Direct Mail Outlook -- Meeting the Challenge

ASKING WHAT kind of impact that a recessional economy has on direct mail campaigns is like asking how many beach-goers will be turned away by an approaching hurricane. Sure, there are those who will want to brave it, but most people prefer to take a wait-and-see approach somewhere safe. At the danger of mixing metaphors, we have to wonder whether the storm clouds of 2008 will drift into 2009, and, if so, for how long? Even the most conservative of economists would suggest that we have been in a recession since 2007 and (hopefully) reached rock bottom in October of 2008, en route to recovery. Should President-elect Obama infuse more than a little optimism in government and spark consumer confidence—and lending institutions provide more than enough money to go around...

Let’s not get ahead of ourselves. In an environment where the president isn’t viewed so unfavorably, when the economy is not foundering and the banking system doesn’t live week to week, the condition of the direct mail industry is still challenging. For example:

• Alternative (usually electronic) marketing sources are growing with each passing year, drawing away mind and channel share.

• Mail volume is decreasing on the whole for the U.S. Postal Service. Postage rates increase as a result, and volume decreases again.

• Greening initiatives, including the Do Not Mail (DNM) movement, can be viewed as a threat, no matter how seemingly minor it is currently. Never mind that paper is already recycled, or that it is grown in managed timberlands. If people are led to believe that the Land’s End catalog comes at the expense of Bambi’s mother, the masses will protest.

• Guilt by association is particularly painful in this regard. The mailing of credit card offers, for example, is a gateway to identity theft, as thieves can steal your mail and open fraudulent accounts in your name. Who needs actual statistics when anecdotal information sounds so plausible...and threatening.

Under Pressure

Even the most optimistic of observers would concede the direct mail marketing space is under intense pressures. Vertis Communications falls under that category. The Baltimore-based company, which merged with American Color Graphics, filed a prepackaged Chapter 11 plan this summer. The merger has been completed, and the newly formed company has emerged from bankruptcy with a stronger balance sheet.

“I’d say 2008 was a year of regrouping and refocusing,” says Chuck Miotke, president of direct marketing for Vertis. “Not surprisingly, financial and mortgage company businesses were severely impacted by the sub-prime market meltdown and credit crisis across the nation. Thus, market promotions and mailings for these clients were greatly reduced.”

Miotke notes that his company enjoyed stable growth with government clientele, with some strength in the insurance and retail spaces, while small- and mid-sized companies developed targeted marketing campaigns driven by direct mail. “However, the general economic downturn, as well as price increases in materials and distribution, affected and reduced the quantity of direct marketing across the board,” he says.

Jim Andersen, president and CEO of IWCO Direct in Chanhassen, MN, felt direct mail printing was on the road to recovery at the start of 2008. But, when the economy went sour, Andersen notes, the financial services sector was impacted most by the credit crisis.

“That made it extremely difficult for consumers and small businesses to be approved for credit card and consumer loan offers,” Andersen says. “Marketers of these products have dramatically reduced both the quantity and frequency of their mailings.”

With the U.S. Postal Service projecting a volume decline of nine billion pieces for the 2008 fiscal year, Andersen believes the shortfall has left the direct mail printing industry with excess capacity. But not all of the news is grim.

“Retention mailings are increasing, as marketers attempt to gain more business from existing customers,” he says. “The insurance segment is strong, with price wars being waged for auto insurance and new products, like long-term care insurance, being offered to Baby Boomers.”

Dan Thornton, president of response marketing services for RR Donnelley in Chicago, points out that 2008 was the first full year with a significant postal increase. Standard mailers, particularly flat-size, were forced to test more efficient packaging to maintain an economical cost-per-response. And, while mail volumes were steady, format sizes and varieties were reduced.

“This absorption of new postal rates generated more discussions among mailers on how to design pieces that would generate response rates,” Thornton says.

