DIRECT MAIL OUTLOOK — POSTAL REFORM IN PERIL

WHEN YOU think about it, the direct mail industry boasts some of the most formidable enemies and loyal friends today—just another way of saying there are “challenges and opportunities.” But it’s not tired, cliched rhetoric. It seems that the tougher life gets for the mailing community, the bigger the potential payoff.

As this edition went to press, the ‘Lame Duck’ Congressional session was winding its way down and, with the Republican party so severely beaten, the likelihood that meaningful postal reform could be hatched prior to the final whistle seemed quite remote. But for some producers of direct marketing materials, the farther away cost certainty wanders, the closer they seem to gravitate toward their customers.

Postal costs may be out of the printer’s hands, but that’s no reason to view the future of the segment sans optimism. It is those elements than can be controlled that sets one direct mail printer apart from another.

“We’ve had the most success when we begin conversations with customers very early in the process,” notes Dave Colatriano, senior vice president and general manager, direct marketing, for Vertis Communications in Baltimore. “It’s important for printers to understand their customers’ goals, audience and budgets. With this knowledge, they can work together to define solutions in the areas of formats, targets and multi-channel approaches.”

A brief look at each of the three areas:

• Formats. According to Colatriano, printers must collaborate with clients to create formats that garner attention, enhance brand recognition and improve response rates. Together, they can strategize production and distribution timing to maximize postal rates.

• Targets. A highly targeted and relevant message produces the highest response rates. “Marketing service providers that can support clients with consumer research, data solutions and the latest technologies will deliver more effective campaigns,” he notes. An example is the 4-State Customer Barcode technology.

• Multi-Channel Approach. Colatriano points out that by combining direct mail with targeted e-mails, personalized URLs (PURLs) and other forms of communication, clients can reach their customers “when and where they’re most likely to pay attention.”

Paper Proves Costly

Colatriano noticed an uptick in volumes as 2006 progressed and believes clients were feeling the pressure to raise response rates. An increase in paper costs, he says, likely factored into a slower summer period.

It was a busy year for Vertis Communications, which purchased 10 Océ VarioStream digital printing systems for its Bristol, PA, facility. USA Direct, of York, PA, was acquired, and the company developed solutions for enhancing direct marketing campaigns, such as ¡Alcance! Hispanic tools, and the Vertis OnDemand Web portal enabling print-on-demand fulfillment of direct mail and marketing communications. The company also expanded its variable data digital color capabilities at two of its production facilities.

Despite some negative external influences being experienced by direct mail marketers, Colatriano believes the key lies in targeted messaging. “There is no panacea, but clearly making a message more relevant and efficient in targeting recipients is something direct marketers should be doing regardless of postal rates,” he says.

If done properly, this is a more efficient way of achieving the desired results. Highly personalized messages that acknowledge the customer’s recent inquiry, request, life event or purchase, achieve greater responses.

“Our variable data technologies, in concert with more precise data, allow us to put meaningful messages in the hands of the target audience. This enhances relationships and loyalty. The improved response rates will offset the rising costs associated with direct mail production that have been predicted for 2007,” Colatriano adds. “We do, however, need meaningful postal reform and the industry should continue to back legislative efforts to push it forward.”

The 2006 campaign proved to be a profitable one for IWCO Direct of Chanhassen, MN, as marketers continue to understand that customers and prospects prefer direct mail solicitations compared to e-mail and telemarketing, notes Jim Andersen, president and CEO. In fact, he points out, a number of IWCO Direct’s clients identified direct mail as their most important channel for solicitation mail. Thus, many are testing direct mail for highly targeted customer retention and loyalty programs.

“The industry continues to see customers looking for value-added solutions, including postal optimization, product and format development, and supply chain management,” Andersen says. “IWCO Direct’s integrated manufacturing solution, combined with our postal strategy, continues to resonate with procurement, marketing and financial leadership audiences looking for the perfect marriage between cost efficiency and increased response rates.”

With postal reform in doubt—a blow to Andersen, who is among the most active printers in the country lobbying for reform—printers need to look beyond pricing concessions as a way to retain customers. “Printers must be able to deliver quantifiable results such as reduced cycle times, cost- effective logistics and optimization of postal spending, which represents more than half of the cost of each marketing program,” he stresses.

Strong Market Share

For naysayers who predict an imminent demise for printed marketing campaigns, Andersen points to an article that appeared in the New York Times this fall, highlighting the growth of direct mail in the Internet age as marketers realize the value of one-to-one communications with their customers. If market share is being lost, the offending channel is not direct mail.

Still, it would be short-sighted to not consider the opportunities presented in meshing with other channels.

“The ability to target messages and link direct mail to other channels—e-mail, event marketing, telemarketing—continues to drive growth in this sector,” Andersen adds. “Direct mail printers that focus investment and technology on driving response rates for clients will continue to thrive. Those that think only about ink-on-paper will die.”

