Short-run, digitally produced direct mail could be the next big thing.
Distributors have long prided themselves on their ability to save money for their customers by finding the lowest-cost vendors, streamlining workflow and using forms management strategies. But, with so many products becoming commodity items, those time-worn strategies are no longer enough to keep distributors' businesses healthy and growing. Savvy distributors are searching out products and services resistant to such price erosion.
One potentially lucrative avenue is direct mail. According to the Direct Marketing Association (DMA), in 2003, approximately $49 billion was spent on direct mail services—including postage, agency fees, printing and bindery—up from $39.6 billion in 1998. That represents an average annual growth of 4.6 percent, and the DMA projects growth rates of 4.9 percent annually from 2003 to 2007, with a total of $60 billion in direct mail spending in 2007.
Forms manufacturers have seen the trends and are responding. "We've invested over $1 million in the last two years just in our mailing department," noted Lindsay Gray, vice president of Acculink, Greenville, N.C.
Fenton, Missouri-based FormStore has expanded "significantly into the laser personalization, lettershop and mailing segment of our industry," said president Paul Edwards. FormStore now operates 30 digital printers, including six digital color systems, and Edwards said that he expects his direct marketing and digital printing business to quadruple this year.
Ward/Kraft, Ft. Scott, Kan., has also made substantial investments in order to benefit from direct mail. The company added an Indigo digital color press 18 months ago, but recently added almost $2 million of digital equipment, according to Roger Buck, national forms sales manager. Ward/Kraft took the plunge after seeing "tremendous growth" in its commercial direct mail business after the Indigo came on line, Buck said. And, extensive market research by the company convinced it that the return on investment would be rapid. "Our projection is that commercial printing overall will add at least $3 million to our business this year, and a fairly large percentage of that will be in direct mail," he predicted.
Several trends are conspiring to paint this rosy picture. The National Do Not Call Registry signed up 55 million households, closing off telephone solicitation as a viable marketing strategy for many. And, federal legislation to limit unsolicited e-mail forced marketers to reallocate resources to direct mail.
At the same time, advances in both hardware and software have made it easier and less expensive to produce one-to-one four-color marketing pieces. Digital printing's slice of the printing revenue pie was between 5 percent and 7 percent in 2003, and it's rapidly gaining ground, with growth rates being twice that of offset.
Targeted Mail
In the past, direct mail volumes would be in the range of 100,000 and up, with such mass mailings generating at most a 1 percent to 2 percent response. "Now, the trend is smaller mailings with more sophistication that typically generate a 10 percent response," Edwards said, "mainly due to digital printing." The key for distributors is smaller mailings that are now economical for customers, yet too small for mass mailers or directs to compete for.
"Direct mail is a great opportunity to sell to even the smallest businesses. Half of printing will be fewer than 2,000 copies in the next few years," Buck said. Even though equipment is capable of sophisticated merging of photos, personalization and demographically differentiated copy, distributors have plenty of opportunity at a simpler level, he said.
Gray noted, "The more personalized the message and the more variable the data, the greater the return. It's a whole different consultative selling than just selling a bunch of postcards."
New Mind-Set
That mind-set change is the toughest obstacle for forms producers that want to expand their business in direct mail, manufacturers admitted. "We need to teach distributors the difference between a workflow document and a revenue-generating document," Buck said. "You're not just saving money for a customer; you're making money for that customer."
Response rates, postal regulations, marketing messages, thinking like an ad agency—such subjects may seem daunting. But, manufacturers insisted that distributors can start small and work up, partnering with them and marketing experts as they have previously for commercial printing, mailers, electronic forms and promotional products.
"When distributors began selling form/label combinations, they always had to do cost justification/return on investment (ROI) to sell it. Direct mail is the same," Buck said. "You can't just talk about printing and its cost."
The DMA notes that ROI can be measured by one of four methods: an increase in response rate, an increase in the average order dollar amount, a decrease in cost or an increase in the lifetime value in the customer relationship—i.e., an increase in sales to that customer over a period of time.
Direct Mail Detectives
"Distributors don't need to know all of the technical details, and their customers don't, either," Buck said. "Ask, 'Does it accomplish the goal and define it as precisely as possible?' Be a detective to define the mission."
