THE LIST BUSINESS is facing many of the problems it encountered last year, with a couple of new twists-intensified merger activity, increased client demands and a more aggressive trade press. That’s the conclusion we drew from the remarks made at our second annual List Roundtable.
The Roundtable, featuring 10 industry leaders, took place on June 19 in New York. Of 10 list executives present this year, only three were there last year, which itself illustrates the changes in the field. Five out of seven of the participants in last year’s event are no longer in their old jobs, and one of the firms represented last year is bankrupt.
The purpose of the Roundtable is to discuss issues concerning the list business, the engine that drives direct marketing, as we approach List Day. It is not to discuss the activities of mailers, which are featured in other articles throughout the year.
The only ground rule was that all the participants had to be present. We encouraged cross talk and blunt remarks, and we got both. Some comments were directed at us.
The raw transcript totaled over 17,000 words, and we had to do some heavy editing for size and sequence.
Though there were strong disagreements, we were impressed once again by the respect and even affection these competitors have for each other.
Max Bartko, international business leader, Acxiom/Direct Media, Greenwich, CT
Michael Bryant, president, UniMail List Corp., New York, NY
Kathy Duggan-Josephs, president, D-J Associates, Ridgefield, CT
Deb Goldstein, president, IDG Communications, Framingham, MA
Howard Kupfer, senior vice president, list brokerage, Mokrynski & Associates,
Lonnie Mandel, president, The SpeciaLists, Weehawken, NJ
Catherine Mumford, senior vice president, list management, Walter Karl, Greenwich, CT
Ben Perez, president, Millard Group, Peterborough, NH
Donn Rappaport, president American List Counsel, Princeton, NJ
Adrea Rubin, president, Adrea Rubin Management, Garden City, NY
Representing DIRECT were:
Ray Schultz, Editorial Director
Patricia Odell, Writer
Ray: It’s been some year in the list business, between the Kleid bankruptcy and the mergers. How do you go back to your clients and explain to them that this is not representative of the entire field? If it can happen to
Kleid, the creme de la creme of the industry, why couldn’t it happen to another independent company?
Kathy: We didn’t really get questioned about it. But we had a number of clients call us and say we want to see your financials. That’s the impact it had on us.
Donn: You’re presuming a bigger impact than there really was. The reality was that Kleid was not the creme de la creme of the list business for many years. We all knew that. The media was a little slow in recognizing that. Anyway, I have a problem throwing the Kleid situation in with mergers and acquisitions. The Kleid bankruptcy was a very specific instance in which a company was not properly run for a number of years. It’s not indicative of the industry as a whole.
Lonnie: I agree. We were on top of the Kleid situation for at least 12 to 18 months. Some of the checks we received from them were backdated. That’s the first trigger in this business you watch for. We acted as friendly competitors. -none of us said bad things about the Kleid Co. Maybe in retrospect that wasn’t great for the industry, but we didn’t go to the trade papers and say anything.
Michael: That was really the most interesting thing about it-that it was only right at the very end that most of us started walking out of the door. It was possibly about the last example you will ever see of a gentlemanly arrangement in business, but nobody said, “Yeah, let’s go and raid them.” I don’t know that a bankruptcy raises any greater questions than it does in any other business in the United States. What has happened, especially in the brokerage business, is we almost have two kinds of companies now. We still have small, entrepreneurial companies like Adrea and myself, and we have other companies which are part of larger conglomerate groups like ABI and Acxiom. There is room for both. I don’t see that the Kleid bankruptcy will move people into one direction or another.
Max: I disagree with all of you. The Kleid situation is a clear indicator of why everything else is happening. Look at Kleid for what it was. It had a very strong personality to lead the organization, but there really wasn’t a successor to fill that gap. They obviously did not set up the infrastructure some years ago to keep up with sales growth. These types of situations lead to companies going down. One reason to sell is that a firm hasn’t kept up with its accounting or computer structures. Also, the role played by the list broker and manager in the overall marketing scheme has become attractive to other players. At the end, Kleid tried desperately to hook up with somebody else, but they wanted to hook up with another small entrepreneurial company that perhaps didn’t have the infrastructure.
