While net profitability is up, revenue against original projections is down slightly across all three direct marketing segments — users, agencies and suppliers — according to the Direct Marketing Association's Quarterly Business Review.
And though revenue may be off, it's still above second quarter 2003's level for those areas.
The United States' economic condition was cited by all three sectors as the most likely issue affecting the upcoming quarter's performance, But beyond that, the groups diverged. International crises and political issues often were cited by agencies and suppliers as critical factors, while users focused on e-commerce and spam concerns.
Users and agencies also mentioned postal rates and reform as factors fairly often, while suppliers gave this issue shorter shrift.
“Business was soft earlier in the quarter and got stronger as the quarter went on,” said one anonymous DM user in the DMA's report.
Another wrote, “The slow economy has hurt our business tremendously in fourth quarter 2003 and all of 2004. We don't know where the economy is picking up, as President Bush has said — certainly not in consumer spending or consumer confidence. At least not with our customer base.”
As a whole, DM users reported an average sales increase of 5.7%. Nearly six in 10 said their sales had risen, compared with 16% who noted that sales had dropped. One reason claimed for lower sales was the initial impact of the federal do-not-call list.
Marketing campaigns' return on investment saw growth during the quarter. As one of the users surveyed said, “A downturn in response rates for direct mail has been partially offset by a larger order size. Alternative distribution channels, including radio and the Internet, are working very effectively and have more than [compensated for] any lost revenue due to the downturn in direct mail.”
Another user remarked, “Response on acquisition campaigns and overall retention efforts continue to improve year over year. We hope this trend continues.”
According to the study, respondents from the user group plan slight increases in their total advertising budgets, but significant boosts in their direct marketing expenditures. Top areas slated for spending hikes include e-mail, new customer acquisition, Internet integration and e-commerce solutions, new product development and merchandising, database segmentation and modeling, and customer service.
The agency group did not fare as well as the users and suppliers, although there was evidence of new business activity.
“We're having a strong quarter, and looking forward to a strong year,” said Bill Spink, DMW's managing director, executive vice president and chief creative officer.
Spink continued, “Yes, clients seem to be guardedly optimistic about '04 — especially compared with '03. And that has helped spending. But we also have a solid ongoing new business group. And doing great work that generates increased sales and revenue for clients also tends to [bring about more] sales and revenue for agencies.”
However, Jonathan Blaine, president of MarCom Resources LLC, remarked: “Many B-to-C clients are waiting for a major sign from consumers that they're ready to buy. Even though the economy is growing, consumer confidence is still sluggish.”
| USERS | AGENCIES | SUPPLIERS | ALL | % OF ALL RESPONSES | |
|---|---|---|---|---|---|
| Economic conditions | 32 | 34 | 20 | 86 | 20.9 |
| International crises | 8 | 19 | 11 | 38 | 9.2 |
| Political issues | 9 | 15 | 13 | 37 | 9.0 |
| E-commerce/Spam | 23 | 6 | 7 | 36 | 8.7 |
| Postal rates and reform | 19 | 8 | 7 | 34 | 8.3 |
| Consumer confidence | 17 | 8 | 8 | 33 | 8.0 |
| Clients and budgets | 2 | 19 | 9 | 30 | 7.3 |
| Response rates | 13 | 5 | 5 | 23 | 5.6 |
| Other | 19 | 0 | 1 | 20 | 4.9 |
| Product development | 11 | 1 | 3 | 15 | 3.6 |
| Marketing issues | 6 | 4 | 4 | 14 | 3.4 |
| List issues | 8 | 1 | 4 | 13 | 3.2 |
| Paper price | 7 | 1 | 3 | 11 | 2.7 |
| Government policy | 7 | 0 | 1 | 8 | 1.9 |
| Labor | 3 | 2 | 3 | 8 | 1.9 |
| Privacy (general) | 2 | 0 | 3 | 5 | 1.2 |
| Mergers and acquisitions | 2 | 0 | 3 | 5 | 1.2 |
| Technology | 1 | 0 | 4 | 5 | 1.2 |
| Teleservices (including DNC) | 3 | 0 | 1 | 4 | 1.0 |
| Creative | 3 | 0 | 1 | 4 | 1.0 |
| CRM | 1 | 1 | 0 | 2 | 0.5 |
| Holiday sales | 1 | 0 | 0 | 1 | 0.2 |
| Total | 178 | 124 | 110 | 412 | 100.0 |
| NOTE: PER THE DMA'S METHODOLOGY, THE ‘OTHER’ RESULTS ARE NOT FACTORED IN THE TOTALS. | SOURCE: DMA QUARTERLY BUSINESS REVIEW | ||||
Part of what may be spurring this increase in new business is agencies expanding their offerings. Thirty-seven percent of all agency respondents said they were moving into a new client business or product line.
Suppliers reported somewhat higher revenue and profitability than they saw during second quarter 2003, but even among this segment, revenue vs. original projections was off. “One of the main reasons that we have outperformed '03 is that we are retaining more customers this year. We are getting customers excited about direct marketing and our company,” said Bill Raven III, general manager of Raven Direct.
But Canterbury Graphics' Mark Kolier said, “The economic recovery has yet to really affect the [direct marketing] printing segment. Printers being busy in July, August and September is not at all unusual and a false harbinger that things overall are really improving.”
Among this group, new customer acquisition ranked most highly as a projected expense in the upcoming quarter, followed by customer service, wages and salaries, operations budgets, employee benefits, and capital budgets.
