Sure, that young upstart the Internet came into the ring swinging. But direct mail isn’t down for the count – yet.
Online DM sales are expected to reach more than $84 billion in 2004, so it’s no surprise marketers report a mixed bag when it comes to funding strategies for direct mail advertising budgets.
Some say funds are no longer increasing or are slowing in the face of declining response rates, shrinking universes and competition from Internet ad budgets. On the other hand, some – notably, dot-coms – are pumping money into the mail as a branding and acquisition medium.
Mail volume is on the rise for many publishers that are struggling to regain lost subscriptions – as much as 30% to 70% of some circulation plans – in the wake of the bad publicity surrounding sweepstakes giants American Family Publishers and Publishers Clearing House.
Lindsay Vaulk, senior vice president and director of circulation marketing for Hearst Magazines, says overall mail volume for the publishing giant was up last year, helping to generate new subs. And Hearst is in the early stages of testing direct mail to drive subscribers to both its Web and print products.
“Publishers are scrambling to make up for lost subscriptions,” Vaulk says. “Direct mail has proven itself a mature, strong and viable source. It’s a more important source than ever in the wake of the demise of AFP and PCH and declining newsstand sales.”
Even so, Vaulk says the Internet is not being ignored. Hearst recently formed an affiliation with Women.com, an online community for women featuring links to all of Hearst’s women’s titles including Cosmopolitan, Country Living, Good Housekeeping and Harper’s Bazaar.
The site offers publishers the opportunity to gain subscribers via its “newsstand” and links to other magazine sites. “It’s not beyond the realm of possibility that the Internet could one day secure larger numbers of subscriptions than direct mail,” he says.
Experts note that Internet advertising budgets have grown exponentially over direct mail ad spending.
A recently released Direct Marketing Association study, conducted last year by The WEFA Group, found that between 1994 and 1999 Internet ad expenditures rose at an annual compound growth rate of 160% compared with 7.4% for direct mail. Over the next four years Internet spending is forecast to grow annually at 45.7% while direct mail is predicted to slow to 6.2% growth.
Men’s Health, a front-runner in gathering subscriptions online, was challenged last year by Rodale president John Griffin to double the number of subscriptions sold via the Internet. The title came close by selling 84,000 subs online, says Joyce Shirer, senior consumer marketing director for Men’s Health.
An online bounce-back offer campaign launched last April continues to capture new subs. Consumers who click the “submit” button after purchasing health guides “Peak Conditioning” or “Banish Your Belly” bounce back to a thank-you page, featuring an offer for a trial issue of Men’s Health magazine and three free books. The campaign has been generating 1,200 orders per month through “Peak” and up to 300 per month from “Banish,” says John Phelan, consumer marketing director for the magazine.
Shirer says that while Men’s Health has not moved money away from direct mail, which remains profitable, the title is budgeting “significant” funds for the Web and last year moved $80,000 from “marginal performing” business sources such as television into its online business.
Dan Capell, owner of Capell’s Circulation Report, says that 50% of consumer magazines now have a Web site offering subscriptions. He also reports that in 1998 25% of new magazine subscription business was sold via direct mail, a number he expected to drop further due to online competition. Eighty percent of consumer magazines lose an average $15 on every direct mail-generated new business order, he notes.
For cataloger Omaha Steaks, the Internet is now its fastest growing sales channel, says interactive sales manager Stephanie Healy. In fact, 75% of its 400,000 online customers are new to the company.
Online customers receive promotional e-mails twice per month with recipes for grilling the perfect steak or holiday offers such as a free entree with purchase to each shipping address.
According to the WEFA study, consumer Internet ad spending is expected to reach $3.2 billion by 2004, compared with $3.5 million in 1994. Business-to-business spending is forecast at $5.4 billion in 2004, compared with $7.5 million in 1994.
And despite the predicted slowdown of annual growth for direct mail, WEFA reports that by 2004, consumer marketers are expected to spend $33.3 million in direct mail advertising compared with $18.8 million in 1994. Business-to-business marketers are forecast to spend $23.6 million in 2004 compared with $10.8 million in 1994.
Many Web marketers are also pouring money into direct mail.
To promote the recent launch of VisualCities.com, Vizacom Inc. mailed a 100,000-piece campaign offering an e-mail account and 10 MB of Web space free, says Sandy Fox, director of direct marketing for Vizacom.
Based on the success of the mailing, the company plans to develop a direct mail campaign solely for Visualcities.com.
But mail isn’t thriving all over, says Richard Porras, chief financial officer of the U.S. Postal Service, adding that the USPS views the Internet as both a threat and an opportunity. Despite record mail volume of 201.6 billion pieces, the postal service lost 2% of its volume to “electronic diversion,” he says.
For the first time in 20 years, says Porras, the USPS is seeing a reduction in direct mail advertising, attributable not only to a steady steam of ad dollars pouring into the Internet and problems in the sweepstakes industry, but marketers mailing more efficiently as well. The postal service is trying to determine whether the falloff is an anomaly or the beginnings of a trend.
Consumer acceptance of online bill collection and payment will have an impact on first class mail volumes as well.
“It’s anybody’s guess whether it happens quicker than we think or not and whether we lose more than that, but we have $17 billion at risk,” he says.
As an opportunity, the Internet offers huge potential for growth in its package delivery business, as more and more consumers make purchases online that are delivered through the mail. At press time, Porras said the postal service expected to capture 35% of the 1999 holiday package delivery business, an increase over 1998.
Credit card mailers are also experiencing slowed growth. The mailers that reached an all-time high of 3.45 billion pieces for 1998 – a 15% increase over 1997 – experienced a decline in volume and response as of third quarter 1999, according to Mail Monitor, a direct mail credit card acquisition tracking service managed by Tarrytown, NY-based market researchers BAIGlobal Inc.
Mail volume for the first three quarters of 1999 totaled 2.4 billion, compared with 2.6 billion in 1998. Mail volume dropped in the third quarter to 710 million pieces, 13% below the second quarter total of 817 million. In addition, nationwide response rates for new credit card offers remained below 1% during the third quarter after hitting an all-time low of 0.6% in the second quarter.
The falloff was attributed to issuers cutting back on direct mail and taking time to regroup and look at different strategies, says Julia Beaver, vice president of competitive tracking services at BAIGlobal.
Beaver says declining response is blamed on customers being unable to differentiate between products. She says direct mail remains the strongest channel for gaining applicants, with the Internet capturing under 5%.
Vendors to the direct mail industry are also feeling the effects of dollars headed away from direct mail and into cyberspace.
Lee Epstein, chairman of Hauppauge, NY-based lettershop Mailmen Inc., says his 60-year-old business is no longer growing; he expects it to deteriorate because of business moving to the Internet.
“The direct mail industry, and all its components – lettershops, printers, envelope houses and other vendors – are in big trouble down the road,” he says. He believes traditional lettershops will start to die off unless they can convert their businesses to take advantage of the new technology the Internet has to offer.
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