The Future of Direct Mail: An InfoTrends Analysis

The Future of Direct Mail: An InfoTrends Analysis
By Barb Pellow, InfoTrends

Over the past several years, we’ve heard a great deal about the “death” of direct mail. There were rumors that it was going to be rapidly overtaken by e-mail blasts. After all, e-mail is cheaper, easier to coordinate, and it doesn’t irritate prospects like junk mail or constant phone calls. Dropping something in the mail could cost 50 cents or more, while an e-mail message can be sent out for 2-3 cents.

Based on all the hype about utilization of low cost, Web-based media, InfoTrends decided to take a look at the “future of mail” for direct mail and transaction-oriented documents. The overriding message from surveys of over 850 consumers and 450 document owners is that paper-based communications continue to enjoy a high preference among recipients and generators of documents. Despite the increased use of the Internet, paper has an enduring quality, and its use will continue to grow in relation to direct mail and remain relatively stable in the area of transaction documents. This article is focused on the future of direct mail as a marketing medium.

The E-Mail Challenge

E-mail direct marketing is not necessarily delivering on its promise. The most essential element in any good direct mail campaign is the list. If marketers haven’t been collecting e-mail addresses, they are faced with the challenge of finding someone who will rent a list of good prospects with deliverable addresses. Furthermore, e-mail lists aren’t cheap, as prices range from $300 to $500 per thousand addresses. Standard direct mail lists run between $90 and $150 per thousand addresses.

In an article entitled IS DIRECT MAIL MARKETING DEAD? by Mike Schultz and John Doerr of the Wellesley Hills Group, several significant challenges involved with e-mail direct marketing were identified. When it comes to e-mail campaigns, marketers are concerned about:

Deliverability: Undeliverable e-mail addresses or bounce backs are on the rise – in many cases the occurrence is 20% or higher, due to anti-spam software and frequent e-mail address changes. Most snail mail list owners will guarantee a deliverability rate of 95%.

Pass-through: Undelivered e-mail doesn't reach anyone. If you send paper mail to a company and the person has moved on, the replacement usually receives the mail.

Spam trend: 75% of Americans are in favor of making unsolicited e-mails (spam) illegal. This is up from 49% just two years ago, according to a recent Harris poll. Direct mail may be called junk mail, but when was the last time you heard public outcry?

Stickiness: If a prospect doesn't want your message, she just clicks it away, and even if she does read it, she is the only one that does. Direct mail, especially catalogues, can hang around and around and around. Lots of people see it.

Brand: E-mail is easy to send - so easy that everyone in the company seems to have their own marketing campaign with poorly written copy, unclear or nonexistent offers, and no coordination of who gets what. Our brands are getting killed. Direct mail pieces take time and thought to produce because they cost so much; therefore, they often enhance our brand image.

Volume: Everyone is engaging in e-mail marketing, and the trend is rising quickly. It’s hard to get through the clutter. On the other hand, direct mail volume is down 25% from two years ago. There is a lot more room to get your prospects' attention.

Attention: You have two seconds (or less) and one line to appeal to the e-mail recipient. At least with direct mail you have 5 seconds and an entire page to catch your prospects’ attention.

Nevertheless, the most important aspect from a marketing perspective is that paper-based direct mail is what the consumer wants. According to InfoTrends’ future of mail study, consumers continued to have a high preference for direct mail over other forms of direct marketing. 61% of the consumers preferred direct mail; it had almost three times the preference of e-mail, which was the second most preferred category (21%). This is not surprising, as paper based communications are minimally intrusive and easily managed.

Consumers indicated a strong preference for highly personalized direct mail with messages and offers that were uniquely designed to reflect their needs and interests (56%). In return for their business, consumers expect a level of intimacy similar to that which we enjoyed when most business was personal. The goal is to utilize technology to generate information that is of interest to the recipient. In rating the direct mail they were receiving currently, they stated that only 31% consisted of personalized content that they found useful, while 29% was personalized but was not very useful, and 40% was not personalized or useful.

The Direct Mail Opportunity: a Document Owner’s Perspective

Direct mail includes personal correspondence such as cards and periodicals that are typically designed to increase customer loyalty or to sell something, be it a product, service, or cause. This type of mail excludes transaction documents such as bills, invoices, and statements. With the evolution of the Internet, many direct solicitations are sent online rather than in the mail. Direct mail is only one form of direct marketing. Other methods include telemarketing, the Web, mass media, print advertising, and direct sales.

Direct mail is generally sent either First Class or Bulk Rate, but a small percentage is sent by package. Clearly, the postal systems still maintain the best view of where people and businesses reside. They literally have “feet on the street” and deliver mail to virtually all residences and businesses. There truly is no Internet equivalent.

