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2005 Direct Mail Market Outlook -- Mailers Bullish on '05

December 2004
St. Louis Park, MN$85$107

7*Von Hoffmann Corp.
St. Louis

8Consolidated Graphics

9Holden Communications

10Berlin Industries
Carol Stream, IL

Sales figures are based on above printers' self-reported total and market segment breakdowns.

*Von Hoffmann has been acquired by Kohlberg Kravis Roberts & Co. (KKR) and DLJ Merchant Banking Partners. Its revenue figures do not represent segment and total sales for the new enterprise.

"In both segments, the success of our clients' direct mail programs is driven by complex personalization models. IWCO Direct has made, and continues to make, significant investments to support enhanced personalization in both capability and capacity," Andersen remarks.

"In addition, our vertical solution provides the speed to market that these segments require and our postal strategy delivers the savings that allow them to mail more and to mail more frequently."

Andersen has also witnessed solid performance from loyalty programs in the travel, retail and software markets. "We've developed a core communications model for loyalty programs that drives cost takeout, product accuracy, timeliness and quality," he says.

The economy resulted in lower volume levels overall for Montreal-based Quebecor World. According to Peter Gargano, executive vice president of sales and manufacturing for the direct division, another factor was the number of mergers and acquisitions that took place throughout different segments during 2004.

"However, the financial services industry continued to be a very strong market segment for us, along with the telecommunications industry," Gargano reveals.

Banta Corp., Menasha, WI, saw increased spending in all four consumer-based segments in which it performs: retail, consumer packaged goods, financial services and agency work. Results from Banta's direct marketing group "significantly outpaced" the general market growth experienced in late 2003 through 2004, according to Jim Cyze, group president.

"In retail, business improved because large retailers implemented direct marketing campaigns to differentiate themselves and to create brand recognition among consumers," Cyze says. "And financial services companies saw opportunities based on the economy to promote their refinancing and home equity programs."

For RR Donnelley, the 2004 campaign has been a successful one marked by an increase in volume, as well as a rise in the number of client mailing tests—be it new creative or experimenting with more personalization and variable copy as opposed to using plate changes.

According to Gordon Grote, president of Moore Wallace Response Marketing Services, creative testing is a plus for Donnelley, which expanded its production platforms to incorporate commercial in-line finishing and multi-web in-line collated products.

"We have been able to respond to inquiries for the use of more varied paper substrates, more color and all of the origami associated with in-line finishing," Grote says. "We have also unleashed our own creative teams on these new platforms and they have been able to place more format options in front of the direct mail user."

The benefit of variable imaging, Grote notes, is that it allows the mailer to change terms, legal copy and offer features such as price based on code-driven tables. In turn, Donnelley can mail more customized copy and preserve the mail sort, which yields a lower postal bill and reduces cycle times. This route has been taken by Donnelley's financial, insurance and traffic-building clients.

Cross Platform Offerings

One way in which Quebecor World has bolstered its direct marketing revenue stream is by offering mailing products across different platforms, including the retail, catalog and publishing sectors, according to Gargano. The thought process is to provide a range of products that will enhance clients' marketing strategies as they move toward more targeted, personalized campaigns.

Banta Corp.'s primary growth initiative revolved around sales training and database cleansing. "Because of Banta's breadth and depth of services, it is extremely important that our salespeople can fully articulate the value, capabilities and services we bring to our customers," Cyze remarks. "We understand the entire direct marketing process, from creative conception of an idea to postal service impacts to execution to the inclusion of multiple channels.

"When we're immersed into the communication continuum, we can add more value to our customers and create real partnerships. . .helping them to create the truly customized marketing programs they are seeking."

The Moore/Wallace/Donnelley marriage made for the largest-ever merger of direct mailer producers. When Moore and Wallace merged, it brought together an array of multi-webs, digital printing capabilities, high-color direct mail forms printing and sophisticated finishing operations. Donnelley added commercial web printing and in-line finishing systems to the fray. The result: Donnelley's Centers of Excellence, which combined assets into seven domestic and three European facilities.

"Our clients also have the opportunity to leverage the premedia resources available through RR Donnelley on the front end, and then count on RR Donnelley Logistics to move the mail effectively to the consumer," Grote says. "RRD Logistics is into every SCF across the nation daily and touches about 19 billion pieces of mail annually."

As Donnelley sorts itself out, 18 presses have been taken out of service, eight of which will be relocated to various facilities.

