Good Morning, It is a pleasure and honor to be invited to address the DMAB and to offer some of my thoughts on the future of direct mail. Consistent with the theme of our gathering today, I have titled this presentation an Engine for Postal Growth In North America. I hope in the next few minutes to talk about our market, trends and directions.
As each of you is aware, our world is changing. Direct mail now competes against a variety of technologies to include e-mail, fax, telemarketing and even some new ones like direct TV, home shopping and/or a combination of technologies. However, In my view, direct mail remains one of the most effective tools for getting the sale. Research report after research report suggests that even in the presence of the Internet and direct email, direct mail still remains a competitive communication technology. In North America, direct mail first began to be used in the American Civil War. In fact, one of our most famous Civil War Generals, Ulysses S. Grant, had printers selling portraits of the General through a direct mail piece, we have a copy of this advertisement in our association offices. However, direct mail came into its own in the 1950’s and Boomed in the 70’s and 80’s as Americans flocked to suburbia from the inner city, postal service improved and postal rates became cost effective for direct mailers. Advertising mail rates came in to existence in the 1960s’ as the Postal Service saw the potential of a new medium to reach customers – a direct mailpiece. Then, as today, the direct mail advertising system is content related. We have two primary s classes of letter mail, First-Class and Standard A. Standard A is advertising mail while First-Class includes correspondence and business transactions. It is important to point out that some mailers prefer First-Class as a vehicle to piggy back advertisements with the bills that they send to a household. Why? Everyone opens a bill. Don’t you…
We still have challenges growing our industry. I noted from a recent document that the DMAB sent out, they identified many of the challenges that direct mail has or will have in the future. I continue to feel that delivery reliability and incomplete information on customer value propositions are the primary reasons that posts have not been able to grow their direct mail portfolio. In the United States, the USPS survey’s the end user via the Household Diary Study and I am going to present some information from the 2001 Diary Study on Customer Attitudes Toward Direct Mail. I continue to believe that privacy will be a major issue for all of us and we must be responsive to consumer concerns about their privacy. In North America, the DMA has a Customer Preference System through which consumers can “opt out” of direct mailings. This preference system is advertised everywhere and a convenient “800” number service is provided for customer use. DMA has recently published their “Privacy Pledge” and is taking active steps to insure that customers and direct marketers understand privacy rights. I also feel that another challenge facing the posts is their own policies which sometimes work against creativity in the mailstream. Some posts do not allow a great deal of printing on the front of the mailpiece. In our system, we have restrictions on where we can apply printing but there is a constant battle about the “real estate” on the front of the mailpiece and discussions about sizes and shapes of mail that we can use. Finally, the focus of an individual post is an issue. Some are just not placing any emphasis on direct mail and if you do not devote time and marketing attention to any medium, it may be difficult to grow.
I wanted to add this information from the most recent USPS Strategic Long Range Plan. You will note that First-Class Mail in units is designated by the white bars and Standard A or Advertising Mail is designated by the gray bars. The rest of our mailstream is designated in blue. In 2002, 202.8 billion pieces of mail were sent through our postal system. First class mail accounted for 102.4 billion piece, Standard Mail was 87.7 pieces. Based on the most recent forecast of the USPS, by 2005, First Class mail will only be 97.5 pieces and Standard A mail will be 98.2 pieces. This means the composition of the mail will shift to more advertising mail than first class mail. You can also see growth from that point forward. Sustaining that growth represents real challenges for the USPS because rates cannot increase more than the cost of inflation if that forecast is to be sustained. It also means that we are going to have to do even more to promote Advertising Mail because it takes three pieces of Advertising Mail to equal the same net profit as one piece of First-Class Mail. We already have the highest mail-per-capita in the world, so growing Standard A at an accelerated rate may represent some real challenges such as privacy and mail quantity that may mean we have to do something very different.
In 1998, EMA established our Foundation for Paper Based Communication. I was honored to be the Chairman of that Foundation for the last two years. Last year, we commissioned an assessment of the USPS Household Diary Study of 2001 to establish a direct mail baseline of attitudes toward this medium. I might note that the USPS has been doing the Household Diary Study for quite some time. The study measures consumer response to a number of questions about the mail they receive. It is called a diary because the consumer actually prepares a diary and returns it to the independent research firm conducting the study. I would encourage you in the room that are posts to request a copy of this study from the USPS. I have found it very well done and very informative. It is also very detailed so be prepared to do a great deal of reading.
