DMA White Paper
How to Market in Downtimes

Highlights

Source:
Info based on a DMA Quarterly Review that brought together industry leaders to share perspectives on whats working and whats not in todays challenging economy. The Review took place on Oct. 18, 2001. The white paper was released on Nov. 14, 2001. The white paper also included data collected in two DMA research polls of over 400 members. The full text of the white paper can be found at www.the-dma.org


Direct marketing and recessions:
In the recession of 1983, DMA members were hit relatively hard but actually bounced back.

In the recession of 1991, direct marketing held its own, the major reason being the heavy technology investment the industry had made since the early 80s. This investment improved direct marketers targeting capabilities and increased efficiencies.

Now, the US is in a recession and facing a war unlike one weve ever fought. This is compounded by the chaos of anthrax in the mail. It is still too early to understand these most recent events and the impact they will have on direct mailers.


Of DMA members surveyed:
In August, 50% of those surveyed said their business will stay the same through 2001. 13% said it will decline. And 34% said it will grow.

In October, that 50% stay the same number dropped to 42%. The decline number rose to 51%. And only 7% of respondents said their business will grow.


Areas of oppty:
For more than the last decade, some 40% of American adults have not been and are still not direct marketing customers. Decreasing that percentage by only a few points could mean billions of more dollars for the direct marketing industry.

According to a DMA survey, 49% of respondents reported their web operations are now profitable, 23% are breaking even, and 28% are still operating at a loss. The reality is that this percent of profitable operaters is considerably higher than the average in non-direct marketing-based web operations. Dmers have always been ahead of the national trend in ecommerce.

70% of web buyers are current customers. However, it appears that the revenue generated by the 30% of customers that are new represents a bigger percent of the revenue dollars, as opposed to current customers. This may suggest that the internet could be building up a better, more profitable class of customer that chooses to purchase online even if they were stimulated by a catalog or direct mail piece.

Current outlook:
According to the DMAs most recent Economic Impact study, which was updated and revised downward after Sept 11, but before the full thrust of the anthrax, the forecasts for direct marketing are still more positive than for the US economy as a whole.

This year, US marketers will spend about $1.97 billion on direct response advertising a 3.6% increase over last year, but about half the annual growth rate in ad spending that marketers have seen over the past 5 years.

This is a comparably good number when contrasted to same store retail sales estimates and the general retail environment (which is probably zero growth or maybe a slight downturn).

Direct marketing sales this year are projected to hit $1.86 trillion up almost 9% from 2000. Over the next 5 years, direct marketing industry sales are predicted to compound at 8.3% annually, hitting $2.8 trillion in 2006. In comparison, the overall US economic forecast in the retail industry in 4.8%.


Comments from Ron Hill, Partner, Brown Brothers Harriman and Co (financial analysts):
In the past 55 years, there has never been a recession in which personal liquidity has been this high (consumers have fluid spending capability via cash, credit or savings).

Household net worth over the last 10 years has practically doubled and not all of that was in stocks.

Consumers are almost twice as wealthy in terms of their net worth today as they were 10 years ago.


Suggested action items:
Implement a strategy of investing incremental amounts of money in e-commerce to generate incremental returns, to pay for future investments vs. a heavy upfront investment with much higher risk and no promise of ROI.

Communicate with customers using cross channels. The cross channel synergy is really powerful and makes good sense.

Consider sweepstakes, contests and other online incentive programs, which are proving to be really powerful online tools, and are being used to help direct marketing clients acquire new customers. Some list managers perform online sweepstakes for their customers through the mail, but have consumers sign up for the sweeps online because its easier to go to a webpage than mail back an entry. The upside is that email addresses are captured.

Merge online and offline IT groups to get innovative and synergistic ideas. The same people who are involved in offline prospecting should work closely with the online marketers. While there is hope for the future of online marketing, the reality is that the big dollars are still in the offline world.

Multichannel direct marketers need to integrate customer media preference in all customer contact strategies. It is not enough to segment by Recency, Frequency, Monetary Value and Product Preference. Media preference must also be incorporated.
There is much oppty in figuring out how to optimize the communications mix.

In terms of house file marketing, make a significant shift in favor of email. Email to current customers can result in businesses growing by 10 to 15 percent a quarter. This is happening mostly because of the favorable economics of house file email. Prospecting email has not done as well in this economy.

Avoid the knee-jerk reaction to cut back on prospecting in this challenging business environment. At this time, it is critical to focus on customer acquisition because of the need to constantly fight off attrition in customer bases.

As profit forecasts are stronger in direct response ad channels, direct marketing suppliers should research and go after retail merchants not yet using direct marketing media.

Incentives and promotional offers are going to be quite important if you want to maintain a healthy response rate both online and offline during these challenging times.

Direct marketers are not changing mail dates as much as they are dropping marginal prospecting lists. To maintain budgets, they are also being more aggressive in removing less efficient customers.

Direct marketers need to be smarter in the database area by more effectively using all data elements on their customers to make offers are relevant as possible to customers and prospects. Recognize that it is all about the customer, and it is the same customer both online and offline.

Segment customer files and tailor different offers to different customers based on their value to the company.

Direct marketers should ask customers how they wantto receive information online or offline and what kinds of offers they want to receive.

Many company employees who have used only traditional customer contact and management tools need serious, in-depth training in new CRM tools. The high failure rate of CRM installations is often due to poorly trained staff.

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