It was a year of moderate growth for the Japs-Olson Co. of St. Louis Park, MN. According to Michael Murphy, company president, increased costs and market pricing pressure are still among the main challenges facing competitors in the direct marketing segment.

“Printers struggle to pass on cost increases associated with healthcare, utilities, paper and materials,” he says. “As a result, printers are faced with ongoing margin erosion. The only way to reverse this trend is to invest in new technology, process automation and expand into additional value-added service offerings.”

Murphy sees the likelihood for postal reform in this Congress as being “all but dead” and feels the best hope for printers is to address USPS funding requirements independently in the 110th Congress. And while postal rates continue to escalate, he points out that the USPS has made significant changes in the structure of postal rate categories and rate increases to better align USPS processing costs for each category.

“These changes present an opportunity for printers to work with their customers to ensure the most cost-effective design and production for their campaigns.”

In spite of the postal increase challenges that are confronting printers’ customers, Murphy is bullish on the future of direct mail.

“Direct marketers are always evolving and improving both the data relevancy and content distribution to ensure that the industry stays viable as a distribution channel,” he adds.

With some help from state and federal governments and the efforts of other external influences, more and more hurdles are being thrown at the marketing community in the name of protecting consumers. Aaron Grohs, executive vice president of sales and marketing for Houston-based Consolidated Graphics (CGX), notes that the emergence of Do Not Call lists, spam filtering, TiVO and satellite radio has made it even more difficult for marketers to get their messages across.

“This has created tremendous opportunity for printers to leverage the latest in online and digital technology to help marketers get their campaigns to market faster, to get heard and to generate better results,” he believes.

In order to stay more in-tune to your customers’ needs, Grohs feels it is important to work with clients on managing their databases. Ensuring accuracy of data and defining a target audience help improve household penetration with a message specifically tailored for the recipient, hence greatly improving response rates.

“Smaller quantities that are better qualified and more personalized have a higher ROI,” he notes. “With postal rates on the rise, customers need to achieve higher results with fewer pieces. Leveraging a database and digital printing are great tools for achieving these results.”

CGX launched a new product through its CGXSolutions technology division, CrossMedia, designed to maximize direct mail response rates by leveraging a database across a variety of media, including e-mail, print, text messaging and the Internet. In 2006, CGX invested $35 million in equipment and technology; its digital footprint now consists of more than 90 digital presses. Also added this year were 11 Kodak Nexpress digital presses to complement 10 Xerox iGen3 presses.

According to Grohs, CGX views variable data printing as a dynamic that will enhance the results achieved with high-volume direct mail marketing.

“Personalized direct mail is a more private medium and a non-abrasive approach of marketing to the end consumer,” he says. “It allows us the ability to communicate with the consumer using a message and method that they prefer.” PI

Top Issues for 2007

Our panel of printers takes a look ahead at the key issues that will impact the direct mail marketing community and their print manufacturing vendors.

Jim Andersen, IWCO Direct: “IWCO Direct continues to be a leading advocate for postal reform, as well as appropriate regulation on privacy as it relates to data security and integrity. We are working with various trade associations (DMA, EMA, PIA/GATF) to fight the introduction of ‘Do Not Mail’ laws, attempts by states to collect tax on postage, and legislation that is portrayed as protecting privacy but is reactive rather than effective.

“One of our most important initiatives is staying ahead of these issues and working with both customers and suppliers to enlist their support to prevent the introduction of state and federal legislation that would paralyze our industry. Our industry needs to do a better job of preserving privacy while protecting commerce.”

Dave Colatriano, Vertis Communications: “The greatest challenges for direct marketers in 2007 are the increase in postage prices and practicing better targeting techniques that can improve response rates to offset a higher unit cost. We’re focused on providing our clients with the tools needed to deliver highly targeted, relevant and innovative communications.

“Additionally, the use of highly personalized digital color printing is growing every day, increasing our clients’ challenge to build an efficient front end, incorporating asset management and business rules. Vertis understands this need and employs an experienced group of developers. We’re also advising customers on multi-channel communications, enabling them to seamlessly reach consumers at virtually every touch point, integrating marketing activities, reducing costs and improving ROI.”

Aaron Grohs, CGX: “Consolidated Graphics sees data security as both a significant challenge and a wonderful opportunity in 2007. As laws continue to crack down on privacy information, printers must invest more in systems to keep up with all of the regulations that regulate privacy. Printers that are in a position to invest in these systems and offer personalized printing stand to gain a lot in 2007 and beyond. CGX has already invested in these systems and continues to stay ahead of these regulations, capitalizing on customer requirements that involve complex privacy data.”

Michael Murphy, Japs-Olson: “Potential issues for mailers across the country include: postal rate increases, tax on postage and ‘Do Not Mail’ initiatives. These are all serious issues in which our industry needs awareness and understanding. The Mailing & Fulfillment Service Association (MFSA) stays close to these issues and publishes good information to help keep printers and mailers informed.”