The Future of Direct Mail, Transaction and Transpromotional Documents: The North American Market Opportunity

The Future of Direct Mail, Transaction and Transpromotional Documents: The North American Market Opportunity Focused Focused Transaction Documents Direct Mail The TransPromo Opportunity Electronic Presentment Data Center and Print on Demand Printing Market Opportunity Headquarters 97 Libbey Industrial Parkway Suite 300 Weymouth, MA 02189 +1 781 616 2100 info@infotrends.com Europe Sceptre House, 7-9 Castle Street Luton, Bedfordshire, United Kingdom LU1 3AJ +44 1582 400120 euro.info@infotrends.com Asia Hiroo Office Building 1-3-18 Hiroo Shibuya-ku Tokyo 150-0012 Japan +81 3 5475 2663 info@infotrends.co.to

This study examines the future of direct mail and transaction documents in North America with details on the U.S. and Canadian markets. It examines the adoption of transpromotional documents that combine marketing messages with transaction information. The study is a follow-up to our landmark 2003 study entitled The Future of Mail and Transaction Documents and our 1997 study entitled The Internet and the Future of Transaction Documents. Our most recent study surveyed 850 consumers over 18 who pay bills, 456 document owners responsible for direct mail and transaction documents, and 397 print providers who focus on direct mail and transaction documents. It provides statistically significant data to print providers; companies that sell printing, finishing, and mailing equipment; software providers; and businesses that provide alternate services such as electronic bill presentment. The findings are also of interest to providers of CRM (Customer Relationship Management) tools, paper and preprinted forms, and postal services as well as those who sell printers to the consumer market. This study focuses on customer-facing applications such as direct marketing, billing, and related issues like customer support and fulfillment. It investigates consumers behavior and preferences, explores print providers expectations and plans, and reviews the plans of those who generate these documents. This study uncovered a high level of consumer interest in highly personalized communications that are not currently delivered. It found that business growth and business dynamics drive transaction document growth despite online initiatives. It found a high preference for transpromotional documents among consumers and a belief among document owners and print providers that this market would grow rapidly over the remaining part of this decade. The research with print providers who service this market found high levels of interest in a wide variety of equipment and software Introduction The health of the printing industry is heavily reliant upon direct mail and transaction documents. InfoTrends has forecasted continued growth for the direct mail printing segment at rates above the overall market. Transaction documents are forecasted to decline slightly, but this decline is occurring from a large base. With the impact of privacy legislation and the continued adoption of the Internet, it is critical to gain an understanding of the future of direct mail and transaction markets. Those who generate these documents have an increasing number of choices about how this information is delivered. In addition to printing, there is the Internet and portable devices. Most organizations face continued competition and constrained budgets, yet they must communicate in the most effective ways. The recipients of these documents have preferences as well, and this study will provide insight into how these two sets of dynamics will impact the market. Direct mail remains the preferred direct marketing approach, with 61% of consumer respondents stating a preference for direct mail over other types of direct marketing. We believe that direct mail can be examined from two perspectives direct mail that is designed to acquire new customers and direct mail that is designed to retain or up-sell existing customers. Retention direct mail can more easily meet the requirement from our last study that the mail be highly personalized, as the originator should know more about the recipient. Our study has found that the direct mail market is evenly split between the two types of communications. Transaction documents are vital links between critical business processes and desired outcomes. They fuel the transfer of funds and ensure cash flow. Invoices and statements are the ultimate mission-critical documents. As such, they are among the few types of mail that are almost always read. Organizations are investigating new and more efficient means of producing and distributing these documents, and this has resulted in the so-called transpromotional category, which combines direct mail and transactional documents. The adoption of transpromotional documents could transform the

