DIRECT MARKETING is cyclical. In boom times DMers attempt to change their fortunes through prospecting; in slower periods they focus on nurturing existing relationships.

As Direct’s annual readership survey shows, in 2006 DMers continued to expand their client base. Understandably, fewer anticipate more sales or higher margins; new customers are harder sells and tend to be less profitable.

They also foresee a slight slowdown in spending, which at first glance might not seem to go hand in hand with the boost in prospecting. After all, shouldn’t that mean spending will be up?

Not necessarily. “The decreased effectiveness of television [as an advertising medium] due to ad-skipping systems like TiVo means there’s an increased supply of dollars,” says Eric Schmitt, executive vice president and senior principal for professional services at The Allant Group, Naperville, IL. “But because of the many places to put it, there’s a lot more confusion among marketers.”

Where’s the money going? Respondents are cutting back on direct mail, both to customers and prospects. And fewer are using catalogs, opting instead for lower cost electronic channels like e-mail, Web advertising and search. But much was spent on activities that support these channels, such as Web site development and search engine optimization.

“[Unlike 1998-99], this time around spending isn’t speculative,” Schmitt says. “It’s rooted in sound business plans. Anything being spent has clear financial benefits.

“Dollars also are flowing to customer analysis and optimization,” he adds. “But there’s a difference between building a response model and setting up an infrastructure that allows you to understand your customers. The money is [being used to build] customer insight.”

Dig a little deeper into the numbers and one finds that more business-to-business marketers expect spending cuts in 2007 than their consumer counterparts. That’s because B-to-Bers can trim budgets while stepping up prospecting — unsolicited B-to-B e-mail doesn’t cause the same rancor as unsolicited consumer messages. And consumer and mixed-focus firms (those that serve both consumers and businesses) plan to spend more in 2007 than B-to-B marketers.

Channel-use figures bear this out. B-to-Bers are outstripping consumer DMers in funds slated for e-efforts next year. They’re also moving money into outbound telemarketing — an avenue substantially weakened for consumer marketers thanks to the federal do-not-call list. More than half of the B-to-B respondents say they use telemarketing, compared with less a third of those from the consumer sector.

“Electronic media are catching up [on the industry’s move to finer targeting],” says John Harrison, partner and executive director at Keystone Equities, Oaks, PA. “Non-traditional DM users, and the user population as a whole, are recognizing its value.”

If there’s good news in the traditional mail segment, it’s for vendors such as printers and letter-shops. Some DMers are mailing more to their house files, especially those that target both businesses and consumers. But for prospecting, the number of B-to-B and consumer firms saying they’ll boost mail volume has dropped. Barely a third claim volume was up, compared with nearly 50% of B-to-B and almost 60% of consumer mailers last year.

Printing companies’ financials back this finding. Shortly before it was acquired by R.R. Donnelley, Banta Corp. noted that its catalog unit’s third quarter revenue dropped 20%, primarily due to cuts in catalog size and print-run quantities. Banta also said its direct marketing division’s revenue was comparable with last year’s but overall volume was up, meaning marketers were turning to lower cost printing options.

In early November, Quebecor World Inc. announced it was closing two U.S. catalog printing plants and shifting that work to other facilities. Quebecor is now sharpening its focus on ancillary services, such as mail list optimization and co-mailing. As with Banta, Quebecor said catalog volume was up but related revenue flat, perhaps signaling a move to less expensive offerings. Quebecor did report direct mail revenue rose nearly 5% for the first nine months of 2006, but didn’t indicate what portion was attributable to new services.

Not all is dire for direct mail.

“Money is [being allocated for] print and production when it’s driven by database marketing,” says Harrison. “Especially print on demand. Mail is the single most targetable medium. And it always will have a place. Bank credit card issuers find they’re still able to do it profitably. But it will be better targeted and more personalized.”

Interestingly, while marketers in general probably will spend less on direct, in 2006 both B-to-B and consumer practitioners raised the DM share of their advertising budgets.

Part of the austerity move includes gathering creative design functions under one roof. In 2006 more DMers relied on in-house agencies or staffs to handle these chores, shying away from freelancers and agencies.

Methodology

This survey was conducted for Direct by Prism Business Media Marketing Research, an in-house firm. It was e-mailed to 8,597 Direct subscribers. Participants were chosen on an nth-name basis (a representative sample of all subs).