Michael: As the president of a small entrepreneurial company I certainly disagree with that.
Ray: Kathy mentioned that she was asked to show financials. Has anyone else been asked to do that?
Donn: We have not been asked to show financials, but we should be. As list managers in particular, we have fiduciary responsibility for a tremendous amount of money that’s not ours, and its almost remarkable that we’re not actually audited, or legislated. I don’t think it is that big a thing for a client to ask, “Can we see your financials?” We’ve been audited now for six years. We went in with a big six accounting firm. I don’t think they’re better than the smaller accounting firm we were using, but we felt because of the situation, that we’re spending so much money that’s not ours, we felt it would be a great thing to our clients security of knowing we are audited by a Big Six.
Lonnie: Well, there’s different types of audits. If you’re audited by a Big Six, it’s no different than if you’re audited by Sid Schwartz.
Donn: Is Millard audited?
Ben: We’re all audited.
Catherine: We take it pretty seriously that the money going through our shop is the client’s money. They actually have an on-demand audit capability. They can call and say, “I want an audit of my account.”
Lonnie: We have a number of satellite offices and many of our clients go right online to their account in the system and look at what payments have come in today to make sure that tomorrow they’re getting their check.
Ray: Getting back to mergers: Is it harder for a small list company to compete today?
Max: Mailers are looking for three things today: faster names, more targeted names and less expensive names. Those three things are contradictory, and yet they’re not, and the marketplace is finding ways to deliver them. Abacus is one way. A sole owner entrepreneur has to survive in an environment where you’re going to have to be provide transactional databases and enhancements that are much better than anything any of us have ever seen.
The organization is going to have to start offering these things to be there five, 10 years from now.
Donn: I agree. But it’s wrong to presume that you have to be owned by an Acxiom to offer these additional services. The fact of the matter is that we can buy and resell all the data warehousing services Acxiom provides from Acxiom, from Direct Tech, from DBA, from ABI, from Harte-Hanks or any number of data processing service bureaus.
Michael: I would still consider your base company an entrepreneurial company, because it’s basically an owner-manage company.
Lonnie: Whether it’s a big company or a small company, we’re in an entrepreneurial business. A small business may report to a higher authority that they feel might know less about it. We know the list business. Let these (outside) guys try to run it. If we were to run it the way they ran the food services business, we would probably be in trouble.
Michael: I know how much I’m prepared to invest in UniMail because it comes out of my pocket and my partners’ pockets. But does Direct Media have that same luxury of saying, ‘We’re not going to make any money for the next five years?’ Or do you have to be driven now by what the corporate entity wants-to maintain the level of profitability?
Max: It’s not only profitability, it’s growth as well. But growth isn’t a mantra. I was simply suggesting that the mailer drives this business. If mailers are looking for something different today than they were five or 10 years ago, then the players in the list business have to be able and willing to be in line with the client. Kleid was not trying to. At the very end, it was desperately trying to throw together an Abacus type of service for the publishing industry, and it had never done the homework or established a relationship. And by the way, Acxiom/Direct Media doesn’t look at you or Donn as competitors any longer. You are now channels of distribution for Direct Media services.
Pat: What changes will small companies have to make?
Max: They’re going to have to make a chance necessary to provide mailers with less expensive, more targeted, faster name delivery.
Catherine: They’re going to have to be able to provide a broader range of service, to customize to meet the particular client need, and offer a competitive price. It doesn’t matter if it’s data warehousing, transactional data bases, marketing services or brokerage. You’re going to have to be able to do all of those things in your own shop, or have the appearance of it being in your own shop.
