AGENCY LEADER Q&A: King Profit

Larry Kimmel, new CEO at Grey Direct, predicts a return to direct response basics

WHO KNOWS MORE ABOUT YOUR BUSINESS THAN YOUR LIST BROKER? Your agency account team. In fact, agency execs know more than most of us about trends in general. With that in mind, we sat down last month with Lawrence M. Kimmel, chairman and CEO of Grey Direct, for the first of a series of Q&As with agency leaders. Kimmel has a strong background in traditional direct marketing, but he also understands the other channels and how they relate to direct. What does he predict? An increasing demand for accountability in advertising, which means a return to direct response basics. Kimmel started out on the general side at Leber-Katz Partners, and for a time ran his own company, Unified Marketing. He spent seven years at DraftWorldwide, and has been at Grey since 1998. He got the top job last October.

Schultz: Where does direct marketing fit into the big picture these days, compared with brand advertising?

Kimmel: Branding was the hot phenomenon a year ago. That’s no longer the case. The kinds of advertising that deliver return on investment are coming into vogue — for example, interactive TV. Interactive TV is a direct marketing discipline. In the United Kingdom there are now 5 million households that are interactive-ready — about 12% of the population, double what it was a year ago. Wireless will come eventually. It’s also a direct marketing discipline. E-mail, which is now deployed about four times more on a daily basis than [paper] direct mail, is a direct marketing discipline. The Internet is a direct marketing discipline.

Schultz: So what’s the next big buzzword?

Kimmel: It’s profit — the great barometer of business. It wasn’t a year ago. Direct marketing is profitability.

Schultz: What kind of clients do you see coming in the door?

Kimmel: There are many people in the high-tech, software and hardware business who are clearly interested in direct. We’ve seen tremendous growth on the B-to-B side. Everybody had believed that the Internet would be a wonderful consumer solution, and it really hasn’t turned out to be that. We are seeing more and more companies using Web-centric direct to solve their business issues. If a sales call costs them $500, and a sales guy typically visits the client four or five times a year, that can be two times a year now.

It’s easy to use the Internet to convey information. It’s not that people are buying on the Internet. The statistic we see is that about 80% of the people shop online, but buy elsewhere. They use the Internet to get information, knowledge and updates and see brochures.

Schultz: Given the economic climate, do you have to work harder to get clients?

Kimmel: Everybody in the agency business was a recipient last year of dot-com mania. Many of those companies had a huge urgency to get sites built quickly, and had lots of [venture capital]. But Web development is not as robust as it was. Having said that, there is a bit of a migration away from traditional advertising to what we do. We’re seeing more people come in and say, “I want solutions, I want results. Let me talk to people who can provide that to me.”

Schultz: Is CRM still important?

Kimmel: Some companies are being careful about how much of an investment they’re willing to make, but CRM is definitely important. Part of the reason CRM became so necessary is that traditional marketers wanted to make sure that their online distribution channel would be consistent with the offline channel. CRM is important because traditional companies on the Internet want to make sure they get it right. Major old-economy companies were frenetic to say, “I need a solution, I need it today because there are these new-economy companies stealing my customers.” There was broad-scale fear, so everybody felt compelled to have solutions tomorrow.

Now I think traditional companies are a little bit more prudent, and moving at a pace that they can appropriately evaluate and investigate. It’s not as if I’ve got to buy it on Thursday because otherwise some new-economy company is going to eat my lunch.

Schultz: Do you help clients with organizational problems, like the question of who owns the customer?

Kimmel: It depends on the client engagement. There are engagements where we are closely aligned to the client organization and are helping them make those judgments. Other companies ask us to be a marketing communications optimizer, in which case the data issues are their issues and it’s our responsibility to make sure our communications are as effective as possible.

Schultz: Does your shop still do all the traditional stuff like media buying of DR space in TV?

Kimmel: Sure. The rates are down tremendously vis-à-vis last year. On the media side we’re finding DRTV rates now anywhere from 10% to 40% cheaper than they were last year. We do all online media purchasing. Our banner advertising campaign is on average less than half the cost it was last year. We’re busy renegotiating some of the big media deals that were done last year. Lots of new clients have come to us and said, “Take a look at these media deals.”

Schultz: You’re saying that the media costs are going down. Is that across the board?

Kimmel: The online advertising is the most dramatic discount.

Schultz: Are the TV discounts across both cable and broadcasting?

Kimmel: Yes. This year, up-front cancellations for major advertisers have been huge. It’s the car companies that drive most of that and they cut back their budgets substantially. There has never been as many up-front cancellations before. The whole dot-com marketplace is dead so the TV media people are hungering for solutions. We can negotiate some good deals wherever we want at this point.

Schultz: What about paper mail?

Kimmel: More mail was delivered last year than ever before and we found that for many new-economy companies the best way to get response in the most cost-effective way was through direct mail because there aren’t that many opt-in e-mail lists. The response rate is just not the same online vis-à-vis offline. Only half of the population is online so direct mail is an important solution. However, on a long-term basis, it’s not a solution because postage is going up, printing is going up and all those kinds of things.

Schultz: Are budgets shifting?

Kimmel: Many companies last year were heavily steeped in acquisition. They felt it was certainly necessary to get into the game. There’s only so much money that most companies are willing to allocate from a budgetary perspective. Any old-economy company last year felt that they needed to be playing in the new space, so some of those dollars were redirected to that — they felt they were dead in the water if they didn’t have an online offering. So some of those dollars were shifted away from customer communications to attempt to acquire customers online. In financial services, not our client Chase but lots of other financial institutions were wild in terms of the deals they cut online to acquire customers.

They spent tons of dollars attempting to do that, diverting them from distant customer communications. Now a couple of those financial institutions are hurting big time in terms of their earnings report and their investments. Online acquisition was foolhardy.

We’re proud of what our client Chase did, being far more resistant. Some people were questioning how big of a commitment they had to online, and they were prudent and appropriate. We are helping them become more closely aligned with their customers across multiple channels. They’re making a concerted effort such that you are better served and appreciated through all channels and all communications touch points. I think they’re doing a good job.

Schultz: Are you making changes in how you charge for your services?

Kimmel: We’re trying to do more of our relationships predicated on percentage of our revenue for performance. There are circumstances where we have engaged in a total pay-for-performance. There’s no cost for any of our services. Now, it needs to be a situation where we’re steeped in information. But in certain circumstances with existing clients when we’re steeped in information, we will be willing to say hey, you have limited marketing dollars, we’ll go ahead and do an initiative for you and invest our money, our labor and share of profits. The vast majority of arrangements are a combination of pay for labor and then we’ll participate in performance because we have confidence in our ability to produce.

Schultz: What do you think of DR creative these days? I see a lot of DRTV spots that look more like brand advertising.

Kimmel: Some of direct advertising these days is done by people who are not really direct marketers and it tends to be more of a hybrid. And many advertisers don’t really track the work. They think if there’s an 800 number on it, it’s direct communications. Many of the people who were trained in direct are more mature these days. There’s a generation that hasn’t done all the testing and all the work that a great direct marketer certainly needs to do.

Some people think they’re dealing direct, but it’s not being tracked on the back end so they don’t know how good it could be. What we want to be able to do is provide meaningful branded communications that offer the same kind of return on investment that traditional direct does. That becomes the challenge. We don’t want to do Judy wraps if a communication in a TV commercial can have a branded message and provide the same return on investment. We have seen circumstances where that’s the case. We want to do branding and sell something at the same time. I think that’s the new platform by which great direct marketing needs to be evaluated.