Here is what we were looking at: We wanted to identify the overall trends, which you will find are very similar to some of the information that you already have from DMAB. We wanted to find out what features, especially what design features, were driving volume. We were very interested in seeing how consumers reacted to the direct mail that they evaluated via the diaries that they kept. All of our data sources were secondary, in essence, connected to the Household Diary Study or peripheral research. Again, our goal was to create a benchmark so we could continue to track these changes.
So in 2001, American Marketers spend nearly $197 billion on direct response advertising. We also determined from DMA that Direct Marketing Ad Spending would grow by about 6.5 percent per year between 2003 and 2006. There are about nine million people that work in the mailing industry or in mail related products industries in the United States collectively producing $900 billion in value to our economy. Mail is a big business and direct mail is a big part of that industry.
In 2001, households send an average of 4.2 pieces per week and received an average of 26 pieces per week. This was up form 3.7 and 20.7 in 2000, respectively. While this performance declined somewhat in 2002, recent evidence is indicating that household mail is starting to grow again. Total domestic mail received by households in Postal Fiscal year 2001 (September 30, 2001) was 143.6 billion unites. There was a 2 billion unit drop in mail volume after the Anthrax attack of October of that year but mail volume began to return in March 2002. Again, household mail volume is starting to grow again.
As I mentioned earlier, Advertising mail goes across both classes of lettermail. The chart above shows that 19.5 billion pieces of First-Class mail had one or more advertisements in them as received by households in 2001 and 57.5 billion pieces of household mail were Standard mail. Again, a very strong market. About .4 billion or 400 million pieces of mail were unaddressed. As you can see 69.7 percent of total advertising received in the household was delivered at a Standard mail rate – including catalogs, fliers, post cards and lettermail.
Looking at mail received by shape you can see that letters represent about 86 percent of the mail volume. Post cards represent only 6 percent and catalogs about 6 percent. About 2 percent is unidentified. Financial sector, social and non-profit mail use letter sized envelopes most often. Merchants use catalogs and manufacturers, service providers and governments prefer circulars and fliers according to the Household diary study.
Now, let me address some of the challenges to all of us in direct mail based on our research. The number of households wishing they received less advertising mail have increased from 52.9 percent in 2000 to 59.6 percent in 2001. I suspect that number will continue to rise with mail volume. We all have to use care in our campaigns and pay attention to the drivers of consumer response. Equally concerning is the percentage of advertising mail that households find interesting and likely to read fell from 62.5 percent in 1987 to 33.3 percent in 2001. Response has been relatively flat over the past several years and all of us have seen research indicating that the consumer is “over communicated” and is being targeted by email, fax, telemarketing and mail. We are learning more about targeting and the timeliness of advertising, but it is clear, if we are not careful, response will continue to suffer as consumers ignore more mail. We also learned that 47.1 percent of Standard A mail is read by at least one person in the household; 42.9 percent of First Class mail is also read by at least one person. We also note, that based on Household Diary data, households still appear to respond more to Standard A ads than First-Class ads, although First-Class ads are becoming much more creative in their presentation and we could see this response pattern change somewhat.
The Digital Printing Council is comprised of companies like IBM, Hewlett-Packard, OCE, Scitex and may other digital printing equipment and ink manufacturers. They have looked at response rates over time and this is what they said last year. That if you add a name to your mailing, you increase response by 45 percent. Adding full color increased response rates by 45 percent. Adding a name and full color increased response rates by 135 percent and targeting via a database with personalized information increased response by 500 percent. And of course, we Americans are always looking for a discount so when you add that we go way up. I might add that I have spent many years in the direct marketing business and especially direct mail. It is always difficult to measure response, especially when you are testing different features. I would certainly report to you that these number do tend to sell more digital color printers. We know this, that targeted, tailored and timely direct mail gets noticed. Direct mail has to “jump out at you”, it has got to look different if it will capture the eye of the consumer.
DMA has generated a number of interesting research studies but this one developed in 2002 got our attention. The study examined postal mail against email for a variety of different functions. Note that postal mail was better than email at generating orders and generating leads but email was better in building loyalty and driving traffic to a web site. Retailers still like paper based mail for order generation. I might add that much of this data was collected before the FTC starting conducting SPAM hearings. I would imagine, some of these usage factors would have changed since then. I do believe that direct mail is still the best medium to actually generate an order or to get someone to respond in some way. It just follows logic that a great deal of direct email is ineffective. It may be cheap to send but consumers are not clicking to buy.