Lonnie: A lot of his has to do with the nature of the list business. I don’t care if you’re Acxiom/Direct Media, The SpeciaList, or an $800 million company. Usually the client follows (talented personnel who leave) regardless what other talents you have in your organization. And in small companies where the owners control a lot of the business, they never leave. If you lose some talent, you’re definitely going to lose business. I’ve seen it happen time after time.
Adrea: I believe it’s a relationship-driven business, and I’m glad it is. We can offer our clients the fact that we’re knowledgeable about what’s going on in the industry, that we’re creative, and that we can negotiate.
I’ve had many of my clients over 20 years.
Max: You’ve had your clients for 20 years, but you were not running Adrea Rubin 20 years ago.
Adrea: No, I was with Direct Media for a very long time.
Kathy: There are different types of list companies to match the different types of mailers out there. Each company has its own personality and its own expertise, and I think a lot of mailers want it that way. Some mailers want to be part of a huge conglomerate, because fundamentally in their brain it means they can have anything don for them that they need. Others want a list company that specializes in publishing, or in catalogs. Another one will follow the person they worked with. If that person goes to 10 different list companies, that mailer could go to ten different list companies.
Donn: I think we’re mixing two different kinds of consolidation. One is where list companies join together to form a larger company, and be able to afford more products and development. The other is where a list company is sold to another type of company. I agree with Adrea that it’s still a relationship-dependent business. Acxiom and ABI in some ways actually disdain that kind of relationship dependency. Consolidation is a positive thing if the driver is the list broker; it’s a negative thing when you give up the control to somebody from outside the business.
Ray: That raises an interesting question. Lonnie, given that you were the first to be part of a large company, how have you fared?
Lonnie: It started 11 years ago and we really stay out of each others way. We drive business into LCS when we can. They help drive business our way. Anyone who works with us understands that LCS plays a much smaller role than, let’s say, Acxiom with Direct Media.
Ray: How about you, Cate? You just got acquired?
Kate: How did I know this was going to come up? ABI is in Omaha, but their culture is far reaching-they’ve got offices all over the United States, and Vin Gupta is a very strong and well-known personality. I’m sort of in the same school as Lonnie. ABI bought Walter Karl and JAMI with the idea that we know the business we’re in. What you end up with is a real synergistic combination of resources, mindset and drive, all mixed together with a goal of profitability-a very, very strong combination.
Cate: One of the things that the Kleid situation brings to mind is this: Does a simple 10 percent commission support the common infrastructure and staffing needed to meet these demands? Twenty percent does, maybe it doesn’t. But ultimately, the way that we built our fee schedule may be part of the problem.
Lonnie: You have to zig and zag in the list business.
When you have your own business, you’re forced work at a lower rate sometimes than you’d like to. When SpeciaList was in Manhattan, we moved out five years ago, paying $19 a square foot instead of $30 a square foot. Now we’re in better space and in a better facility.
Michael: Let’s not forget, we all chose to be in this business. We are the people who very much created modern ground rules for the business. Direct Media made magnificent attempts to simplify billing some years ago, but the fact is other clients wouldn’t go along with it. `This is the way we’re set up to pay people, don’t expect us to change and that’s it.’ Well, you chose to be in this business, you chose to make it complicated, so now live with it.
Deb: It feels like we’re still living with a policy that was established in 1890 by Sears, Roebuck.
Howard: The way brokers and managers are compensated is totally out of date. The commission on the number of names that the mailer uses for a list that you manage is ridiculous because the processing of an order is the same whether its 10,000 names or 500,000 names, but you’re making more money on 500,000 names. Secondly, the better job you do on the broker’s side, negotiating down the price and getting them a list for less money, typically doesn’t take into account a lot of the other services you provide.
Donn: What do you suggest as an alternative?
Howard: I’ not sure I have a suggestion. You know, it might be a retainer based upon the services you provide.
Donn: We’ve explored a lot of different compensation arrangements and in my experience, you never get paid as much as when you do on commission. I mean, you will not get a big mailer. I don’t think you can get them to pay you a yearly retainer anywhere near the level that you can on just getting you…
Howard: You’re probably right. I guess I would rather see someone get paid more for doing a better job per se. We get paid less.
