DIRECT MAIL - You've Got Mail

BY SCOTT POLK

As printers continue to determine how to capitalize on the Internet to further business, perhaps no segment may be affected by cyberspace more than direct mail. A projected 100 million people will be connected to the Web within five years, and direct mail will play an important role in guiding those people to the Internet.

According to a study by the Printing Industries of America, dotcom startup companies looking to establish brand equity will account for much of that business. By 2003, however, the study cautions that the direct mail industry will begin to encounter considerable competition from electronic media. New technologies that print Internet URLs into direct mail pages with watermarks and bar codes—directing computers to specific Web pages—may help to slow down this process.

"The Internet has provided a new market for direct mail," remarks James Cyze, president for the Banta Direct Marketing Group in Chicago. "E-marketers recognize that direct mail is the most effective medium to drive traffic to Websites and to create awareness. The e-business survivors will be strong and we expect they will continue to provide significant print opportunities for some time to come."

Michael Graham, senior vice president of Montreal-based Quebecor World Direct, predicts that "the Internet will be a great opportunity to grow direct mail because it continues to be a cost-effective way to drive Web traffic, both from a prospect position and also to establish an effective customer communication tool."

Fueled partly by the Internet, direct marketers will continue to enjoy a long stretch of prosperity, according to a study published by the Direct Marketing Association (DMA). The DMA predicts that printers' shipments should grow by 4.5 percent per year through 2003 and 3.7 percent per year from 2004 to 2006. That forecast has rung true this year for St. Louis Park, MN-based Japs-Olson, according to CEO Bob Murphy.

"I see direct mail continuing to grow," Murphy predicts. "The rate of growth might not be as much as it has been in years past, but I still think it's going to be a pretty healthy rate of growth."

Ray Frick, CEO and president of The Lehigh Press in Broadview, IL, believes that the direct mail industry is currently going through two revolutions. "The first revolution is a structural one or consolidation. The second is the technology revolution," Frick notes. "In general, the industry is changing at warp speed."

Part of the reason for the industry's success, the DMA study states, is that direct mail and inserts offer advertisers a strong product to pull customers to their businesses. Also, personalization continues to play a large role in the success of direct mail. Printers face an important decision concerning to what extent they want to use options like personalization or customization.

"Run lengths, in general, are coming down—and the reason for that is because the mass marketing 'spray-and-pray' mentality of the '70s and '80s is now history," Frick explains. "The segmentation and versioning of target marketing has replaced mass marketing. Highly personalized products are the order of the day."

The DMA study also shows that providing targeted fulfillment services can move printers up the skill and knowledge ladder, pushing them into higher value-added services and the potential for higher profit margins.

"We see a definite trend of major customers wanting to form strategic alliances with business partners that can provide a broad value proposition, from content management to fulfillment and distribution management," Cyze remarks.

As direct marketing enters the 21st century, Quebecor's Graham points out several trends worth watching. Among them:

• The catalog market has realized increased response and profit improvement by using one-to-one marketing techniques.
• Mid-level direct marketing companies will protect and grow their market by using one-to-one marketing techniques at affordable prices.
• A continued shift of traditional direct mail packages to closed face, component personalized in-line packages.
• A movement of traditional consumer product companies from mass distribution methods to targeted direct mail promotions.
• Increased traffic-building, personalized promotions for the mid-level retail market in order to protect against growing mail order and e-commerce competition.

"The one-to-one, personalized market will continue to grow in the non-traditional markets like catalog/magazine and retail areas due to increased market pressure to increase profits and compete with a new, emerging market," Graham opines.

A key area of concern for all direct mail printers continues to be the specter of an increase in postage rates. "We always wait with baited breath while we see what the post office is going to do about postage, because every time they shudder it causes the industry to shudder. We hope it remains competitive," Murphy remarks.

Cyze feels that a postal increase should not be viewed with contempt, rather as another challenge for printers. "While we have no control over postage and paper prices, we can respond to these challenges favorably by providing innovative solutions for our customers," he contends. "For example, postage increases can be mitigated by employing sophisticated manufacturing processes that streamline the event and allow the customer the ability to maximize postal penetration, ensuring that all available discounts are taken."

The lawsuit concerning sweepstakes marketing also continues to affect direct mail printers, especially those involved in magazine publishing. Changes were made in the language of sweepstakes offers as a result of consumers who had needlessly purchased large quantities of magazine subscriptions, believing it would increase their chances of winning cash prizes.

"It has affected many companies who used these marketing ideas and resulted in a large reduction in their mailing over the last year," Graham admits. "Many of our competitors focused the majority of their energies toward the companies that used this technique exclusively. The net result was the opening up of a considerable amount of capacity in the market. This has temporarily affected the market with lower than normal pricing pressure to fill open capacity, but should correct itself shortly as these solid companies start to rebound with new marketing programs."

Graham notes that the catalog segment should expect to see flat or declining responses in the next year, while retail will feel pressure from e-commerce and mail order for the consumer's time. Privacy continues to be a concern of direct marketers, as well.

"One way to address these concerns is through the effective use of consumer databases and personalization," Cyze observes. "We need to deliver the right materials to our target audiences—materials in which the consumers have an interest. The industry needs to improve its targeting and, by doing so, present more relevant offers to consumers. With the proper systems and technologies in place, the industry can more effectively target recipients, which should help diminish concerns about privacy."

Murphy agrees that privacy needs to be a major issue for direct marketers. He contends that privacy is what makes direct mail effective. "I find direct mail being much less invasive than telemarketers, for example," he relates.

"I prefer direct mail over that, because you have the opportunity to look at what you want and participate in whatever catches your interest. And, if it doesn't, you can take care of it in your own private way."