“RR Donnelley has responded by increasing emphasis on testing key elements within package design to heighten response, irrespective of size restraints. Our creative services team has developed many new format styles to assist clients who rely on the mail for their livelihood.”

According to Thornton, the economy has varying impacts on specific vertical markets. With the economy causing ad budgets to contract, he sees a refocus of effort on direct mail because a traceable correlation can be drawn to actual revenue generation.

“We are seeing clients use more data-driven mail to customize their message and offer,” Thornton adds. “As a consequence, they rely on RR Donnelley’s database solutions and variable imaging technology to execute their mailings. While there is certainly an uptick in customer mailings within specific vertical market segments, we are seeing more selective targeting, especially in the financial sector, which has reduced volumes. On the other hand, our retail services category has gone heavily into mailing their customer files.”

Trying to Turn the Tide

Our printer panel embarked on various initiatives to counter the economic tide and generate increased revenues. Vertis tapped Miotke, a 30-year veteran of printing and direct marketing who had spent the previous 19 years with Quebecor World, as its president of direct marketing.

In May, the company launched Vertis Optimal Postage, a predictable and cost-effective mailing solution that allows marketers a guaranteed, flat-rate postage and processing fee for standard-class and letter-size mail. It includes all handling and freight surcharges. And, at press time, the company announced that Mike DuBose, president and CEO, was stepping down at year’s end.

As for IWCO Direct, it launched its automated marketing platform (AMP) in April. It was developed to meet the growing demand for specialized direct mail programs, such as trigger mailings and response management services. It offers automation and efficiencies to campaign planning, strategy and management. In support of AMP, IWCO Direct added digital printing capabilities this year, along with new booklet-making equipment. To date, AMP has generated more than $8 million in new business, helping to offset the decline in acquisition-based mail.

RR Donnelley is continuing to expand its variable imaging flexibility and capacity, as well as assisting clients through its co-palletization program, providing lower postage costs and more certain delivery times. Also, its OneSite service gives customers direct line of sight to their mail, from the time it leaves the press to the moment it enters the local delivery unit’s mail route.

What does 2009 hold and what are the challenges facing direct mail clients? For Vertis’ Miotke, it’s all about providing the most value for the budget-conscious customers.

“Marketers are moving budget dollars to various media in an attempt to derive the greatest response, and also to provide a more integrated campaign strategy that reaches consumers through multiple touch points,” he says.

“Thus, dollars are being reappropriated from print budgets and other non-measurable media into media that are more easily measured, such as direct mail, online and interactive tools, as well as Web traffic drivers, PURLs, e-mail marketing, widgets and text messaging.”

IWCO Direct’s Andersen cautions that the excess capacity in the direct mail printing space will cause intense pricing pressure. The volatility in oil prices leaves fuel surcharges and energy costs as question marks. As for Do Not Mail initiatives that rear their ugly heads periodically, Andersen points out that the Mail Moves America coalition has done a remarkable job in providing education to lawmakers regarding the ramifications of DNM legislation.

Focused on the Future

“We are focused on continuing to gain market share by bringing low cost/high value marketing solutions to our clients and prospects,” Andersen says. “Our postal strategy continues to deliver the lowest cost-per-piece postage in the industry. In addition, we are fully prepared to support the implementation of IMB (Intelligent Mail Barcode) and are confident our proven success as a beta site for the USPS will provide maximum benefit for our customers.”

As for RR Donnelley’s Thornton, he believes clients need assurances that they are mailing to the highest potential prospects and the type of response they can expect to achieve. In addition, the printer applies its variable imaging technology in ways to reduce press stops and fragmented postal strings, he notes, securing better discounts from the USPS.

“Where we can reduce our operating costs, and when we can make their mailings more effective and productive financially, our clients prosper,” Thornton says. “These situations ensure our own success. We also continue to invest in customization technology, postal technology, data services and printing innovation. We hire the best sales professionals and client services personnel, who can understand and articulate our customers’ needs to our operations. That way, our clients get what they want: their own outstanding financial results.” PI