This past June, IWCO Direct announced plans to increase its lettershop capacity by 35 percent, add capabilities to reduce cycle time, and provide products and services in support of complex personalization models for direct mail programs. To that end, the company invested more than $4 million on high-speed mailing equipment such as affixers, embossers, bindery lines and inserters. Also obtained was a fifth Siemens Dematic delivery-point bar code sorter (DBCS) for commingling.

Last month, IWCO Direct unveiled plans to establish a new high speed mail processing technology center on its main campus that is set to debut in January. According to Andersen, the center will boast new high-speed equipment and technology to foster the production of 30 to 40 million packages monthly.

Minnesota-based IWCO Direct is also pursuing an out-of-state acquisition that will benefit customers by adding proximity to population centers for its commingling services, Andersen reveals.

As for what 2005 holds for the direct mail sector, Quebecor World's Gargano is cautiously optimistic. "We will continue to monitor costs, particularly with postage and paper, and how any major increases may impact the market. The economy will also play a part since it impacts our clients' marketing efforts, as well as our own operations overall."

Stabilization on the Way

According to Cyze, Banta is optimistic that the momentum witnessed this year will translate into a 2005 that boasts stabilization in the marketplace. "After three years, the direct marketing industry is recovering from post-9/11 fears," he says. "In previous years, programs and campaigns were cancelled based on news alerts. Now, we're seeing companies stick with their long-term growth and marketing strategies."

Donnelley's Grote sees a tactical opportunity in the management of escalating paper prices, consumer privacy issues, fluctuating list quantities and postal costs. It is essential for printers to create and manage purchase agreements to protect their margins, he says, and Donnelley always seeks to make mailings more valuable to the customer.

"Direct mailers are struggling to find enough names to mail to these days, so quantities go down and, as a result, unit costs go up," Grote says. "It makes it harder for conventional mail packages to survive the ROI test.

"We focus on stronger direct mail strategy at the list-offer development and design stage to overcome the cost of the smaller quantity mailings," he adds. "Postal costs are stable for the moment, but again, customers are looking for ways to cut cost. So we do everything we can through our data processing and postal logistics solutions to give mailers the best options."

IWCO Direct's Andersen continues to see an expansion of programs in 2005 and feels direct mail is the best route for marketers seeking to acquire new customers, activate former clients and expand "share of wallet" with existing customers.

And Andersen isn't talking about the family photos section.

A Look Ahead: Postal Reform

The short 2004 legislative season and President Bush's unwillingness to foot the tab on proposed postal reform set the need for major changes, but most supporters of reform (read: anyone who does business through the mail) are patient and believe that major changes are around the corner. In the meantime, a postal increase is set to take root in January of 2006.

Just how big of an issue is reform for direct mailers? What is the impact of status quo in the short term? Our panel weighs in on the topic of postal reform.

Jim Andersen, president and CEO, IWCO Direct: "Postal reform is the most important issue impacting our business. We were disappointed that the great progress made in 2004 toward real postal reform was stalled by the short legislative season. We are confident that the efforts made by our leading trade organizations have galvanized support across the industry and that we will see real postal reform in 2005.

"IWCO Direct will continue to be a leading advocate for postal reform, both through our individual efforts and through our support of the trade organizations that helped to drive passage of postal reform bills in the House and Senate earlier this year."

Peter Gargano, executive vice president of sales and manufacturing for the direct division, Quebecor World: "There will absolutely be a concern with respect to costs; however, there is still a 'wait and see' attitude as to how it will actually affect overall volume."

Jim Cyze, president, Banta Direct Marketing Group: "Hopefully, there will be some reform soon. The USPS needs to realign its cost structure to entice businesses to continue using the postal system as a means to implement effective direct marketing strategies.

"The USPS and smaller businesses may feel an impact once the postal rate increase takes effect in 2006. Smaller companies may have a hard time managing this challenge; however, Banta will be able to leverage its breadth and depth of services and the volume of its business to continue benefiting the customer."

Gordon Grote, president of Moore Wallace Response Marketing Services, an RR Donnelley company: "Postal reform is not a road-block issue per se, as we've lived with the same rules since 1972 and can continue to adapt. Fortunately, postal reform will come, as the Direct Marketing Association and other associations push for it. We are also pleased to have the opportunity to meet with USPS and members of government occasionally to impress on them why all direct mail users want USPS reforms. The organization needs to respond to current market forces more quickly, and we are happy that we can speak on behalf of our clients in an effective way."


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