existing document landscape. Our study indicated that the North American market for transpromotional documents printed in full digital color had reached 1.62 billion impressions in 2006. By 2010, we expect this number to be valued at 21.72 billion impressions, representing a CAGR (compound annual growth rate) of 91% over the four-year period. This growth will be fueled by the increasing value of digital printing equipment and continued market adoption. Printing is being eliminated in some applications, but distributed in others. In still other cases, documents are being built to order based on real-time data and printed or distributed in other ways. Some users are outsourcing production to professional services firms and demanding increased security and wider output choices that integrate more tightly with their core systems, while others are continuing to invest in internal production capabilities. Our study found that while very little of this work is being done off-shore, about 15% of direct mail is being purchased using online tools. This evolution provides new opportunities for document technology vendors of printing and finishing equipment, as well as providers of document management, content management, and electronic presentment software. It also offers a tremendous opportunity for print service providers in the document outsourcing arena to assist customers in migrating to more productive and efficient operational strategies relative to transactional data flow. On one hand, this study evaluates the transitions that are underway in the corporate world relative to transactional data flow. On the other hand, the study evaluates the longer-term effects of recent events on the perceptions and practices associated with the creation, management, and distribution of transaction documents. Additionally, this year s study examines industry trends that have evolved since InfoTrends previous studies. The overall objective of this study is to provide document technology vendors and service providers with critical information to guide the development of product/ service portfolios and strategic business planning to capture revenue from direct mail and transaction-based document applications. This study examines the impact and opportunities for document technologies and services created by the increasing pervasiveness of the Internet as a business tool, the adoption of Customer Relationship Management (CRM) solutions and electronic document delivery programs, and the increased availability and accuracy of customer data in medium-sized and large companies in select vertical industries. Why is this important? Direct mail and transaction document volumes drive output in what we define as the data center print environment. The retail value of digital print produced in this environment was estimated at $4.6 billion in 2005. Digital printing equipment revenues, services, and direct supplies (excluding paper) are estimated at close to $2.2 billion. InfoTrends annual U.S. Market Forecast defines the data center print opportunity as digital printing functions that support computer-based information processing tasks. Most of this printing is for mission-critical production of items like reports, transactional statements, process documentation, or direct mail. These processes take advantage of printers with the primary function of printing host/mainframe data. Our forecast currently considers only monochrome and spot color devices. All full color devices are covered in the Print On Demand forecast. Of course, some direct mail and transaction documents are produced in what we classify as Print On Demand environments that are more closely aligned with graphic arts. Graphic arts environments are those where the primary business objective is to produce printed products with high graphic content. These establishments are operated on a print-for-pay basis (i.e. commercial printers, quick printers, service bureaus, or digital service providers), or where printing is considered a cost center (i.e. corporate reproduction groups, in-plant print departments, or marketing communication departments). These user environments typically have dedicated, skilled operators using a variety of hardware and software tools to produce visually refined, high-resolution, formatted, completely finished documents. Companies in graphic arts environments currently dominate the print-on-demand market, and we count all full-color devices in this category.

Our recent study of 516 commercial printers (The Changing Print for Pay Market: The Future of Commercial Printing) indicated that 7.7% of their print volume was related to transaction documents. Promotional documents, including direct mail, accounted for about half of total volume. In our study entitled The Evolving U.S. Digital Color On Demand Printing Opportunity, we found that owners of digital color production printers currently attribute 17.4% of monthly print volumes to direct mail and only 2% to transaction documents. Project Objectives: 1. Identify the current state and future prospects for transaction documents, transpromotional documents, acquisition direct mail, and retention direct mail. Page growth Revenue growth Color content (monochrome, monochrome/pre-print, spot color, full color) Types of mail (self-mailers vs. standard and flat envelopes) 2. Understand how key IT and organizational initiatives are affecting user requirements for document production and distribution technology and services E-Business Initiatives ERP systems CRM solutions Content and document management Electronic presentment and other distribution alternatives 3. Determine customer requirements and the rate of adoption for document technologies and services in key industries Financial services & healthcare Business service including AEC Retail/Wholesale Manufacturing Non-profit, education & government 4. Assess customer awareness and vendor plans for supporting key technologies XML PDF JAVA AFP Automated Document Factory JDF Legacy print streams 5. Assess market opportunities for print technology Consumer printers High-speed black & white devices (80+ ppm)

