Direct Mail Outlook -- Getting Personal

By Erik Cagle

Good news! In October, Postmaster General John E. Potter told the Direct Marketing Association's annual conference attendees that, because of its reform efforts that enabled the USPS to remove $2.9 billion out of its bottom line in fiscal 2002, there would be no rate hikes until "well into 2004."

The bad news, of course, is that the general economy and volume reductions in mailings made 2002 a challenging campaign for those companies that provide direct mail solutions from the production end. Thus, in noting that there will be no rate hike in 2003 is akin to pointing out, "At least the tornado didn't destroy our Dodge."

But, at this point, any positive news is better than the alternative.

The softness in the general economy had a direct impact on both the volume and the complexity of many programs, according to John Paloian, COO at Quebecor World North America. "A significant number of mailers are experiencing, at best, flat volumes on a year-over-year basis, combined with a transition to the use of simpler, less complicated in-line packages," he says. "At the same time, there is an increased use of versioning with smaller name counts as mailers attempt to better target their lists."

On the product front, Quebecor World saw solid performances from self-mailers and simple, in-line formats, while costly, complex pieces were less favored. The financial services and credit card company markets mailed in large volume, according to Paloian, while telecommunications and continuity programs experienced significant volume reductions.

New Revenue Streams

In 2002, Quebecor World focused its initiatives on cross-marketing direct mail products and services to existing customers within other market segments. "As many customers look to leverage their volume and consolidate their internal print procurement and print management processes, Quebecor World's diverse offering is a natural choice," Paloian remarks. "In addition to the wide range of printed products available, our Logistics and Mail List Technology initiatives continue to find favor with our direct mail clients and support new revenue growth."

To enable customers to minimize costs and maximize revenues, Quebecor World concentrated its efforts on supply chain management issues, including premedia, paper procurement, printing and distribution. "Our diverse equipment base allows us to provide manufacturing plans optimized to meet both cost and schedule requirements. At the same time, unique product formats and levels of personalization continue to be developed to provide a cost-effective means to drive revenue," Paloian notes.

Another tool the print giant recently launched is Response-Link, a new electronic marketing tool that works in conjunction with PLANET bar coding, allowing direct marketers to alert customers and prospects to special offers that will be arriving in their mail.

Naturally, the most effective way for Quebecor World, and its clients, to reap significant profits in the coming year is to witness a marked improvement in the U.S. economy. Paloian points out that this would encourage direct marketers to increase investment in their direct mail programs. "There is little doubt that the more complex packages, with high levels of personalization, result in improved response rates. But, in soft economies, the total dollar spent is often cut back, making it difficult for some direct mailers to embrace the technology," he says.

Without a reasonable improvement in the economy, Paloian feels those mailers who are best positioned will be those with the ability to best utilize customer and prospect data to create effective, targeted programs. "Direct mail continues to be a successful component of branding initiatives, and branding initiatives continue to be vital to many companies' total marketing programs."

The power of its integrated direct mail solution is what fueled a successful year at The Instant Web Cos. (IWCO), of Chanhassen, MN. According to Jim Andersen, president and CEO, three years ago 25 percent of IWCO's revenues were generated from integrated, total-package customers. That figure has climbed to 60 percent.

The fully integrated value proposition was started in 2000 and is paying greater dividends with each passing year. "(Clients) see tangible value in our integrated direct mail platform," Andersen says. "Our mantra is making customers more successful. The blocking and tackling done in 2000—the heavy lifting, repositioning the company, re-articulating our value proposition, and re-arranging the building blocks from a structural, organizational and process enhancement side internally—allowed us to reposition the company and prepare for the integrated direct mail platform.

Insourcing Is Important

"We insource everything, so our customers are getting the benefit of cycle time reduction and transportation savings from component manufacturing. With today's enormous economic pressures on customers, if you can make one call to The Instant Web Cos. for an entire direct mail package, you're eliminating the redundancy in purchase orders and managing the supply chain. That helps them on their staffing levels."

IWCO enjoyed solid performances from industries of what Andersen termed "loyalty" programs—financial services and retail. He credits the integrated solution with showing growth in that area, as well as being an inhibitor to the erosion that certain markets are seeing.

The company spent $7 million on new equipment in 2002, which provided some refinement in improved technology and processes—primarily on the personalization and printing platforms. Its postal stream managing tool, IWCO P.O.S.T (Postal Optimization Strategy and Technologies), is a strategic and technological initiative that allows IWCO to optimize to the five-digit level in the mail stream.

"We're delivering about 75 percent of all the mail to the SCF level," Andersen says. "This is an expansion of what we built three years ago. If you're eliminating multiple handoffs and multiple stages, and you're not outsourcing, you can drive cost out of the equation through process and service enhancements. It's really resonating with our customers because of the enormous uptick in postage costs and the three postal increases we've seen in the last 18 months. IWCO P.O.S.T. has been a great enhancer, maturity/expansion of our logistics services related to the mail."

Various initiatives undertaken by Lehigh Direct, the direct marketing arm of The Lehigh Press, helped position the Broadview, IL-based company for a very successful year. The printer experienced strong new customer development with the addition of nearly 50 new clients, according to Paul Palmer, executive vice president of Lehigh Direct.

