Don’t Be Lulled
At first glance, the numbers might lead one into complacency. But look a little further and some disturbing elements emerge. Revenue projections – while still on the uptick – have slowed, and margin expectations have dropped.
On average, respondents to DIRECT’s latest annual reader survey of direct marketing activity earned nearly the same amount of DM revenue as last year – just over 43% in 1999, compared with slightly under 44% in ’98.
Furthermore, in both years, nearly 23% were more than 90% dependent on DM.
But in 1998, across all companies, almost 43% of respondents’ marketing budgets were spent on DM. In 1999 this slipped to 38%.
As a result, growth in revenue from DM slowed. In 1998, 54% of those surveyed said DM sales during the first nine months of 1998 had increased over 1997 levels. In 1999 this fell to just over 34%.
For many respondents, this indicated revenue stagnation. While in 1998 only 12% said DM revenue did not change from the year before, almost 40% noted a change in ’99.
Business-to-business firms were most likely to say revenue was no longer on the rise. In 1998 52% said it improved over the previous year; by 1999 this had fallen to 30%.
“E-business may be a contributor to this result,” said Ruth Stevens, chair of the Direct Marketing Association’s business-to-business council.
“Direct marketers consider much of e-business – certainly all of e-commerce – to be in the DM arena. Respondents may or may not lump e-commerce activity into their answers about direct marketing activity.
“I don’t think the results show less of an emphasis, but [rather] more diversity in channel and communication mix. B-to-B marketers are more apt to embrace non-traditional methods, and do not necessarily look at themselves as `direct marketers,'” she added.
Fifty-five percent of consumer and mixed-focus marketers (those that sell to both businesses and consumers) said in 1998 that their DM revenue had gone up. By 1999 this had fallen off to 38% and 36%, respectively.
Margin expectations are on the wane too. In 1998, 39% of respondents said they expected it to rise, a figure that slid to 35% this year. But again, most saw their margin leveling off – the percentage that said it would stay constant jumped from 32% to 39%.
The biggest fear of slowdown came in the B-to-B sector. In 1998, 39% said margins would go up; in 1999 only 28% did. Thirty-eight percent of consumer companies in 1999 said margins would increase, down only slightly from last year’s 39%, while just a few more mixed-focus companies (41%) saw margin gains in 1999 than in 1998 (40%).
The slowdown in margin hikes may be due to investment in areas like electronic marketing. Nearly 60% of respondents said their company’s spending on DM would go up in 2000, compared with 52% who predicted increases in last year’s survey.
Those that aren’t stepping up spending aren’t cutting it, either – virtually none of those responding to this year’s survey said their companies planned to reduce DM spending.
Marketers also finally appear to be acting on the long-held contention that it’s twice or four times or 12 times as expensive – depending on the pontificator du jour – to create a customer than to retain one. This was certainly true among B-to-B customers, who report devoting 41% of their DM budget to customer retention, compared with just over 33% in ’98.
But the sharper focus on retention in B-to-B didn’t bring it into parity with consumer and mixed-focus firms, which earmarked 46% each for such activities. (Fair’s fair: This is a decrease from 1998, when both of the latter two sectors reported setting aside just under 49%.)
The bigger DMers seem to be ahead of the curve on this one: Among companies with more than $10 million in annual revenue, retention activities accounted for almost 48% of their DM. Smaller companies devoted only 39%.
Larger organizations also lead in computing customer lifetime value (LTV), an attribute DIRECT has begun tracking with this survey. Forty-two percent of high-revenue companies reported doing so, compared with 33% of smaller firms.
Broken out by sector, 33% of B-to-B respondents said they tracked customer lifetime value, compared with 44% of mixed-focus firms and 59% of consumer marketers.
There may be organic barriers to B-to-B marketers using lifetime value analysis. “When determining buyers, decision makers and specifiers within a site, computing LTV requires a marketer to have a good database that includes more than just enterprise data,” said the DMA’s Stevens.
“You need to be able to identify potential value by both contact and site. You need to compute individual contact LTV and enterprise LTV, and that’s tricky.”
But the focus on LTV doesn’t mean that marketers are abandoning prospecting: Mailings to outside lists remained constant with last year’s levels, with just under 65% of respondents saying they did so in 1998 and a bit over 64% saying they did it in ’99.
More respondents said they planned to increase outside list use in 2000 (58%) than they did when asked the same question about 1999 last year (51%).
But they may be doing so to compensate for falling response rates. Last year, B-to-B mailers said their response rates to outside lists averaged 3.3%; this year, that dropped to 2.9%. Consumer mailers, which in 1998 saw response rates of 5.7%, said responses had dropped to 1.9%.
More than nine out of 10 respondents send direct mail to their house list, a figure that includes all consumer marketers and 95% of B-to-Bers. (Those that offer their wares to both groups – 82% – were less likely to mail to the house list.)
This figure was somewhat higher among those that do not have a Web site (93%) than those that do (just under 91%), which may reflect e-mail cutting into direct mail as a channel source.
This is not the end of the distressing news for lettershop owners; companies that use their Web site to capture sales are even less likely to send out direct mail. Just under 89% do this, and smart money says this figure will fall in subsequent studies.
Why? Because even though the number of respondents that said mail volume to their house list will increase in 2000 was the same as in last year’s survey (65%), more felt it will drop next year. In ’98, only 4% said it would fall; this year that jumped to 7%.
Marketers planning to solicit customers and prospects better brush up on current thinking within the privacy debate. DIRECT asked its readers about privacy issues regarding both their electronic and conventional mail lists. Twenty percent of respondents indicated their companies maintained both an opt-in option on their e-mail lists and an opt-out on the house file.
An additional 22% said they had the opt-out on the house list only, and slightly over 3% said they just had an opt-in on e-mail lists.
But 53% had no contact-preference option. Given that nearly all mail to one house list or another, this is a problem in an industry where legislative regulation is always a threat.
Among the three sectors, consumer companies have grasped the issue’s urgency. Fifty-two percent reported having both options in place, while another 24% said they had the opt-out on their house list alone.
Virtually none noted having just the opt-in on their e-mail list – most likely because, if they did, they also had it on their traditional mail list.
For companies that market to both consumers and businesses, and those that were strictly B-to-B, the picture is more grim.
Fully half of the mixed-focus companies did not have either option, while nearly 74% of B-to-Bers offered neither.
Among those that did provide contact-preference options, only a handful offered an opt-in for their e-mail lists (3% for B-to-Bs and 7% for mixed-focus).
More companies had an opt-out file on their house list. Sixteen percent of B-to-B companies and 27% of mixed-focus firms made this option available. Only 8% of B-to-B firms and 13% of mixed-focus companies had both.
If there’s any good news, it’s that there’s been an increased awareness of the issue in the industry.
Last year, only 34% said they had an opt-out option on their house list (DIRECT did not ask about e-mail lists). But 29% said they didn’t know the status of their firm’s opt-out policy. This year, only 1% professed no knowledge of it.