Total 2005 North American advertising expenditures are estimated at $298 billion. Based on a variety of sources, this includes all types of advertising. Direct mail accounts for approximately 20.5% of total advertising expenditures, or $61.09 billion. As a category, direct mail only lags television and represents seven times the total spending on Internet advertising. These total expenditures have been growing at a CAGR of 2.2% since 2000, while direct mail expenditures have been growing at a CAGR of 4.9% since 2000 and an average of 7.1% annually since 2002.

Of the $61.09 billion total, $21 billion was related to printing including prepress, printing, paper, and binding; $18.5 billion was allocated to postal costs; design services including layout, copy writing, and photography accounted for $10.0 billion; list management and database programming consumed $6.0 billion; inserting and sorting accounted for $3.5 billion; and all other activities consumed $2.1 billion.

Total Direct Mail Document Spending by Function

In 2005, there were an estimated 242.2 million consumers in North America over the age of 18. An estimated 57.7% of them had Internet access at home. Consumers with Internet access at home reported receiving an average of 15.3 pieces of direct mail per month, and those without Internet access reported receiving 13.2 pieces. Weighing the responses to represent the actual household Internet access rate of 57.7% results in an average of 14.41 pieces of direct mail per month, or 3.33 pieces each week per consumer. In this study, direct mail document owners claimed that the average cost of a direct mail piece was $.70. This would result in a total market of $29.3 billion for consumer direct mail.

The Agency Role

The responsibilities of the creative community and advertising and design agencies in direct mail creation vary from controlling and managing the program to merely advising. 11% of respondents indicated that they have ceded complete creative control, allowing the agency to decide if a program required highly personalized content that would necessitate digital color printing. About one-third (34%) reported that they have given the agency some creative control, but stated that the decisions regarding requirements like using highly personalized content which would require digital color printing were made jointly by the organization and the agency. 55% stated that the organization would make the decision to launch such a program. While it is critical to consider the opinions of the creative community as these people can be influential, in most cases, the final decisions are made by the organization. For the print service provider, that means that strong alignment with key marketing executives is important.

Price Still a Factor in Service Provider Selection

Respondents were also asked what factors drove their selection of current direct mail providers. At the top of the list was price at 66.2%, followed closely by quality (64.6%), and then being easy to work with (53.3%). These three factors were significantly more important than the others. Speed was noted by 41.5%, having a convenient location was important to 31.3%, having the right technology mattered to 30.3%, the ability to provide a full range of services was noted by 29.7%, past experience was mentioned by 27.7%, and references were important to 23.1%. The fact that price is at the top of list indicates that all providers must be cost-competitive, or they must provide some level of services that differentiate campaign implementation.

Factors Influencing Selection of Direct Mail Service Providers
Which of the following factors drove your selection of your current external direct mail service providers?

Document Owners Vote with Dollars on Media

Document owners’ preferences for various types of advertising media were based on how much they spent in each area. While the greatest threat to printed direct mail is the Web, in 2006 respondents spent 36% of total marketing funds on direct mail. This was followed by Web marketing (22%), print advertising (16%), other (8%), telemarketing (7%), radio (4%), television (4%), and wireless (3%).

Total 2006 Direct Marketing Spending by Percentage - Mean
Please estimate your total 2006 direct marketing spending by percentage.

Only 5.9% of direct mail is currently being printed offshore. The requirement for relatively fast turnaround times limits the applicability of offshore production. Therefore, most organizations have yet to use any offshore print service providers for direct mail.

The total cost of a direct mail program is generally much higher than just the print and mailing costs. In our survey, 36.7% of direct mail spending was allotted to external service providers.

In previous research, direct mail document owners predicted that in 2003, 39% of direct mail would be printed in digital color and that by 2005 this number would climb to 53%. This, of course, was an overestimation. This survey revealed a figure of 44% in 2006, with growth to 54% by 2010. Document owners are often unaware of how a job is printed. There is an expectation that many more jobs will be printed using digital color moving forward. In our 2005 study on production color, owners of these devices reported that 16.4% of total volume consisted of direct mail, second to marketing collateral in terms of total page volume.

Direct Mail Challenges

A few problems with direct mail programs were identified. Mail and postage cost was identified as being close to a moderate problem, as were low response rates. All other issues were reported as minimal problems.

Rate of Inhibitors with Using Direct Mail - Mean
Please indicate how much of an inhibitor the following factors are to your using direct mail.

Respondents reported using a variety of metrics to measure response rates. Over half indicated that they track multiple metrics related to client inquiries such as Web hits, calls, etc. Slightly under half reported tracking a number of metrics related to sales activity, and about one-third stated that they track coupon redemption. Due to the competition from the Web, tracking metrics for printed direct mail is becoming a requirement.