Donn: There’s a direct relationship for your effort between volume and doing a good job. The one option that we’re exploring that seems to have some preomise is a fixed fee per thousand gross names, regardless of whether it’s an exchange or rental.
Michael: Ten percent, 85 percent?
Donn: It doesn’t matter what it is. It’s 10, 12, 14, depending on the volume, dollars per thousand and gross name shipment.
Ben: There’s no question that we’ve got some clients who drive down price. But I don’t sense every day of my working experience that I’ve got clients who are just out there wanting to take advantage of me. I think they’d like to see us do well. They want to have a strong supplier.
Lonnie: In the last two years, or even more, we’ve had more clients willing to go to a win-win situation with us and take a little bit of a risk on the upside. We’ve received more bonus checks this year on list management for keeping or exceeding our numbers than we had before.
Kathy: We don’t just throw data cards at them anymore. There is some real value in all the additional services that we provide, which makes it a little bit easier to set up different arrangements with some sort of incentives for whatever kind of increases or bonuses or something that, some sort of setup that makes them realize that we’re in it together as opposed to their just paying us.
Adrea: I find that one of the things that I’m seeing more is that we’re in a multi-vendor relationship with clients. They’re taking a look at testing continuation ratios, and measuring one broker against the other. And they’re saying, “You’re saving me X amount of dollars and these tests are turning into continuations, so we want to give you a piece of this.”
Ray: Are they expecting more out of you?
Kathy: With technology, not only are they expecting more, but they’re expecting it yesterday. It’s just like the catalog business, where the vast majority of their business is in the last eight weeks of the year because the consumer knows that Federal Express will get it there overnight. Well now the clients call and say, “I need an analysis on this portion of mailing tomorrow. Can you e-mail it to me tonight?” Oh, okay.
Donn: It’s a real double-edged sword. We thought that technology would help us work faster and be more efficient, and it does, but it has raised expectations. Lonnie: Voice mail almost doesn’t exist anymore in our office. E-mail is everything.
Deb: The technology is creating an atmosphere where we’re getting a little bit more detached and I don’t think that’s necessarily a good thing.
Donn: I get CC’d on a lot of e-mail, I don’t know why. But if I see more than three mails going back and forth, I have a fit. I tell them to call them up and resolve it because you can see e-mails going back seven or eight e-mails and you never get results.
Ray: A couple of people said that the list business is a little bit nastier than it used to be in terms of stealing clients and staff from each other.
Lonnie: I think it’s a little nastier than it used to be. I’m not sure if we’re all that nasty. The press is. I don’t mean to turn the table, I just think things are getting printed that a lot of research isn’t being done on. If I write a press release and you print it and nobody’s done the research, anything I say may not be real. I read something on one of the news wires, about a whole battle over a Direct Media client that didn’t want to work with Direct Media anymore. I’ve read things about my company, Pat Fasano’s company or Adrea’s company, and I have to tell you that the stuff is half-cocked. It’s not real. I don’t want to feel like I’m reading the National Enquirer. I think more research has to go into some of this stuff that’s being written because it becomes very damaging for us.
Michael: The trade media has become entertainment media.
Lonnie: It looks like it’s nasty, and we’ve all taken business from each other, but, we’re friendly competitors.
Donn: When we started out there was Direct Marketing magazine. I don’t know if there was anybody else. You guys are competing more, and they always want to get the story first.
Ray: I can’t comment on that particular story, but I’ll try to answer because I realize we’re fair game. I used to spend a good deal of my time dealing with list managers who were angry when their press releases were not picked up. Today, I rarely hear a ripple about it-the industry has matured in its own relations with the media. At the same time, there’s more intense interest in the business now than ever before-we’re competing not only against other trades, but against the Wall Street Journal, and that may account for some of the edge you perceive. We do daily news now. By the way, if we published one-fifth of the gossip and personal assassination that we hear we’d probably be in court most of the time.
