The list business is suffering the effects of 18 months of declining rental revenue, according to several list professionals.
While a number of factors have contributed to the slide – estimated at 20% to 40% – it began when two of the largest direct mailers, American Family Publishers and Publishers Clearing House, drastically cut back mail volume in the face of serious public image problems.
For example, Pearl River, NY-based Walter Karl has seen rental volume from AFP and PCH drop to 20% of its previous level of some 1 million names a month. “They’re gone,” says senior vice president for list management Fran Golub. “They’re hardly mailing at all.”
For the SpeciaLISTS Ltd. of Weehawken, NJ, list use by the two sweeps mailers has dropped to 35% of what it once was, dramatically affecting five of the firm’s top 10 lists, according to senior vice president of list management Michael Berger.
With the huge cutback in mail volume, and the resulting decline in the number of names generated by AFP and PCH (a falloff estimated at anywhere from 30% to 70%) list universes began to shrink in 1998, and mailers have since had trouble finding and renting the volume of names they once used.
“Our counts are down,” says Steve Leighton, vice president of marketing services for Fingerhut Cos. Inc. “We’re trying to mail as many good lists out there as we’re able to find, but counts generally are off on a lot of the lists we use. It’s this ripple effect across the industry.”
Also contributing to the problem is an upsurge of modeling on house files.
As universes continue to diminish in volume, and list rental revenue declines to a projected annual growth rate of 7% (compared with 15% to 20% last year), many list owners are prospecting less and turning to their house files for answers. Deeper and more frequent modeling is producing a statistically valid, neatly defined customer profile that nets fewer though more productive names when matched against outside files, Golub says. However, this has resulted in less rental revenue for list owners and smaller list universes.
“Mailing more to the house file doesn’t create new buyers, just multibuyers,” she adds.
“There’s an awful lot of work going on house files to improve results there,” says Kathy Duggan-Josephs, president of Ridgefield, CT-based D-J Associates.
“There has been such an improvement in the validity of modeling,” she continues. “A year ago a lot of mailers were talking about it. Now they’re doing it and keying in on lifetime value of their buyers.”
Leighton agrees. “As the economics demand, [marketers] may mail fewer names by tightening up the model criteria to maintain profitability,” he says.
Cataloger Norm Thompson updates its model frequently, says acquisition manager Patty Davis. The firm once relied solely on RFM, but moved into regression modeling, scored its file and cut the number of names it rented.
Tougher negotiations and a growing number of list exchanges have also contributed to the revenue decline.
“Mailers are looking for better pricing, net name arrangements and volume discounts,” says the SpeciaLISTS’ Berger. “You name it, they’re looking for it.”
They are also seeking discounts on rate card rates and selects – the number of selects requested has at times increased with deeper models – and better net-name arrangements. “Mailers are trying to drive the price down because retention rates in merges are dropping. The lower the retention rate in the merge/purge, the higher the rental cost per mailable name,” says Lesli Rodgers, president and CEO of Direct Ltd., Monroe, CT.
Another factor contributing to lower retention rates is mailbox saturation.
“Everybody owns each other’s names,” Leighton says. “If I mail company A’s list and they mail mine, their customers will eventually become mine and my customers will become theirs, which gives you fewer new prospects to go to.”
Banking is one example of an overmailed field. Golub says bank mailers used to take 1 million names at a clip and negotiate a 60% net-name deal. Now they bargain for lower net-name arrangements – 10% to 20%. “They’ve mailed everybody,” she says. “They own all the names.”
As the ripple has continued to spread, mailers have turned to list exchanges in an effort to cut costs. Some catalogers and publishers have diverted the savings to Web advertising to attract both new online and traditional buyers.
Norm Thompson has increased its exchange volume by 30%. And like other list owners, it has become more protective of its house file, even if that means a drop in list rental revenue.
“Every year I do a competitor study,” she says. “There are a lot of start-ups out there that are heading right toward a couple of my concepts and I am denying them names.”
During the holiday season, Davis is also denying list rentals for many promotional offers that include free shipping, deferred billing and discounts, which she says are damaging to the industry as a whole. “I just don’t want [mailers] doing those heavy promotions to my customers,” she says. “Revenue that I normally would have gotten I’m choosing to forgo.”
Another culprit contributing to the decline? Large consortium databases. While Abacus Direct Corp.’s Alliance co-op database benefits many participants, it is also blamed for an estimated 20% to 30% drop in list rental revenue for catalogers, experts say.
“Anybody in the catalog field must understand that giving business to the [co-op] databases must have a negative impact on list rental revenue going to list owners,” Rodgers says.
Abacus also contributes to saturation as mailers mail the same names over and over.
Publishers have joined co-op databases to help maintain rate bases no longer supported by the two sweeps giants. One beneficiary of this has been Experian’s Information Services Group, which operates the CircBase publisher’s co-op database.
The database, launched in May 1998 with 104 individual publication lists, currently holds 226 files from 65 publishers. The Abacus co-op includes lists from 18 publishers with 150 titles and 1,400 catalogs.
Pressure on Managers
Meanwhile, the decline in rental revenue has resulted in mailers having “less money to spend on prospecting and new activities,” says Golub. “For most list owners, list rental income is pure profit, so it was money they could put toward new ventures, new catalogs and more prospecting. Now they just don’t have as much [money] to do those things.”
As a result, list managers and brokers are under more pressure than ever to produce. There is intense bidding for quality files and in some instances, commission percentages have moved to the forefront as a bargaining chip to retain and/or attract business. Golub says traditional list management commissions of 10% have dropped as low as 7% and brokers have cut standard 20% commissions by as much as 5% to 10%.
Cutting commissions “is a quick fix but hurts in the long term,” cautions Carolyn Woodruff, vice president of Uni-Mail List Corp., New York. “Mailers need someone who is dedicated to their business and reviews and critiques the lists, and that requires time and energy. In order for brokers to dedicate that time, they have to be paid in an appropriate manner that warrants that dedication.”
One expert, who asked not to be identified, blames a deterioration in service – misinformation on response rates, undeliverability and uneducated staff – for the drop in revenue. “It’s unfortunate that people are more concerned about list rental revenue than list rental service,” says this source. “If list rental marketers would devote more attention to providing real service, revenue would take care of itself. It’s the lack of service that’s going to kill the list rental industry, not shrinking revenue pools.”
Meanwhile, as AFP works toward reorganization through its recent Chapter 11 filing in U.S. Bankruptcy Court in Newark, NJ, plans include diversifying beyond sweepstakes into new channels.
That could be good news for the list industry, says company spokesman Richard Tauberman.
“As we go forward with new initiatives, there is a likelihood we’ll be increasing our use of list rentals.”
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