To correctly craft a direct mail program—or determine if direct mail is even the best vehicle for the printed piece—distributors need to know if their customers want more business from existing or new customers, which ones, and for what product or service, among other things. Ask end-users what end result is desired, and how much they're willing to spend to get there. "If the target audience is properly paired with the message, hardly any cost wouldn't be worth it," Gray said. "Ask customers if they would send a $5 postcard if it guaranteed $100 in business."
Most end-users have no idea what their response rates are, and distributors can charge to provide that service, Buck said. Simple techniques, such as adding an extension to an 800 number, can help track rates. As a carrot, distributors can offer to rebate the charge for research if the end-user gives them the job of improving response.
Clean That List
Mailing list management scares off distributors, manufacturers say, but as Edwards noted, there are "a lot of levels in direct mail," and most customers don't need extensive nationwide mailings. Distributors typically supply FormStore with a list that the end-user generated in-house rather than one purchased from a list broker. FormStore runs the list through CASS, NCOA and address pre-sorting to verify addresses, eliminate duplicates and reduce postage expense. "It's not that complicated to do anymore," Edwards said.
Buck said that most end-users' customer databases are only 60 percent accurate. "It's a monumental task for the end-user to maintain, which means another opportunity for distributors."
One little-known option is a free service from the United States Postal Service (USPS). "The USPS will merge, purge and de-dupe for you free of charge one time," Buck said. "It is in a major push to help people understand direct mail, which is half of its volume."
Learning the Ropes
Manufacturers emphasized that, for direct mail, distributors will be talking to upper management in sales and marketing rather than someone in purchasing, thus developing deeper, more profitable relationships. "If you help customers increase sales, that means more purchase orders, invoices, payroll, etc. Customers won't want to move that business because you've helped them make money," Buck said.
Manufacturers urged distributors to attend large trade shows—such as DMA, MailComm, GraphExpo and On Demand—and to use the Internet to find analysts' reports on direct mail, direct marketing and postal regulations.
They also recommended being a guinea pig. Distributors should examine their customer databases, clean them up, send out simple postcard mailings and measure the results of different messages, personalization and targeting. That gives them experience and a story to tell.
"Direct mail can also open up brand-new channels, such as a speakers bureau, professional training organizations, artists co-ops, etc. It's an opportunity to move outside the normal customer base," said Buck. Traveling trainers or speakers might be very interested in personalized presentation kits, and artists could benefit from affordable digital prints of their work or personalized mailings to those who attended a gallery show.
Medium-sized local retail chains and health-care facilities can be fertile ground for distributors to suggest simple mailing programs, Edwards said. For example, talk to hospitals' public relations directors and suggest segmenting their external newsletter mailing so that senior citizens get a different newsletter than new parents. "It's a big step up from doing a generic mailing," Edwards said. "It takes a little bit of work, but once it's set up, it's not much more complicated than a mail merge."
Gray noted that even non-profits, schools and churches with little money to spend will often concentrate scarce resources on direct mail fundraising appeals. Mailings may not even be sales-oriented, but internal, such as an annual benefits package mailing to employees.
Businesses with branches or franchises across many states may want consistent marketing messages, but with local content. A menu of postcard elements—graphics and copy—can be placed on the home office internal Web site for local managers to choose from, Gray explained. Those elements, merged with an uploaded database from the local branch, are then sent automatically to an approved vendor. "You take what is a real pain in the rear and make it easy and measurable," Gray said. "There's great potential for this kind of sale. Think like a tactical general, not a foot soldier."
Staggering Opportunity
Once they've identified potential direct mail customers, distributors have to understand the value they bring to the table, manufacturers said. Explain to end-users why a more expensive document is better, showing a graph of better response with more targeted mailings.
The mailing program also needs to be sold as a year-long effort, since repetition is as crucial to success as the proper message and target. Distributors report periodically to the president on the value of the program the same as they've previously done with forms management. "The hardest thing is figuring out what to charge; it's a new value proposition," Buck said. "You could charge a percentage of their increased sales in addition to profiting on the printing itself. Create value in the customer's mind by charging for service. Distributors have given away too much for too long."
He likened short-run, digitally produced direct mail to the potential of forms in the 1970s and labels in the 1980s. "It's the next big thing," Buck said. "Direct mail is so full of opportunity for everybody right now that it's staggering."
By Janet R. Gross
- Companies:
- FormStore
- Ward/Kraft
- People:
- Lindsay Gray
- Paul Edwards