Kathy: We wish you would do it actually.
Lonnie: I’m not trying to point the finger at you. I’m just trying to unpoint it from us.
Ray: Moving on, is it difficult to find talented personnel?
Lonnie: As I’m concerned and I don’t want to speak for everyone in the room, it’s hard to find good people.
Kathy: Very difficult.
Ray: I’ve heard it said that years ago, a list broker would actually be working with a Stanley Marcus, but that today you have contact only with junior people.
Michael: I know I can go to Rosemarie Montroy at Direct Media and that she understands the continuity business, the magazine business, and the catalog business, and because of that she can represent the lists properly, whatever the business they are in. Now we are dealing with more low level people in list management companies, who don’t understand the fundamentals of the businesses of the lists which they represent. And that’s what we end up making hundreds and hundreds and hundreds of unnecessary phone calls because we know the answers we are being given are incorrect because the person does not understand what the business is about.
Max: Rosemary thanks you.
Patricia: What’s being done about that?
Lonnie: Not to age myself, but years ago we waited to bring in five or 10 people at a time. We would set up a conference, and train them. Today, the margins don’t allow us to hire 10 people to train to get down to two people. So we find a person and start training them. And then, after they’re trained, they’re doing real good, you hire them away. I didn’t have to train them. It’s an ongoing process that makes it very, very hard.
Ben: I get teased about living in New Hampshire and having to deal with people moving to other companies. I’m not saying it’s true, but I would agree that the level of training is a big problem-more than we realize.
It’s been a major focus for us-not only their industry knowledge, but their speaking and writing skills. We actually have the DMA basic training program that we have inhouse, and every associate has to go through it in the first year of their employment.
Ray: Does it pay to hire people from client companies?
Max: The best brokers are former mailers. Most of our brokers are former mailers.
Howard: We find them all the time.
Ben: I was a mailer for nine years and the first year was a very difficult transition. We have had several who had fallen out during that first year. I think once they get past that first year, they sense they’re no longer, you know, they’re not having much luck and thereby they no longer really dictate the relationship, somebody else is. If you can get beyond that, the whole aspect of serving your client, I think having that experience does give does give you that. It doesn’t necessarily make you better, but I think it does even things out.
Kathy: Up where we are, you know, Fairfield County Westchester area, it’s certainly hard enough to find good, experienced talent, but it’s just a killer finding support people-just to get bodies into the office who actually know how to turn a computer on.
Deb: I’m part of a billion-dollar publishing company, and I’ll tell you the job market in the Boston area is very tight. I have the same problem.
Patricia: Assuming the person is not from the industry, what kind of skills are you asking for?
Ben: The key thing in our corporation position is customer service background. We’ve actually benefited from the bank consolidations in the area. We’ve had several banks in town that have been bought up and actually cut, you know, staff. So that it’s a running joke that we have a teller window in our office.
Ray: Are e-mail lists a growing part of your business?
Deb: I have to say I’m probably the forerunner in terms of that. We launched our program two years ago, and I believe we still have one of the most viable programs in the marketplace. I’ve called a lot of mailers directly, and I think a lot of money being allocated in terms of the traditional direct response dollar is going into the direction of Web site development, e-mail marketing, and push technology.
Donn: We are making a major, major investment in e-mail marketing and I believe its the right thing to do as a list company. We firmly believe in opt-in e-mail-that people need to be asked for permission to e-mail them. We find it to be incredibly productive for our clients, and a great revenue producer for our list company.
Michael: In 20 years time, we’ be looking back and saying, boy, you know, its something else like the 800-number.
Donn: Not in 20 years.
Michael: Yeah, maybe five.
Donn: Maybe next year.
Deb: I think it’s still a little bit in the future. It won’t bother the consumer if its done correctly and efficiently.