"Our exciting new business development can be directly attributed to the leadership and vision of our CEO and president, Ray Frick. Ray has had a major impact in our new business development and operational betterment by being actively involved with customers, suppliers and providers of new technology," cites Palmer.

"We've seen significant growth in highly personalized self-mailers. Package inserts and magazine inserts have also made a rebound," he notes. "We have experienced growth across the board; this is a tribute to our terrific team, many who have recently joined Lehigh, and the substantial investment we've made in new technologies. Lehigh is very well-positioned with highly experienced professionals and the capabilities required to produce a wide variety of high-quality direct marketing products. We will continue to make significant future investments in new technologies."

Big Investments

Lehigh has invested in high-quality heatset web presses, as well as Scitex imaging combined with sophisticated in-line finishing systems, to produce highly personalized, in-line finished components, according to Palmer. Two web press lines currently have it, with plans to add a third press with these capabilities early in 2003.

"Overall, we're being substantially rewarded by the marketplace due to the technology and high quality offered in our overall value proposition," Palmer notes. "We believe that customer service and service intimacy is key to new business development, customer retention and growth."

Palmer credits Ray Frick's ability to respond to customer needs. Frick initiated the Lehigh e-commerce council that has developed new e-business tools that assist customers in effectively communicating with Lehigh Direct via file transfer and distribution monitoring of their products.

One such e-tool that was introduced is Lehigh MailTrak, an Internet-based reporting tool that tracks customer mailings throughout the USPS using PLANET Code Confirm technology. Lehigh's customers can more accurately predict in-home mail arrivals across the country. Lehigh's MailTrak allows customers to accurately schedule telemarketing needs, just-in-time inventory requirements and cash-flow projections.

Lehigh also introduced v3.0 of Lehigh NetProof, an Internet-based software proofing tool for fast turnaround times and signoffs. This allows customers more time to finalize lists that will generate greater response rates.

"We're filled with optimism for 2003," Palmer says. "We believe continued investments in technology will positively influence the success of Lehigh Direct. As far as viewing the industry, more and more customers are embracing CRM (Customer Relationship Management). These programs and products are a heart-cut through the Lehigh Direct product capabilities.

Customers are looking for efficient, high quality, personalized products used to communicate with their customers. Lehigh is well-positioned to offer a broad array of designs and formats, in concert with complex personalization and high-quality in-line finished printing, to meet the increasing needs of a growing customer base."

A combination of the soft economy, weak consumer confidence in the wake of September 11 and the Anthrax scares helped set a negative tone for 2002, according to Michael Murphy, president of Japs-Olson, St. Louis Park, MN. Murphy saw soft markets across the board, with the banking/finance and telecommunications/technology segments taking the hardest hits.

Combination of Factors

"Generally, we have diversified our product offerings to try to supplement a soft economy," Murphy says. "We're offering a wider array of products and options to our clients in terms of what they can do for better targeting—better communication with their customers. One thing I have seen with our clients is that there are a lot of creative packages going out. Many took advantage of our diverse equipment mix to use more colors and various printing or finishing options. That gives them a bigger presence and provides for better communications with their clients."

With the pressures of a tight economy came competitive pricing pressures in 2002, and Murphy expects more of the same in the coming year. It has resulted in a detailed focus on cost-savings initiatives, from labor and waste to production efficiencies. His company is studying technology alternatives that can result in, among other things, increased productivity, better quality and faster turnaround times.

Online proofing has proven a faster, easier and less expensive process for Japs-Olson. Closed-loop color control in its pressroom allows the company to meet the demand for higher quality and increased color consistency. The bonus: increased cost savings and more efficient production.

Prospects for 2003 hinge largely on recovery by both the economy and financial markets, according to Murphy. "That's critically important," he says. "To have some growth and consistency would be good for consumer confidence overall and for the confidence of our clients."

Some Saw Success

Robert Burton, chairman, president and CEO of Moore Corp., declared 2002 to be a rousing success. Moore is bolstered by its global reach, which positively impacted the company's bottom line.

In terms of market reach, Moore thrived in its traditional charitable and medical segments, and enjoyed a new boon from the financial side. Burton didn't see a decline in any of the company's primary markets.

"We've had an unbelievable year in direct mail. It's almost as good as before the PCH mailing stopped three or four years ago," Burton notes. "We're going to finish up with a record kind of year, with 10 percent growth on the top line, and over 10 percent on the bottom line. I'd say that, on balance, all of our direct mail people—the managers in each segment—have not only achieved their targets, they've exceeded them."

During 2002 Moore installed a new Heidelberg M-110 web press at its Green Bay facility, and Burton will be evaluating both equipment and client value packages to determine what steps need to be taken to continue Moore's success in 2003. In the final analysis, he believes the customer will be the key driver.

"When you go from one year to the next year, your customers are going to ask, 'How good was the last mailing? Did the mailing draw?' If the economy stays where it is, and we don't have any postal increase, I'm looking forward to 2003 being a pretty good year. We're investing in the business and we're feeling very good about it."