All of us are doing things differently today. DMA research is showing us that customer retention is our most important function and most of us are working on strategies to keep our customers happy. Interestingly enough, we are also starting to work on strategies go gain back customers that fled direct mail. We do this through special response offers and we are also talking with the USPS on what we might do to provide incentives for customers who have not bought through the mail in a year or more. We are also looking at secondary response devices to improve purchase activity. For example, some retailers print their catalog cover page on their mailing packages today because they found when the consumer is queued that a catalog is inside the package, about 30 percent of the time they reorder. I think we are only beginning to understand what caused repeat purchase behavior and it might be something that DMAB might want to study with us further. It would be an interesting area to explore with several retailers.
So what did DMA find out about future usage of Postal Mail and Email from their customers? You can see that email did grow in preference across the board for order generation and generating mail volume to prospects. We conducted an interesting industry experiment. One of our members clicked on an email solicitation and put his name but modified his middle initial. Over three years he received over 70 pieces of paper based direct mail with that modified middle initial. It shocked him that his mailing address could be used on so many different solicitations and most of these were paper based. This is both an advantage for us paper based mailers and should also be a concern to us. It is possible to kill response by mailing too much and it could end up fueling more of our “do not contact me” history.
I know I have covered a great number of points in just 15 slides and I will be happy to send you more of our research if you would like to see it. As a matter of fact if you contact Tonya Muse the Executive Director of the Foundation she will send you a copy of our study via email. I have put her email on the following slide. Remember, that direct mail is growing but in its growth we will be presented with new challenges. We need to keep those consumer preferences in mind. I continue to believe that if we use this medium properly and if we are creative we can continue to generate effective response for our customers. I also believe that we have to work more closely together but posts and mailing industry to develop programs that promote the value of direct mail. You can see from the numbers we are generating in North America that direct mail is our future and it will continue to be the medium of choice. Finally, we need to do more creative research of the privacy concerns of customers. I would like to see DMAB become more of a clearinghouse for resources and information on privacy. Remember, there is an informal promise that we have made to our customers, that we care about their time and we don’t want to be obtrusive. We want to be part of what makes their life better not just another interruption.
Before the Direct Mail Advisory Board Universal Postal Union Berne, Switzerland Robert J. Muma United States Direct Mail – An Engine for Postal Growth A View from North America
The World of Direct Mail Is Changing <ul><li>Direct Mail now competes against a broad variety of message delivery mechanisms including fax, e-mail, telemarketing and a host of other communications technologies. </li></ul><ul><li>In the United States, direct mail really began in during the American Civil War as a very limited medium but grew into its own in the 1950’s and boomed in the 1970s and 1980s. </li></ul><ul><li>Direct mail is now finding its place in a competitive communications marketplace and the medium continues to change to meet the new challenges place upon it. </li></ul>
The Challenges Faced By Direct Mail Include The Following: <ul><li>Lack of customer awareness about features and benefits. </li></ul><ul><li>The need for better financial incentives for advertisers to use direct mail as a medium. </li></ul><ul><li>Limited or incomplete information on customer preferences. </li></ul><ul><li>Delivery efficiency or lack of reliability. </li></ul><ul><li>Privacy, Privacy and Privacy. </li></ul><ul><li>Postal policies that may impact the creativity of the mailpiece. </li></ul><ul><li>The focus of the posts: Are they in the delivery business, Global logistics business, electronics business or…? </li></ul>
USPS Mail Volume Actual and Forecast 2002-2008 Volume In Billions of Units
The EMA Foundation – Direct Mail Trends Study <ul><li>We were looking at the current trends and directions in direct mail. </li></ul><ul><li>We wanted to find out what features of the mailpiece drove direct mail response. </li></ul><ul><li>We wanted to understand how customers reacted to direct mail. </li></ul><ul><li>We were looking at secondary data sources, not doing more research. </li></ul><ul><li>We wanted to create a benchmark for the future. </li></ul>
