Direct Mail Outlook — Better Days Ahead

BY ALL rights, the 2007 direct mail year in review should have been one lined with unbridled glee in the wake of postal reform legislation that squeaked through Congress at the 11th hour of last December’s lame duck session. At long last, future rates would be tied into the Consumer Price Index, providing mailers with a degree of cost certainty.

Then came the May rate increase and a reminder that every silver lining is attached to a dark cloud.

The crippling increase for flat-shaped mail pieces was particularly harmful for catalogers and their printers but, on the whole, the direct mail community enjoyed success in adjusting campaigns to meet the now-cheaper letter rate standards. It’s come at a price, as mailers have once again needed to become more finicky in their frequency and size, while ratcheting up the customization and personalization levels to a higher degree.

One thing’s certain: When all of the calculations are complete, direct mail remains the most viable and highest-returning option for marketers to spread their message.

The Internet has played a large role in the growth of direct mail response rates, according to Cliff Hollingsworth, vice president of digital solutions for Consolidated Graphics’ CGXSolutions in Houston. While the “Do Not Call” list placed great restrictions on telemarketing, the Internet has become the preferred method of shopping. Not surprisingly, marketers are directing end users to their Websites with mailed incentives.

Invest $1, Get $11 ROI

Hollingsworth, citing the DMA’s “2007 Power of Direct Marketing” report, notes that for every dollar invested in direct mail, the average yield is $11.69, an extremely high rate of return. Even so, he adds that increases in raw material costs and postage have forced clients to be more discerning in their target audience and cognizant of the more automated sizes for preferable postal rates.

“More and more direct mail is tied to some sort of offer or call to action that requires the response to be more personalized,” Hollingsworth says. “The need to eliminate the obsolescence of printed materials, improve the efficiencies of inventory and warehouse management related to all types of printed collateral—while at the same time reducing the overall costs of these processes—are huge factors in how direct mail and digital printing are applied today.”

From the standpoint of Chicago-based RR Donnelley, customer acquisition is fueling direct mail growth. George Zengo, president of Global Print Solutions, notes that the postal increases of 2007 impacted the timing of mail drops as the U.S. Postal Service (USPS) endured a soft quarter between May and July. The increases caused many customers to test new campaigns in search of optimal rates.

“The not-for-profit sector experienced a dual-edged sword, as letter rates decreased and flat rates increased,” Zengo points out. “As a result, not-for-profits, in general, have increased their testing of the two formats to assess the best results.

“On the up side, though, the new postal regulations are resulting in improved list accuracy and delivery for mailers, leading to improved return on investment. Since our customers judge overall success by program results, not just postal costs, their testing is ongoing.”

Jim Andersen, president and CEO of Chanhassen, MN-based IWCO Direct, felt direct mail printing campaigns shifted from growth mode in early 2007 to a weakened state due to factors that included postal rate increases, upticks for energy and raw material costs, a shrinking paper (supply) market and the collapse of the sub-prime mortgage industry. While IWCO Direct’s strategy has allowed customers to temper and eliminate the impact of the postal boost, pricing pressure continues to build as faltering market conditions impact overall demand and marketing budgets.

Andersen says the passage of postal reform is only beginning to be felt as the new regulations come down from the Postal Rate Commission. “The majority of IWCO Direct’s clients use formats that qualify for letter rates. Those whose control packages were flat-shaped engaged IWCO Direct’s Creative Services team to assist with developing letter-sized formats for testing. While test results are still being compiled, early indicators suggest the re-design of these packages dramatically reduces postage costs with no degradation in response rates.”

Vertis Communications of Baltimore has noticed a slight shift in mailing programs from acquisition-based to retention- and loyalty- driven campaigns. Some are less elaborate and use less paper, thus lowering postage costs, saysDave Colatriano, senior vice president and general manager, direct marketing. Others combine direct mail with other media to produce multi-touch programs, such as innovative components to drive Web traffic.

Colatriano points out that Vertis’ clients frequently work across multiple production platforms, from in-line to laser/lettershop and digital printing, depending on the scale and objective of the campaign.

Among the variables affecting the direct mailing space, Colatriano sees shifting dynamics in various industries and business models that are being challenged. “Certain markets need to reinvent their prospecting strategies; the current model is not very effective,” he says. “Large-scale mailers are mailing with greater frequency and with better segmented and updated lists. Rather than massive runs quarterly, they are going out every week and month.”

