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THE GOOD, THE BAD AND THE UNCERTAIN

Aug 1, 1999 12:00 AM


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"I get mail, therefore I am," quips Dilbert as he riffles through a pile of envelopes addressed to "resident," finally coming upon the one that is personally addressed. And consumers appear to agree with the famous cartoon character. "Anything that's got my name on it, I open, because you never know what it will be," comments one focus group participant in a recent study of direct mail trends commissioned by the Graphic Arts Marketing Information Service (GAMIS) of PIA. GAMIS produces member-directed research studies and helps build research skills.

The Status and Future of Direct Mail study was undertaken by the marketing group to examine all forms of printed, home or office delivered, direct marketing materials, addressed or unaddressed. GAMIS commissioned Kubas Consultants (Toronto) to conduct the study. The research assesses direct mail trends and forcasts direct mail demand in the coming years.

In 1998, North American expenditures for media totaled $264 billion, of which $162 billion were devoted to direct marketing of all types. Direct mail, as defined above, represented a $29 billion market. Neither catalogs nor inserts are included in this number. Direct mail expenditures are projected to grow to $40 billion in 2003 and $52 billion in 2008, according to the GAMIS study. This represents a much slower growth rate compared to the high-flying numbers of the 1993 to 1998 period, however.

In current dollars, direct mail expenditures are projected to grow at six percent per year from 1998 to 2008, which is approximately the same as the 5.9 percent rate forecast for total advertising, according to the GAMIS-Kubas Media Expenditures Model.

Direct mail's share of total advertising expenditures is expected to remain at about 11 percent in future years, although, overall, the Internet will bolster expenditures. An important underlying trend, according to the GAMIS study, is the displacement of mass media and mass marketing by more focused and targeted direct marketing activities.

To support this trend toward targeted direct marketing, new opportunities are opening up for database marketers. Those that can gather and manage purchase history and personal information will enjoy increased response rates and reduced unproductive mail.

The GAMIS study points out that database marketing is most applicable to consumer direct ordering ("sales pitches" to householders). It is important to remember, however, this segment represents less than 25 percent of direct mail expenditures currently and is projected to be less than 20 percent 10 years from now. In addition, the U.S. Postal Service (USPS) claims that consumers' intentions to respond to direct mail is practically unchanged from 10 years ago.

Database marketing does not seem as beneficial for business-to-business applications and for lead generation, thereby leaving opportunity for those not moving into the one-to-one personalization marketplace.

Although database marketing will offer new opportunities for those positioned to take advantage of them, there is growing concern among consumers about privacy. Legislation dealing with privacy protection has been enacted or is being considered in both the U.S. and Canada. The new laws seek to restrict collection of personal information and usually prohibit the sale or transfer of this information to other parties without the consumer's consent.

Direct mail, at its best, is a form of selling rather than advertising. Its major strength is unsolicited obtrusiveness, points out consultant Len Kubas. "Direct mail is unique in that it is able to place itself in the hands of intended customers without prior consent." And, to be truly effective, direct mail must be a continuous process. The keyword here is "process"--a feedback loop is required in order to restart the process most effectively.

As e-commerce starts to find its place on the Internet, the impact on direct mail remains uncertain. In many ways, the Internet complements direct mail, providing a unique way to generate leads and enhance prospecting efforts. Most direct marketers, in fact, are already on the Web, according to a 1999 DMA survey, but so far no negative effects are apparent for printed direct mail.

In addition, there is evidence that the Internet has created new opportunities for direct mail. Dell Computer, for example, sells primarily through its website, but has increasingly made use of both catalogs and direct mail to advertise its products, services and Internet site.

In the longer term, however, the Internet is likely to divert activity from print-based marketing communications of all types. Even today the Internet is an attractive option for new direct marketing advertisers. There is no doubt that the Internet will reduce the need for conventional direct mail, but e-commerce businesses are potential new direct mail advertisers. Email is cheap, and has the potential to replace direct mail for marketing communications, but new legislation will likely prohibit unsolicited commercial email. Opposing forces are at work, and, at present, there are no clear-cut winners or losers, points out the GAMIS study.

Often we think of direct mail as consisting of an outer envelope, cover letter, product brochure, order form and, sometimes, a separate reply envelope. But direct marketers use many variations, including co-op packs, card decks, ride-alongs, statement stuffers and self-mailers. These alternative formats tend to be simpler in design in order to reduce or eliminate cost components.