Document owners rated the importance of a number of factors related to using direct mail. The ability to easily target recipients led the list (3.7 on a 4 point scale in which 4 was important, 3 was somewhat important, 2 was somewhat unimportant, and 1 was unimportant). Next was low cost per mail (3.5), measurable response rates (3.4), and prospective recipients’ preference for direct mail (3.3). Given the high preference by consumers for direct mail, it is surprising that this category did not score higher.

Movement to Multi-channel Programs

In 2006, 47.2% of direct marketing campaigns consisted of traditional and Web marketing. This number is expected to grow to 52.4% by 2008. In our last study, the value for 2003 was 40.8%, and respondents predicted that this number would hit 54% by 2005. Almost half of all direct mail programs currently involve the Web.

Percentage of Direct Marketing Campaigns that Consist of Traditional and Web Marketing
What percentage of your average direct marketing campaigns currently consist of, or do you expect will consist of both traditional direct mail as well as web marketing?

As the use of cell phones and PDAs is becoming widespread, these devices are included in 24.8% of programs, and it is predicted that this number will increase to 28.1% by 2008. One of the inhibitors for print-based direct mail is contention with other media.

Response Rate—the Key to Success

Respondents were asked to indicate the main metric they utilized to track the effectiveness of direct mail programs. Response rates led the list (35%), followed by overall revenue/profit (29%), repeat orders/retention (22%), response time (8%), and average size or value of order (6%).

Metrics Tracked
In measuring the effectiveness of your direct mail campaigns, please indicate which metrics you track.

Given the importance of response rates, respondents were asked what they considered a poor, average, or good response rate to the direct marketing pieces they produced. This question was not asking what level they had attained, but what their goal was. Conventional wisdom views a 2% rate as good, but the respondents were much more aggressive. On average, they defined a good response rate as 12.6%, an average response rate as 9.8%, and a poor response rate as 8.3%. Expectations are clearly increasing.

Complex Personalization Usage Limited; ROI Not Clear

Only 52% of respondents incorporated any personalization in their direct mail beyond name and address, and only 39% produced any significant amount of personalized direct mail that utilized digital full color. Monochrome digital printing can be used to imprint pre-printed shells.

The main reason cited for not printing in digital color was that preprinted color could be used at a lower cost (45%). 34% of respondents stated that they do not believe that the use of personalized content driving digital color would provide a sufficient ROI, 16% lack the data to drive this type of program, and 5% cited other reasons. Direct mail document owners require additional education on the positive effects of variable color on ROI. At the same time, however, they don’t have to be convinced about the effectiveness of personalization. Respondents were asked to indicate the percentage of improvement they would expect with better/increased use of personalized printing such as variable messages, graphics, and color. They believed that overall revenues would increase 23.4%, repeat orders would increase 21.7%, order size would increase 20.7%, and response rates would improve 20.5%. The market is receptive to personalized printing solutions, as they require easy-to-implement tools and better information to support a strong ROI.

When asked about the level of personalization they currently use in their direct mail, respondents reported that 41% of volume was not personalized at all (excluding name and address), 32% was highly personalized based on knowledge of the intended recipient, and 27% was personalized based on limited knowledge of the recipient. The views of consumers align closely with the actions of the direct mail document owners. Consumers claim that 40.5% of the direct mail they receive is not personalized and not very useful, 30.5% has personalized content that they find useful, and 29% has personalized content that is not very useful.

Recommendations

The contention for document-related communication dollars is increasing. While print is being challenged by the Web, paper based direct marketing is clearly preferred by consumers. The industry is advised to highlight the preference for, and advantages of, paper-based communications. Paper-based communications will not grow at the same rate as these other delivery options, but some growth is likely.

Corporate marketing executives are the primary decision makers in relation to direct marketing campaigns (and the level of customization and personalization), even though agencies have some level of creative control. Print service providers need to continue to expand marketing relationships with corporate clients.
The printing industry should resist any efforts to establish a universal e-mail registry. Until such a mechanism exists, mail will remain the default standard.
Print providers and document owners should more effectively leverage multi-media communication that includes mail, the Web, and PDAs. Some should pursue DPO (Document Process Outsourcing) opportunities through which they can manage an entire process for a client.
Document owners should produce the more personalized and useful communications that consumers are demanding. For paper use to remain viable it must be more relevant, and its relevance is predicated upon increased personalization of content.
Print service providers need to work with document owners and educate them about the capabilities of today’s technology to produce more relevant and meaningful communication. They also need to build solutions that cross multiple media channels and deliver synergistic messaging via print and the Web.

The PERF Print Report is published by the Print Education & Research Foundation.