Donn: We’re using e-mail now to help our catalog clients confirm orders, space status cross sell, upsell, reactivate former clients.
Kathy: It’s interesting that a majority of our clients are considered catalogers and there are some who are very hot about developing real e-commerce. We don’t do it ourselves, but we have alliances with other companies to help you put it together, from creative to fulfillment.
Ray: Do you guys have to deal with the privacy issue a lot? Do you have to educate your clients?
Deb: Yes, all the time
Cate: On a daily basis.
Deb: I always caution people; You must use an opt-in list because it can so negatively impact upon your brands, long-term.
Donn: We do the same thing. We’ve chosen to follow the opt-in path. We did a test last year, mailing to an opt-in segment versus a non opt-in segment. We found it really doesn’t impact response rates, but for long-term political reasons, it’s the right thing to do.
Ray: Isn’t opt-in very much against the traditional, paper direct mail model? I’ve always heard it said if you had an opt-in rule in this country, the list business would be in trouble.
Max: That is hardly true. Even in the traditional mail industry, there is some semblance of asking the client: Is it okay if I send you other offers like this?
Donn: They’re opting in with a marketing company that they want to have a relationship with.
Michael: Actually, the top model would be if you could put in a question asking: Do you like to receive telephone calls at home at 7 o’clock at night? That is what’s really caused a lot of the flap.
Deb: It’s also getting a lot of play in the mainstream media . Time did a big article on the privacy issues, and there have been exposes on the Dateline types of shows.
Michael: Can anyone ever remember seeing a positive article in any of the mainstream media or on television regarding direct response marketing? Why are we the universal whipping boy?
Donn: Do you ever see positive articles about general advertising or any other kind of marketing? The media is scornful about merchandising and marketing, and almost about business.
Ray: At this point, let’s throw it open. What other topics should we cover?
Donn: A lot of us are dipping our toes in the international waters. What we’re doing is setting up so strategic alliances with brokers in countries our clients want to do business with. To me that’s a more comfortable way of going than going through the process of learning what’s going on in each country, really learning it and trying to set up a business requiring a visit.
Max: There’s two types of international businesses: multi-national businesses which you basically control from here and then there is in-country business and that is much more complicated and much more costly. And, it does seem that while most of our clients are interested in international, but they seem to be putting their money and their teeth into the Internet itself. What’s happened recently in the Orient has discouraged an awful lot of mailers, particularly catalogers. Some build their international business in Japan, and with the Yen going from 80 Yen to 140 Yen to the dollar, it’s no longer a viable business.
Ben: What’s happened is that the catalogers who did venture forth and found themselves having some success started to realize the cost. It goes back to where they spend their dollar most effectively. The Internet has truly absorbed some of those dollars. As a company we have never made a significant commitment to international. We support some of our clients in international endeavors, and we feel we have enough knowledge at least to be able to point our clients in the right direction, but it’s not a commitment. I don’t see it in the short term.
Howard: We made a big commitment to international business, but there is some softness, especially in Japan. But there are other markets that take it’s place. Germany’s a hot market. The U.K. is hot market. We also opened an office in London and we’ve formed a lot of strategic alliances with international companies. We believe that there is something there.
Cate: You have to change with relation to the country that you’re going to otherwise you’re going to fail miserably. The tactics we use in the states are not going to apply.
Michael: I think it’s worth pointing out that every European company wants to sell in America. I don’t care if it’s like Volkswagen or Otto Versand, whereas not every American company needs to go outside of this marketplace to operate a very profitable business.
Donn: I also think there some interesting groups coming up on the alternative media side. I’m amazed how much business we’re doing with Fred Singer, and Venture Communications.
Cate: That’s another one that’s cyclical. We see it on and off.
Lonnie: We spend a lot of money today growing that side of our business.
Donn: In September we will introduce the first electronic co-op.
Lonnie: We’re doing that in August (laughter).
Donn: Let’s put them together. (more laughter).
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