Improving Customization

RR Donnelley has funneled investment dollars into technology to improve customization, including imaging, intelligent features for response tracking and mailing efficiencies. The printer has rolled out MICA process color ink-jet, a proprietary plateless technology that could translate into cost savings for press setups and longer postal strings, while enabling improved response rates.

Zengo adds that clients are accessing more end-to-end solutions, and Donnelley has responded with expanded print fulfillment and literature management services that are tightly focused on loyalty marketing.

IWCO Direct bolstered its creative services program during 2007 and augmented its commingling and logistics platforms to drive postage optimization results. Its North Carolina plant was expanded to include a “super-commingle” site, while the New York operations were reconfigured to focus on the growing demand for trigger and response management capabilities, including digital printing.

CGXSolutions focused much of its 2007 enhancements on process efficiency. The ability to accurately produce more projects in a condensed timeframe has been pivotal for CGXSolutions, according to Hollingsworth.

“We’re increasing value and relevance to our clients by investing in digital printing, direct mail, database services and cross-media tools to offer them the ability to reach their markets in more flexible and quantifiable ways,” he says.

Among the investments made by Vertis Communications to enhance its mail offerings: an expansion of its laser/lettershop capabilities to provide faster and more cost-effective conventional mail; the launch of several high-impact, dimensional mailing formats that can be printed in-line for long run lengths; and expanded Web portal products that allow some segments to order their direct mail products more efficiently.

“Vertis is assisting customers in building Website interaction and loyalty with integrated campaigns that align the Vertis product line in a collaborative effort—newspaper inserts, direct mail and e-mail,” Colatriano explains.

IWCO Direct’s Andersen believes that the industry as a whole needs to remain focused on “Do Not Mail” legislation that is being introduced throughout the country, and mobilize in those states that explore the possibility. Passage in even one state could have disastrous consequences for marketers and, naturally, mailers. Market conditions may also influence the first part of 2008, as could another postal increase.

IWCO’s expansion initiatives should pave the way for a successful 2008, Andersen believes. And don’t rule out the company dipping its foot into the M&A waters.

“The expansion will allow us to continue to offer unsurpassed value to our customers with leading postal optimization strategies and meet the growing demand for specialized direct mail programs, such as trigger mailings and response management services,” he says. “We anticipate an acquisition in the western United States in the second half of 2008 that will continue to drive value for customers by adding capacity in a fourth strategic location, providing regional mail delivery curves for national mail programs.”

Proficient at Profiling

Moving forward, Hollingsworth believes it is important for direct mail printers to become more proficient at profiling their customers’ databases and tracking the results with a greater accuracy, thus keeping costs down while boosting returns. It is CGXSolutions’ goal to leverage its capabilities and geographic footprint to provide clients the ability to print and mail in specific markets, improving their time to market and driving those higher returns.

“We are committed to providing coordinated projects utilizing variable data printing, data management, cross-media and other methods with the goal of maximizing the returns for clients both in increased revenues and effective spending of their postage budget,” he says.

As 2008 gets under way, Colatriano expects customers to continue their quest to reduce costs and cycle times, as well as the movement toward segmentation to improve relevance and ROI. While Vertis clients aren’t expected to reduce their mailing budget in the coming year, the demand for return on marketing dollars doesn’t shrink, either.

“We continue to develop direct marketing services that support developing communications trends in our core vertical sectors,” he reveals. “Vertis believes that increased complexity requires improved quality control. Five of our facilities are ISO 9000 (certified), and our quality initiatives include full-time lean manufacturing and continuous-improvement managers (who are certified Six Sigma Black Belts) at our six direct marketing production facilities.

“We’re aggressively working to expand our client base and move into different segments.”

Donnelley’s Zengo believes the ec- onomy bears watching, as marketing budgets can be swiftly impacted by economic change. That translates into marketing spends and ROIs being monitored closely. Customers need to account for every dollar spent and will be best served with direct access to list optimization services, customer profiling, predictive modeling and related targeting services, he believes.

“RR Donnelley is focused on continued customer intimacy,” Zengo concludes. “Specifically, knowing how to anticipate and meet our clients’ and their customers’ needs, and applying our most effective and efficient technologies to that purpose. The coupling of our acquisition marketing programs to robust customer communications services allows our clients to leverage a single-source solution for their customer life-cycle marketing strategy.” PI