Taking a Lead

DMA study shows spending shift from order taking to lead generation

THINK THERE’S an economic slowdown? Don’t tell the Direct Marketing Association. Its latest economic impact study shows DM-driven sales increasing annually by almost double-digit levels, from $1.73 trillion last year to a projected $2.74 trillion in 2005.

This is slightly less than the 10.3% annual growth seen between 1995 and 2000, but still impressive when you consider the slowdown in spending increases. In 1995, the industry spent $131.8 billion on DM advertising, which expanded by 7.8% a year to $191.6 billion in 2000. But spending falloffs — especially in telemarketing, DRTV, and newspaper and magazine advertising — are expected to shave nearly a full point off this growth over the next five years, when it will reach $269.7 billion.

According to the report, the greater portion of the ad spending slowdown will be in the consumer market, which will drop by more than a full percentage point; business-to-business growth will slip only slightly.

The Gap Widens

The B-to-B market spent $98.6 billion in 2000, while the consumer market shelled out $93 billion. If projected growth rates of 8.2% and 5.9% respectively hold, by 2005 this disparity will widen to just under $124 billion for consumer spending, and $146 billion for B-to-B.

Count on a lot of the B-to-B industry’s expansion to come from the electrical equipment, insurance and industrial machinery segments, all of which should see spending increases during the next five years that outstrip the previous five. Among consumer groups, only the transportation equipment sector will step up its expenditures at a rate faster than the past five years.

Consumer DMers predicting high sales growth over the next five years include general merchandise retailers and food/food related products. And as baby boomers age, the expansion rate of health services is expected to leap from 6.8% to 16.3%. On the B-to-B side, industrial machinery, electrical equipment and chemical products will show increased growth.

Leading the Way

Historical evidence and projected trends suggest a shift in marketers’ priorities, with emphasis moving away from direct orders to lead generation. Just under one-third of the $131.8 billion spent on DM advertising in 1995 went toward direct order pitches, while 54.6% was used for lead generation. The rest went to traffic generation.

By 2000 the trend toward lead generation was apparent, with 56.8% set aside for it and another 31.3% for direct orders. Direct order marketing will slip to 30.6% of all spending in 2005, with lead generation rising to 58.2%.

These changes hold true regardless of the target audience. In 1995, more than a third of all spending in the $66.3 billion consumer market was used for direct orders, while 47.8% was set aside for lead generation. By 2005, when total spending will amount to $123.9 billion, lead generation will account for more than half (51.5%), while direct orders will drop to just under 32%.

The trend is mirrored in B-to-B expenditures. In 1995, 31.7% of the $65.6 billion used for B-to-B targeted advertising was spent on direct order generation. This is predicted to shrink to 29.4% of the $145.9 billion that will be spent in 2005, even as lead generation expands from 61.4% in 1995 to 63.9%.

Increases in lead generation spending will be reflected in the amount of revenue it brings in. Of the $1.06 trillion in DM-driven sales in 1995, 54.3% came from leads created through direct channels. By 2000 lead generation made up 56.2% of the $1.73 trillion generated by direct marketing. In 2005, the report predicts, it will reach 57.2% of the $2.74 trillion market.

Look for direct mail, which brought in some 33% of these sales in 1995, to fall to 30% in 2005, while telephone sales will continue to be not only the largest channel for expenditures but revenue as well, jumping from $367.2 billion in 1995 (34.7%) to $939.5 billion in 2005.

The DMA’s study, “Economic Impact, U.S. Direct Marketing Today,” was coordinated by The WEFA Group, and is based on a combination of statistical data analysis, independent expert opinion, primary and secondary research, and economic modeling.