageAppLogic?
applDomain=conscatalog&appName=consumer&location=404607&pc=PMX1R_.
[60] Telecoms Play Both Sides, CNN.com, Oct. 30, 2002, at http://www.cnn.com/2002/TECH/ptech/10/30/telemarketing.war.ap/index.html.
[61] See Robert Gellman, Privacy, Consumers, and Costs: How The Lack of Privacy Costs Consumers and Why Business Studies of Privacy Costs are Biased and Incomplete, Mar. 26, 2002, at http://www.epic.org/reports/dmfprivacy.html.

Posted by EPIC at September 29, 2003 2:34 PM