Savings Threaten a $196.8 Billion Direct Mail Market

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1 January Savings Threaten a $196.8 Billion Direct Mail Market Viewpoint Advertisers are using electronic mail as a cost-effective way to acquire and retain customers. The savings are significant for customer retention, but as a newcustomer acquisition method, won t save a dime. Dynamics In recent months, one of the largest U.S. network publishers saw a 15% increase in advertiser inquiries. costs range between $5 to $7 per thousand, while direct mail costs range from $500 to $700 per thousand. Direct mail accounted for 65% of all mail received by U.S. households in Predictions Direct mail has reached its peak and will account for less than 50% of mail received by U.S. households by Increased competition between , wireless coupons and alerts will fuel the decrease in direct mail rates. Recommendations Use viral techniques to turn current customers into a new marketing channel through which to acquire future customers. Use in tandem with direct mail, following suit of the major direct mailers. Use and electronic communications as regular communications channels for all correspondence. Dig Deeper Related Research from GartnerG2 Gartner Core Research Outside Source Methodology GartnerG2, a new service from Gartner, Inc., helps strategists guide and grow their businesses. RPT GartnerG2. All rights reserved. GartnerG2.com. Page 1 of 7 Denise Garcia Opt-in is key to high response. Customers who agree to receive messages from advertisers or vendors are more likely to respond.

2 Viewpoint Strategists turn to for savings Looking for cost savings? Advertising and marketing are usually among the first expenses to be cut during sluggish economic times. That means businesses are left trying to increase sales while cutting marketing costs. The sudden surge of usage by advertisers has business strategists wondering how much they can save from this alternative to direct mail, and just how efficient will it be? Increased consumer trust, established by permission-based marketing efforts, has helped to fuel the increase in marketing activity. But won t replace direct marketing entirely. Instead, savings-minded strategists will use to boost marketing efficiencies by understanding and strengthening current customer relationships. Dynamics up, standard mail down use is growing rapidly and shows no sign of slowing down. In October 2001, euniverse, one of the largest U.S. e- mail newsletter networks, reported a 32% increase in use by its 40 million subscribers. The online entertainment network credits this increase for its move into sixth place in terms of unique users in the United States (NetRatings, week of 29 October 2001). The network also reported a 15% increase in e- mail marketing inquiries from potential advertisers and a 68% increase in revenue from marketing. In contrast, the U.S. Postal Service noted deteriorating revenue and volume statistics earlier this year. Financial projections for 2001, which had already forecast a loss of $1.4 billion, now show current losses increasing. Revenue for the period 5 September through 8 October is $300 million under pre-11 September projections. Initial estimates of mail volumes for the period saw a decline of 1.1 billion pieces of regular mail, or 6.6%, compared to the same period a year earlier. Direct mail includes all direct response advertising communications through mail or other delivery services, including catalogs, cards, card decks, letters, brochures, pamphlets, flyers, videotapes, audiotapes, diskettes and promotional items. includes all direct response advertising through electronic and Internet delivery services. GartnerG2 research shows that currently represents 12% of the online advertising market, or $948 million for By 2005, advertising will grow to represent $1.505 billion of an $18.8 billion Internet advertising market. RPT GartnerG2. All rights reserved. GartnerG2.com page 2 of 7

3 Figure 1: advertising revenue growth, Source: GartnerG2, 2001 Internet Advertising Forecast. Numbers in 000s. marketing for customer retention, rather than customer acquisition, has been the most notable trend in this marketplace. In 1997, ad servers estimated the majority of their clients ings were used for new customer acquisition. Today they estimate that number has fallen to only 15%. High response rates from sent to existing customers and selective targeting cultivated this trend away from new customer acquisition to retention. Consequently, advertisers are building and using their own in-house lists, rather than buying lists from media. This change in the marketplace represents real savings for businesses that build their own lists. The Direct Marketing Association reduced its 2001 projections for total direct marketing advertising expenditures by $2 billion, predicting $196.8 billion in spending on all forms of direct marketing, down from the $198.8 billion forecasted before 11 September. And the Direct Marketing Association reports an increase of 4% in-house mail list usage. Consequently, GartnerG2 s advertising forecast reflects that change, noting the number will decrease from 12% of Internet advertising to 8% by advantages: price, time and information Direct mail incurs production, printing, postage and delivery costs, while programming and delivery are s only major costs. Average creation cost for a direct mail piece is $1.12. Average creation cost for an piece is $0.42. Marketers can send messages as quickly as they create them. On average, it takes four to six weeks to complete a direct mail campaign and seven to 10 business days for an campaign. Within days of launching an campaign, response can be measured and actions taken. Marketers can gauge response quickly and react by making adjustments on an e- mail campaign before delivery of a direct mail campaign is complete. Thus, the entire cycle time of the campaign from creation to delivery and response is one-tenth the time of traditional direct mail. Responses to direct mail take an average of three to six weeks. Responses to take an average of three days. RPT GartnerG2. All rights reserved. GartnerG2.com page 3 of 7