o High-speed cut sheet and roll-fed devices Spot color solutions over 50 ppm Digital full color devices o Less than 24 ppm o 24 to 59 ppm o Over 60 ppm 6. Assess market opportunities for print-related solutions Output management solutions Print data stream conversion solutions Automated document factory solutions 7. Assess market opportunities for feeding and finishing solutions in support of digital printing print-related solutions 8. Assess the changing requirements of consumers segmented by typical demographics, those with or without Internet access, as well as those with high-speed Internet access. 9. Profile current and future value-added document services offered Consulting Software integration Output management Fulfillment Storage, archiving, and disaster recovery services Presentment Personalization and customization Document and content management Image and records management Database and hosting services Direct marketing 10. Identify and profile the leading suppliers for enterprise document systems and services Hardware Software Consulting Integration Outsourcing o Statement printing o Contracted printing o Facilities management o Direct mail firms

Market Research Our market research included discussions with document owners and print buyers to determine their current and future plans for direct mail and transaction documents. We surveyed 456 document owners with responsibility for direct mail or transaction printing. With each group, we will gained a greater understanding of the transpromotional opportunity. We surveyed 397 print providers who service these markets to understand their beliefs and quantify investment plans. We conducted in-depth interviews with representatives from the direct marketing industry, including print vendors, large corporate users of document technology, the postal service, and other relevant parties. Additionally, InfoTrends interviewed and profiled influential technology developers and service providers to understand the market size and product development directions. We surveyed 850 consumers (end-users) to uncover trends and preferences relative to transaction document delivery methodologies, including adoption rates for online services like electronic bill payment, investment transactions, and other customer self-service opportunities. We surveyed those with Internet access at home and those without. The research provides detailed information regarding preferences and the use of direct mail. It will also tests the effectiveness of personalization and the use of color. Our study results indicate that in addition to having a high preference for highly personalized communications, 63% of consumers have a preference for transpromotional documents. Ultimately, the research identifies critical success factors; unmet customer requirements; purchase plans; and other items that will drive the vendors and service providers product, service, marketing, and sales activities. Desk Research InfoTrends will thoroughly examine existing market information on key applications, market segments, competitors, and product categories. We anticipate utilizing a variety of sources that include: Industry trade associations Government agencies Published industry reports Bureau of Labor Statistics Periodicals and trade articles Industry databases Web sites Vendor white papers User groups Research reports InfoTrends will also review research it has previously published as part of its Continuous Consulting Services and Multi-Client Studies. Relevant research reports include: A Vertical-Market Approach to Document Services in the U.S.: The Evolution from Printer to Partner Multi-Channel Communications: The Content Publishing Workflow Challenge The Evolving U.S. Digital Color On Demand Printing Opportunity Document & Content Solutions: The Professional Services Opportunity Document Process Outsourcing: Business Strategies for Successful Market Engagement The Changing Print for Pay Market: The Future of Commercial Printing

The Global Print Production Workflow Market: Enabling Fundamental Business Change in Graphic Arts Content-Centric Collaboration: The Business Drivers and Technology Needed to Support Content-Centric Collaboration Ink Jet Addressing and Personalization: Overview and Outlook, 2004 Creating the Conduit for Multi-Channel Communication Corporate Print Services: The In-Plant Printing Opportunity Print On Demand Quarterly Market Data Tracking Program The Future of Paper The New Corporate Print Customer: A Profile of a Market in Transition The Future of Mail and Transaction Documents Black & White Print On Demand: Catching the Next Wave The Internet and Future of Transaction Documents Personalized On-Demand Printing and Publishing One to One Communications: Delivering a Personalized Message Practice Of Knowledge Management Global & North American Print Production Workflow Software Market Forecast: 2004-2009 U.S. Print On Demand Market Forecast: 2004-2009 U.S. Document Outsourcing Forecast: 2004-2009 U.S. Printing & Publishing Market Sizing: 2004-2009 Vertical market reports 397 Print/Mail Service Provider Interviews Service provider and vendor interviews are critical in assessing the current state and future direction of direct mail, transaction, and transpromotional documents. Existing capabilities and planned investments are covered in detail, as are strategies, revenue trends, and perceptions on unmet market needs and emerging opportunities. Service Providers Statement printers/service bureaus Direct mail firms Commercial printers, including digital and quick printers Forms printing & management In-plant data centers and printing establishments Of particular focus will be page volume trends, color use, equipment and solution purchase plans, and overall requirements. 456 Document Owners and Print Buyers InfoTrends conducted a series of structured interviews to develop industry statistics on current use and future plans concerning direct mail, transaction documents, and transpromotional opportunities. We obtained data on adoption plans and their impact on print volumes, unmet needs, new service requirements, and other factors affecting document