Direct Mail Overview <ul><li>In 2001, American marketers spent nearly $197 billion on direct response advertising </li></ul><ul><li>For 2003-2008, direct marketing ad spending is expected to grow about 6.5% a year </li></ul> Source: DMA, US and Direct Interactive Marketing Today 2002 and EMA estimates Total U.S. Employment 2.00% 1.30% Compound Annual Growth Rates Economic Growth Category 1996 - 2001 2002 - 2006 Direct Marketing Ad Expenditures 6.80% 6.50% Total U.S. Ad Expenditures 4.40% 5.50% Direct Marketing Sales Revenue 10.00% 8.30% Total U.S. Sales Revenue 5.50% 4.80% Direct Marketing Employment 5.70% 4.30%
Total Household Mail <ul><li>In 2001, households sent an average of 4.2 pieces per week and received an average of 26 pieces per week. This is up from 3.7 and 20.5 respectively. </li></ul><ul><li>Total domestic mail received by households in PFY 2001 was 143.6 billion pieces, up from 140 billion in 2000. </li></ul>1.6 2.1 18.5 0.4 22.6 1.4 2.9 23.4 0.4 28.5 1.4 2.8 23.9 0.4 28.8 0 5 10 15 20 25 30 35 Household to Household Household to Non Household Non Household to Household Government to Household TOTAL Domestic Mail Sectors Pieces per Households per week 1987 2000 2001 Pieces per HH per week, Total Domestic Mail by Sector
Advertising Mail by Postal Classification Base: Advertising Mail Pieces, PFY 2001 (82.4 billion) Source: The Household Diary Study, USPS, 2002 Total Advertising 82.4 15.02 100 Postal Classification Volume Totals (in billion) Pieces per HH per Week % of Total Advertising Domestic First Class Mail Pieces 19.5 3 .56 23 .7 Standard Mail 57.5 10.48 69.7 Unaddressed Material 5 .4 0.98 6 .6
Shape-Based Mail <ul><li>Letter size envelopes now comprise a large portion of Standard A mail </li></ul><ul><li>Financial sector and social/non-profits use letter-sized envelopes most frequently </li></ul><ul><li>Merchants opt for unpacked catalogs; manufacturers and government prefer addressed circulars/fliers </li></ul>Source: The Household Diary Study, USPS 2002
Consumers Views <ul><li>Households wishing they received less advertising mail have increased from 52.9% in 2000 to 59.6% in 2001. </li></ul><ul><li>The percentage of advertising mail that households find interesting and likely to read has fallen from 62.5% in 1987 to 33.3% in 2001. </li></ul><ul><li>47.1% of Standard A mail is read by at least one person in the household; 42.9% First Class Mail is read </li></ul><ul><li>Households respond more to Standard A ads versus First-Class ads </li></ul>
Response Rates <ul><li>Adding a name increased response rates by 45% </li></ul><ul><li>Adding full color increased response rates by 45% </li></ul><ul><li>Adding a name and full color increased response rates by 135% </li></ul><ul><li>Applying database information in constructing the offer increased response rates by 500% </li></ul><ul><li>Adding a discount increased response rates by 1000% </li></ul>Source: Digital Printing Council
Direct Marketers – Strategies and Key Trends Usage of Postal Mail and E-mail Source: DMA State of Postal & E-Mail Marketing 2002 Other 2.70% 1.50% Percentage of Current Mail Intended to: Postal Mail E-mail Generate orders 45.50% 32.70% Generate leads 27.80% 26.50% Build loyalty-retention (non-order generating) 10.70% 17.70% Drive retail traffic 7.20% 4.80% Drive site traffic 4.10% 12.00% Obtain e-mail addresses 2.00% 4.70%
Current Selling Strategies Applied by Postal Mailers <ul><li>Improving customer retention = 57% </li></ul><ul><li>Re-activating customers = 41% </li></ul><ul><li>Improving customer purchase frequency = 46% </li></ul>
Future Usage of Postal Mail and E-Mail Source: DMA State of Postal & E-Mail Marketing 2002 Retail traffic generating mail volume (Citing Increase) 12% 16% Within the Next 2 Years, How Will You Change Your Usage: Postal Mail E-mail Order generating mail volume to customer file (Citing Increase) 39% 59% Order generating mail volume to prospects (Citing Increase) 38% 42% Loyalty/retention mail volume (Citing Increase) 34% 47% Lead generating mail volume (Citing Increase) 28% 47% Web site traffic (Citing Increase) 28% 40%
Some Concluding Thoughts <ul><li>Direct Mail is becoming a more significant part of our mailstream in North America. In 2005, there will be more advertising mail than First-Class mail if present trends continue. </li></ul><ul><li>Response is always difficult to measure but the more a mailpiece stands out, the greater the response. </li></ul><ul><li>Direct mail and direct-email are challenging one another for the hearts and minds of the consumer. However, direct mail still has the advantage of touch and is promotes response. E-mail may be more difficult in achieving the same response per thousand but does have reach. Customer retention is still best achieved through direct mail. </li></ul><ul><li>Privacy is an important concern for all of us. Remember that targeted, tailored and timely communication is what the consumer wants. We will only be effective if we can deliver on these needs. </li></ul>
Thank You! And Don’t Forget The Envelope! For the Study I just mentioned: twmuse at envelope.org