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Direct Mail Market -- Market Share from Another Medium?

December 2003

7Clondalkin Group

8Japs-Olson Co.
St. Louis Park, MN

9Consolidated Graphics

10Holden Communications

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

*Moore Wallace does not appear on this list because it could not provide a direct mail segment sales figure.
The Presidential Commission on the USPS handed in a 160-page report outlining reform steps the entity should take to modernize its ways and means of operating—from technology upgrades to partnerships within the private sector. Senate Governmental Affairs Committee Chairman Susan Collins (R-ME) planned on introducing legislation aimed at postal reform, and the USPS has already released its own Transformation Plan.

Many large mailers, including RR Donnelley, have been advocates of modernization for the USPS, which hasn't seen real changes since the last commission in 1968 that produced current standards two years later.

Another specific area of interest for those printers who market via the mail system is the Federal Trade Commission's (FTC) Do-Not-Call Registry. According to the Direct Marketing Association (DMA), 54.3 million telephone numbers have been registered by American consumers. As of November 5, nearly 63,000 complaints have been registered against telemarketers by consumers on the list, the DMA reports.

Print Work on the Way

While some marketing groups continue to wage a legal battle with the FTC over the issue of First Amendment rights, many observers see a possible windfall for mail-based marketing efforts by clients who redirect their campaign dollars away from telemarketing and into print. A number of printers are already seeing the benefits of marketing campaigns that have migrated from the phone to the postal system.

It's safe to say that 2004 could end up being even more intriguing than 2003.

"Overall, 2003 was much stronger than 2002," states Michael Murphy, president of Japs-Olson. "The first part of the year was volatile and we saw extreme highs and lows in weekly mail volume. In the second half of the year, conditions have stabilized and we see an overall strengthening in all direct mail segments. The economic indicators are positive and our clients are showing more confidence in the economy through an increase in volume. Customers in every market segment are optimistic about 2004."

Murphy notes that Japs-Olson stimulated growth, in part, by offering more sophisticated and targeted personalization and messages. Improved productivity initiatives, he notes, allowed the company to produce more cost-effective products and provide reduced turnaround schedules.

In regards to the DNC issue, Murphy believes "there will be an impact on the media mix of advertising and marketing, but it is uncertain as yet how beneficial that will be to print marketing."

Murphy is also wary of potential Do Not Mail legislation that, while unlikely, could bring negative attention to privacy Issues and direct mail. As for 2004's fortunes, he remains cautiously optimistic.

"National advertising spending is closely tied to the overall strength of the economy," Murphy says. "Marketers must feel confident about the economy before they increase advertising budgets. As long as the economy does not falter, 2004 will be a strong recovery year."

"Cautiously optimistic" is the same term used by Tim Stratman, president of RR Donnelley's direct mail business, to forecast the coming year. He reveals that business conditions improved with key customer segments in the fourth quarter, particularly retail and agency clients, leaving a brighter outlook than that of 2003.

Among the initiatives undertaken by RR Donnelley include re-engineering its sales force, enhancing its marketing efforts and investing in new technology. "We identified specific customer segments and began utilizing direct mail to communicate with our targeted customers on a regular basis," Stratman notes. "Additionally, we are upgrading our sales force by hiring and training new sales reps. We have also expanded our production capabilities to more effectively meet our customers' changing direct mail needs."

In the short term, marketers will be re-evaluating their marketing mix and turning to direct mail in light of the DNC Registry, according to Stratman. Over the next year, that could translate to an increase of 10 percent, contingent upon economic conditions, driving 2004 marketing budget spending.

"As a leading direct mail printer, we are well prepared to handle the needs of the marketplace," Stratman says. "Through continuous improvement, our manufacturing team is committed to getting direct mail campaigns right the first time."

Solid Contributors

Jim Andersen, president and CEO of The Instant Web Companies (IWCO), points to solid direct mail performances in the financial services, insurance and travel markets as augmenting his company's solid 2003 performance. Financial services companies pushed their credit card programs with low annual percentage rate and balance transfer offers. Travel companies were battling each other to see who could provide better deals, and insurance companies have been fixating on the baby boomer generation.

"Our growth is . . . because we do direct mail like no one else," Andersen contends. "There isn't another offering in the United States where you have a complete, turnkey solution with the four key disciplines—the printing, envelopes, plastic cards and mailing—in one domain, where we manage the whole logistics stream, including commingling. This provides a profound savings for major direct marketers as opposed to doing it in a horizontal solution, where you procure your own data processing, envelopes, printed product, plastics manufacturing, then find a mail shop."

In terms of investments, IWCO sank $8 million into expanding its personalization capabilities. The company added a fourth commingling unit and a DBCS machine with 296 pockets.

The DNC registry has created a ripple effect in added business, "an uptick" for IWCO, according to Andersen. "Is it sustainable? We don't know the long-term impact, but certainly saw marketing dollars moved from telemarketing to direct mail in 2003. The Do Not Mail effort is somewhat of a threat in New York and California, but obviously direct mail is not as invasive. With personalized product, it's still highly targeted and relatively cost-effective."

Customer commitments and a strong backlog for the first quarter of 2004 has Andersen optimistic about the coming year. "We anticipate rather significant growth and expansion," he says. "Externally, there are dynamics of which we have to be mindful. Since there is a national election next year, I doubt there will be any action from the postal commission regarding postal reform. There are state budget shortfalls for various states, and we're mindful of other tax issues."

According to Hans Nielsen, president of Quebecor World commercial/direct and QueNet Media, the lingering softness of the economy continues to put pressure on the accountability of direct mail campaigns to generate revenue.

Personal Touch

"To that end, the appeal and importance of targeted, personalized mailings continues to grow," he says. "From a product standpoint, personalized direct mail packages and formats saw the most growth—15 percent—in 2003, while non-personalized product segments ran only slightly ahead of last year (about 3 percent), when measured in terms of total quantities of products produced. While the unit cost of personalization is higher than that of non-personalized products, the corresponding return in response rates justifies the expense."

Quebecor World leveraged its logistics and pre-media solutions in bringing added services to its direct mail clientele. "This is an area that truly distinguishes us from our competitors," Nielsen says. "Our ability to provide better postal penetration results in lowered postal costs for our customers. In addition, we helped them achieve a higher level of accuracy of data used in their mailings."

Nielsen foresees an increase in direct mail spending as the economy improves in 2004. On the supply end, pricing continues to be an obstacle; Nielsen notes that some printers are finding that some work is no longer profitable to manufacture, and lower margins mean less money to reinvest in a printer's operations.

Although the trend toward customer consolidation of business using fewer suppliers will have a negative impact on smaller printers, it is actually of benefit to Quebecor World, Nielsen remarks. "The flexibility and strength of our manufacturing platform, combined with our range of products and services, has enabled us to be successful in helping our clients leverage their buy. We remain well positioned to be a single-source provider."


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