technology and service purchases. These span key industries and focus on each application separately. The interviews enable detailed market sizing, projections of demand, and other quantitative information that is critical for business planning. 850 Consumers/End-Users InfoTrends conducted a series of structured interviews with consumers to evaluate receptivity to various communications alternatives, including a number of questions designed to measure receptivity to electronic presentment and direct marketing preferences. These survey results provide wide demographic coverage in terms of age, gender, geography, income, and Web use. They include mall intercepts and provide cross-tabulated data on those with or without home Internet access. This survey work identifies how and where statements and invoices are printed. We also tested the effectiveness of personalization and color among this group with a transpromotional application sample. Analysis and Project Deliverables InfoTrends conducted extensive analysis of the desk research, interviews, and surveys to develop a comprehensive understanding of the opportunities and issues for document technology and service providers. Technology Providers Clients will receive a combination of reports, presentation materials, and data for senior management, product managers and planners, and sales and marketing executives. The materials will include: A detailed written report (262 pages with 202 figures) with text, charts, and graphs addressing the objectives of the study An Executive Summary that addresses key issues, findings, and overall recommendations 8 PowerPoint presentations for internal communication of the research results 9 data books with cross-tabulations of the survey results for additional analysis of key questions and market segments Service Providers Service providers will receive a combination of reports, presentation materials, and data for senior management, product managers and planners, and sales and marketing executives. The materials will include: A detailed written report (262 pages with 202 figures) with text, charts, and graphs addressing the objectives of the study An Executive Summary that addresses key issues, findings, and overall recommendations 8 PowerPoint presentations for internal communication of the research results 9 data books with cross-tabulations of the survey results for additional analysis of key questions and market segments Profiles of key vendors and solutions relevant to the transaction printing, mailing, and direct marketing industry Market segmentation and opportunities for print service providers in the production of transaction and direct marketing applications, with information about vertical industries A discussion of the key elements of a business plan for providers considering entry into (or expansion of services within) the transaction printing, direct marketing, transpromotional marketing arenas

Corporate End-Users Corporate end-users will receive a combination of reports, presentation materials, and data for senior management, product managers and planners, and sales and marketing executives. The materials will include: A detailed written report (262 pages with 202 figures) with text, charts, and graphs addressing the objectives of the study An Executive Summary that addresses key issues, findings, and overall recommendations 8 PowerPoint presentations for internal communication of the research results 9 data books with cross-tabulations of the survey results for additional analysis of key questions and market segments Profiles of key vendors and solutions relevant to the transaction printing, mailing, and direct marketing industry Detailed consumer preferences Project Schedule Interviews were conducted in the 4th quarter of 2006 and the study was published in December 2006.

Acceptance The Future of Direct Mail, Transaction and Transpromotional Documents I would like further information. Please have a representative call. Please enter my order as follows: Technology Provider - Primary business is printing equipment manufacturer, software and systems vendor, paper manufacturers, and equipment and supplies distributors Subscriber $14,995 Personal presentation $ 2,500 plus travel expenses Service Provider - Primary business is direct mail printing, quick printing, corporate print facilities, commercial printing, facilities management/outsourcing provider, data center service bureau, fulfillment company, or carrier Subscriber $ 6,995 Personal presentation $ 2,500 plus travel expenses Corporate User Producers of transaction and direct mail documents who want to better understand customer requirements and best industry practices. Subscriber $ 2,995 Personal presentation $ 2,500 plus travel expenses Purchase order number: Signature Name Title Company Address Address Address Telephone Fax