An initial copy of the survey, offering a chance to win one of four $50 Amazon.com gift certificates, was sent out Sept. 29. Two follow-up e-mails, along with the sweepstakes offer, were sent to non-respondents.

Results are based on surveys returned by 161 qualified participants: corporate or general managers (37%); sales, marketing or telemarketing executives (37%); advertising or promotion managers (10%); and circulation, list or media managers (8%). The remaining 8% were fulfillment, operations or production managers, CIOs and consultants.

The median annual revenue of respondents’ companies was $152.9 million. Current-year revenue was reported as follows: under $1 million (28%); $1 million to $2.5 million (8%); $2.5 million to $5 million (7%); $5 million to $10 million (13%); $10 million to $25 million (10%); $25 million to $100 million (14%); $100 million to $500 million (7%); $500 million to $1 billion (1%); and more than $1 billion (11%). Numbers may not total 100% due to rounding.

Sponsorship spending grew 8.4% in 2004, the highest amount since 2000, and will grow again in 2005, according to Chicago-based sponsorship analysis group IEG. North American brands spent $11.1 billion on rights fees in 2004, and IEG expects a further jump of 8.8% to $12.1 billion this year.

Of the marketers surveyed for the PROMO’s Industry Trends Report, 18.5% said sponsorship was one of their top-three promotional tactics in terms of dollars spent in 2004.

This shouldn’t be too surprising, considering that 2004 was an Olympic year. Brands from McDonald’s to Visa signed on as TOP sponsors for the event, with visibility both in Athens and at home.

But 2004’s growth could have been even bigger had brands continued to spend top-dollar on rights fees, says IEG VP Jim Andrews. Brands are cutting deals with properties to spend less on rights to a property, and more on activating their sponsorships. According to a 2004 study done for IEG by Performance Research, the average brand now spends $1.30 in activation for every dollar of sponsorship.

“You need to spend dollar for dollar in activation to see any kind of return on your investment,” Andrews says. “A lot of times, the sponsor pays a fee for the property and then tries to find out what to do with it.”

If brands spend more activating a sponsorship, they get a better return on their investment, says Octagon Executive VP Jeff Shifrin. As sponsorship sharpens ROI measures (or return on objective, as Octagon puts it), more marketers will see its value, Shifrin says.

“Across the board, from sports to music and entertainment to arts and to festivals, sponsorships are growing, outpacing promotions and advertising as well,” Shifrin says. “I can only attribute it to positive ROI and the fact that the marketplace is changing.”

Case in point: both Shifrin and Andrews note how brands are altering their deals with NASCAR. Instead of a brand sponsoring a team for an entire season (at an estimated $15 million), many are coming in as associate sponsors. They can get the car’s primary paint scheme for a handful of NASCAR Nextel Cup or Busch Series races and activate at the tracks or run sweepstakes for the rest of the season.

“It’s a new model for these teams,” Andrews says. “The price tag to become a primary sponsor of a Nextel Cup team has become almost prohibitive. NASCAR continues to be a juggernaut, but at same time companies are asking themselves if they can afford huge sponsor dollars to be at the top level.”

The definition of a property continues to expand, adds Andrews, which means properties are not going to see the same kind of dollars invested in concerts and events as in the past.

Shifrin notes that packaged goods companies are also trying to bridge sponsorship with product placement (see pg. AR 10 for coverage of entertainment marketing).

But Andrews says thereare more options available to would-be brand sponsors than simple sports and entertainment options. He sees a rise in non-traditional property sponsorship as the next big growth area, and says that physical venues are recognizing it.

“Membership groups and trade associations are a great niche opportunity for certain brands,” Andrews says. He cites a recent trend among pharmaceutical companies, which are jumping on the AARP and hospital bandwagons to reach a more-focused customer for select product lines.

“If you want to reach an entire industry, can do that by sponsoring a trade association. It gives you a very focused, loyal audience and can help create a lot of B-2-B marketing opportunities.”

SNAPSHOT 2004

18.5% of those surveyed say it’s a top tactic for their brand

An 8.4% growth rate in 2004 is the highest since 2000

The average brand spends $1.30 in activation for every dollar’s worth of sponsorship