According to the GAMIS study, the use of self-mailers is expected to increase, thereby simplifying assembly and mailing operations. The use of non-standard envelopes also is expected to increase, as more direct mailers use "larger than letter" sizes to garner more attention in crowded mailboxes.

Four-color printing is becoming increasingly important as direct mailers continue to capture consumers' attention. And while the most popular grade of paper will remain uncoated freesheet, direct mailers expect to increase their demand for non-standard or specialty papers.

Although direct mail is most often associated with consumer marketing efforts, business-to-business expenditures are growing faster. Business-to-business is expected to represent 45 percent of direct mail expenditures in 2008, compared with 39 percent in 1998. Consumer direct mail will decrease its share of expenditures to 55 percent in 2008 from 61 percent in 1998, according to the GAMIS study.

"Manufacturing, services and wholesale industries are expected to lead in expanding business-to-business direct mail," points out consultant Kubas. This may be directly related to a perceived improvement in the availability and quality of mailing lists for the b-to-b market.

For the consumer market, the highest growth in future direct mail is expected to come from the wholesale sector, which includes computer sales. Conversely, the retail sector's use of direct mail has been declining and will continue to shrink as a percentage of total household pieces received, claims the GAMIS study. Computer hardware and software vendors have been steadily increasing direct mail usage--a trend that should continue in the coming years.

The need to reduce cycle times for direct mail is likely to intensify. Buyers will expect faster, more efficient and more cost-effective service from their suppliers. Experts perceive technology as providing the glue that will hold disparate systems together, speeding workflow and trimming costs.

As the study points out, digital processes are expected to produce significant cost efficiencies in all pre-production stages. Some industry representatives state that the prepress sector will disappear entirely as direct-to-press digital technologies take over.

It is encouraging to find that a number of direct mail advertisers noted during the course of the research that printers have been proactive in introducing technical efficiencies. They can expect more of the same in the future, with the emphasis on increased printing capabilities and improved output quality. It is important to remember that direct mailers consider paper and printing as a single combined cost component. Paper price trends, therefore, tend to be associated with the printing industry.

In practice, direct mailers are likely to make format changes or other tradeoffs in reaction to differential cost increases in the components of direct mail. Approximately 45 percent of direct mail costs represent expenditures in database marketing and list services, while the remaining 55 percent are a total of postage, paper and printing. If postage costs increase faster than paper costs, direct mailers may opt to distribute fewer pieces, use alternate distribution, and spend more on paper and print quality. These approaches would be expected to improve the response rate and make up for the sales otherwise lost by a lower volume campaign.

For printers, the study results suggest that direct mailers will be making a slow, but steady move toward more targeted mailings. This will require smaller, more customizable presses and more flexible postpress equipment. The need to produce unusual sizes cost-effectively and in short turnaround times will become increasingly important.

In consumer markets, digital presses capable of handling variable-data printing will be required. Direct marketers are just beginning to recognize the applications using variable data, however, and may be slow to adopt this technology. It also is important to keep in mind the cost-conscious print buyer in this market segment who may not be willing to invest the extra dollars in true personalized direct mail.

The real threat to commercial printers, however, may be the relentless growth of color laser printers in office environments. Some direct mail operations may choose to transfer their activities to the office environment, especially for shorter-run work. Some corporations see the advent of "high-quality" color printing capabilities within the office as an opportunity to produce targeted, small-scale mailings. To compete, commercial printers should consider expanding services to include a wide range of support services for their direct mail customers.

As color becomes increasingly important, and direct mailers look to their suppliers for cost-effective solutions throughout the pre- and post-production process, printers will find opportunities in developing designs and campaign approaches that project the "open me" feeling. Along with design, prepress and printing services, printers will find buyers for list development and fulfillment services, as well as assembly and mailing services.

To be a winner in the direct mail market, printers will have to use time and speed as competitive advantages. "Can do" thinking and a great deal of flexibility will be required to meet customers' changing demands and expectations. All of this will take investments in new software and equipment, adding additional pressures on the full-service printer.

For those willing to invest creatively, however, direct mail will offer growing opportunities for the commercial printer that can adapt to an ever changing and cost-conscious market. It will take a wily printing company to wend a safe path through the opposing forces of this lucrative, but demanding, direct mail marketplace.

The complete study, "The Status and Future of Direct Mail" is available exclusively to GAMIS members. For information on membershipin GAMIS, contact Jackie Bland, executive director, at (703) 519-8179 or jbland@printing.org.

For more information, see the charts on pages 38-40 of the August 1999 issue of American Printer.