4 Having response information after only a few days allow marketers to refine the offer to increase the response and, in turn, increase effectiveness and lower costs. Even before launching an campaign, an advertiser has potentially more information about the customers than when using direct mail lists. Analysis of results from former campaigns, and cookie-based information from time spent online, give marketers a distinct advantage. Knowing more about the target allows marketers to personalize messages and target a specific message to a segmented group. information can be used with advantages over direct mail such as: Personalization Specific targeting Enhanced testing capabilities In addition to printing, delivery and production savings, the electronic format increases its efficiency through its virus-like pass-along capability. For most advertisers, a viral campaign is successful if the pass-along is fivefold. In addition to the increased reach efficiency of the viral component, its effectiveness is increased by implying endorsement from sender to receiver. These advantages, along with an increase in users and familiarity, have fueled the growth in permission-based demand the most effective use of marketing. Permission-based, or opt-in, means individuals have granted their permission to the sender to send messages to them. Most users give their permission to receive s because they are interested in the content, such as a newsletter. But existing customers are also increasing their requests for electronic statements and correspondence these are permission-based as well. Opt-in is key to high response. Customers who agree to receive messages from advertisers or vendors are more likely to respond. DoubleClick, the largest interactive U.S.- based ad server, found that 88% of consumers make purchases from permission-based e- mail. DoubleClick has found that permission-based ranks twice as high as banner ads as consumers top method for finding out about new products and services. In the past year, the average consumer has doubled the number of permission-based e- mails they have opted-in to receive. Response rates Tips from the Direct Marketing Association: Clearly display the return address and phone number on the envelope or package. Make logos prominent. Tell what's inside. Secure contents so they don't move around. Use phone or to tell people that mail is coming. Permission-based marketing is key to higher response rates. In general, response rates measured by action taken from direct mail are the same as , hovering at 1%. But targeting users is key. Some Web publishers report an average 1% to 3% clickthrough rate on s without editorial content vs. s sent with editorial content (a 0.5% to 1% clickthrough rate). On permission-based s, the average clickthrough rate is between 6% to 8%. RPT GartnerG2. All rights reserved. GartnerG2.com page 4 of 7

5 Predictions Advertisers will rely less on media companies as they build their own lists for marketing efforts. Media companies true value will be in the content they provide advertisers, which customers request. usage will increase during the holidays and as consumers travel less. As a result, users will become more familiar and reliant on vs. paper mail. will be used in conjunction with direct mail marketing efforts particularly based on the Direct Marketing Association s recommendations and will boost efficiencies. Vendors will increasingly drive customers toward electronic communication because of its cost-efficiencies. As a result, consumers will become more familiar with marketing messages and increase the number of newsletters they choose to receive. Media revenue from marketing will decrease from 12% of total Internet advertising revenue to 8% by 2005, because most advertisers will use their own lists rather than rely on media s lists. Recommendations Set-up an strategy, by doing the following: Append addresses to your customer file. Let your customers know that you would like to use to communicate with them in a more timely manner. This permission-based approach will save you money, while also enabling you to communicate and get feedback quickly. Show your customers that you know them. Use advanced personalization to address your customers, making sure to acknowledge your relationship with specifics. An accurate database with up-to-date product and service information will help facilitate this. Add value to the relationship. Offer your audience value-added content, white papers or a free consultation in exchange for information about themselves. Use this progressive profiling technique to make future communications more relevant and engaging. Create a dialogue and respond right away. Always allow your customers and prospects to provide feedback, then acknowledge and use it to better your next communication. Make sure you re prepared to respond to requests immediately. is popular largely because of its immediacy, so if you make an offer in your , be ready to reply. Be consistent. Regular communications are key to building awareness and relationships. Establish a plan to communicate regularly with your customers, and stick to it. Track results and be flexible. Implement a strategic approach that utilizes diligent tracking and results analysis. By linking your database, campaign management, broadcast and online data RPT GartnerG2. All rights reserved. GartnerG2.com page 5 of 7

6 capture within a common infrastructure, you will know which offers, messages and campaigns work best as they happen. Use profile data from retention efforts as targeting criteria for acquisition campaigns. Limit number of s to not more than two per day for consumer audiences, and no more than three per month for business audiences. Use in conjunction with direct mail, according to the recommendations of the Direct Marketing Association. Decrease your dependence on outside lists by building your own lists. Using your own lists, you can save money by practicing acquisition, retention and crossselling strategies. When sending permission-based s: Develop the mailing list from addresses collected through an opt-in means. Use double opt-in for double permission. Ensure that the includes a working mechanism for opting-out. RPT GartnerG2. All rights reserved. GartnerG2.com page 6 of 7

7 Dig Deeper Related Research from GartnerG2 Growing, Growing, Gone By Denise Garcia (October 2001) Gartner Core Research Research and Advisory Services Report: Spam, Blacklists and Marketing By Maurene Grey (1 September 2001) Summary: Direct marketing rules do not apply to marketing campaigns. Infrastructure and e-business forces new thinking. Without a permissions-based strategy, the will be blocked as spam, and the campaign will fail. Outside Source Grafica s TouchPoints Newsletter: See Grafica s Web site ( Methodology Findings are based on information and research gathered from Doubleclick, Pitney Bowes, Direct Marketing Association, Microsoft, euniverse, YesMail and the U.S. Postal Service. The online advertising forecasts are determined in conjunction with data collected from Neilsen/NetRatings, Evaliant, SEC filings and interviews with online media and online advertisers. Numbers are based on data collected from Evaliant and NetRatings for the period of May 2000 to April Financial statements were analyzed from 1Q00 and 1Q01. Direct mail prices change based on total pieces, mail class and size. The prices included are based on mailings averaging 200,000 pieces to in-house lists. Average costs exclude creative because creative estimates vary widely. Entire contents 2002 Gartner, Inc. All rights reserved. Gartner s prior written permission is required before this publication may be reproduced in any form. The information contained in this publication has been obtained from sources Gartner believes to be reliable. Gartner does not warrant the completeness or accuracy of such information. Gartner shall have no liability for errors, omissions or inadequacies of the information contained in this publication or for any interpretations of that information. Any opinions expressed herein are subject to change without notice. RPT GartnerG2. All rights reserved. GartnerG2.com page 7 of 7

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