The Future of Direct Mail

Consumers prefer direct mail to email campaigns, especially if the mailings are personalized.

By Barb Pellow

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 email blasts. After all, email 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 email message can be sent for 2 to 3 cents.

Based on all the hype about utilization of low cost, web-based media, InfoTrends took a look at the future of mail for direct mail and transaction-oriented documents. The overriding message from surveys of more than 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 Email Challenge
Email 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 email addresses, they are faced with the challenge of finding someone who will rent a list of good prospects with deliverable addresses. Furthermore, email 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 email direct marketing were identified. When it comes to email campaigns, marketers are concerned about:
Deliverability: Undeliverable email addresses or bounce-backs are on the rise. In many cases the occurrence is 20 percent or higher, due to anti-spam software and frequent email address changes. Most snail mail list owners will guarantee a deliverability rate of 95 percent.
Pass-through: Undelivered email 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 percent of Americans are in favor of making unsolicited emails (spam) illegal. This is up from 49 percent 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 who does. Direct mail, especially catalogs, can hang around. Lots of people see it.
Brand: Email 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 engages in email 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 percent from two years ago. There’s a lot more room to get your prospects’ attention.
Attention: You have two seconds (or less) and one line to appeal to the email recipient. With direct mail you have 5 seconds and an entire page to catch your prospects’ attention.

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. Sixty-one percent of consumers prefer direct mail, almost three times that of email, which was the second most preferred category (21 percent). This isn’t 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 percent). 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 percent consisted of personalized content that they found useful, while 29 percent was personalized but was not very useful, and 40 percent was not personalized or useful.

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

Print Buyers Vote With Dollars
Print buyers’ 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 percent of total marketing funds on direct mail. This was followed by web marketing (22 percent), print advertising (16 percent), other (8 percent), telemarketing (7 percent), radio (4 percent), television (4 percent), and wireless (3 percent).

Only 5.9 percent 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 percent of direct mail spending was allotted to external service providers.

In previous research, clients predicted that in 2003, 39 percent of direct mail would be printed in digital color and that by 2005 this number would climb to 53 percent. This, of course, was an overestimation. This survey revealed a figure of 44 percent in 2006, with growth to 54 percent by 2010. Buyers are often unaware of how a job is printed. There is an expectation that many more jobs will be printed using digital color in the future. In our 2005 study on production color, owners of these devices reported that 16.4 percent 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.

Respondents reported using a variety of metrics to measure response rates. More than half indicated that they track multiple metrics related to client inquiries such as web hits and phone calls. Slightly less than half reported tracking a number of metrics related to sales activity, and about 1/3 stated that they track coupon redemption. Due to the competition from the web, tracking metrics for printed direct mail is becoming a requirement.

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

As the use of cell phones and PDAs becomes widespread, these devices are included in 24.8 percent of programs, and it is predicted that this number will increase to 28.1 percent 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 percent), followed by overall revenue/profit (29 percent), repeat orders/retention (22 percent), response time (8 percent), and average size or value of order (6 percent).

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 what level they had attained, but what their goal was. Conventional wisdom views a 2 percent rate as good, but the respondents were much more aggressive. On average, they defined a good response rate as 12.6 percent, an adequate response rate as 9.8 percent, and a poor response rate as 8.3 percent. Expectations are clearly increasing.

Unclear ROI on Complex Personalization
Only 52 percent of respondents incorporated any personalization in their direct mail beyond name and address, and only 39 percent 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 percent). Thirty-four percent of respondents stated that they do not believe that the use of personalized content driving digital color would provide a sufficient ROI, 16 percent lack the data to drive this type of program, and 5 percent cited other reasons. Print buyers 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 percent, repeat orders would increase 21.7 percent, order size would increase 20.7 percent, and response rates would improve 20.5 percent. 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 percent of volume was not personalized at all (excluding name and address), 32 percent was highly personalized based on knowledge of the intended recipient, and 27 percent 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 percent of the direct mail they receive is not personalized and not very useful, 30.5 percent has personalized content that they find useful, and 29 percent has personalized content that is not very useful.

Recommendations
Contention for document-related communication dollars is increasing. While print is 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 must continue to expand marketing relationships with corporate clients.
• The printing industry should resist any efforts to establish a universal email 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.

This article is reprinted from the July 2007 issue of PERF Report, a newsletter focused on industry-specific research. Visit www.theperf.org.