A World of Opportunity
U.S. Marketers still have room to grow in global markets; they just need to rethink their strategy.
By Lisa Yorgey Lester
Press headlines have led many U.S. direct marketers to believe international direct marketing is all doom and gloom. But quite the opposite is true. Despite the reluctance of many companies to take the risk associated with global expansion, direct marketers have continued to achieve higher response rates abroad. What's more, new trade agreements will open untapped and underserved markets for U.S. exports.
As direct marketing began to grow worldwide in the 1990s, it became a new avenue of expansion for U.S. mailers. As such, many marketers got used to pretty high expectations for international response. With the exception of the Asian economic crisis, the past 10 years have been quite heady for global direct marketers.
"Anyone could rent a bunch of lists; throw together a mailing piece similar to their domestic piece; mail it internationally and get extremely good response without much work because it was such an explosive market," recalls May Katz, executive vice president of Direct Media International, a mailing list broker and manager with headquarters in Greenwich, CT.
Catalogers, too, struck gold—particularly in Japan. At the time the market was extremely growth-oriented, and the dollar was weak against the yen. Unfortunately, the coffers dried up when Asia was hit with an economic drought in 1997.
U.S. direct marketers with no room for growth in a mature domestic market traditionally have expanded into international markets for one of two reasons—to boost sales or to increase profits. These reasons remain, and while the days of big payoffs with little effort may be over, one fact rings true: International campaigns still net higher response rates than their domestic counterparts.
Compared to the United States, most of the world receives fewer direct mail efforts. In the United Kingdom—home to one of the more developed direct marketing industries outside the United States—the average British household receives 13 direct mail pieces every month.
What's more, the proliferation of credit cards has grown, particularly in Europe, where 85 percent to 90 percent of the consumer population has a major credit card. The ability to collect payment by credit card eliminates many of the currency problems experienced by catalogers in the past; credit cards facilitate online selling as well.
All told, there is tremendous opportunity for growth outside U.S. borders. More than 95 percent of the world's population lives outside the United States, and, thanks to advances in technology and communication, these consumers are becoming more global.
Adjust Your Business Model
These fluctuations in the global economic environment and the rapid growth in technology should give marketers reason to pause, and adjust their business models to reflect these changes.
Right now, "the biggest challenge for mailers is to re-adjust their business models to account for more realistic, long-term response rates," says Katz.
"If you look at the United States as a model, over the last 15 to 20 years, mailers have come to accept lower response at higher costs, and have adjusted their models accordingly. They've figured out ways to save money and still make it work for them."
Richard Miller, managing partner of Market Response International, a direct response consulting firm, concurs: "You have to match up demographics with your product and be prepared for a longer wait for a return on investment. Marketing overseas is not a short-term profit gain, it's a long-term growth gain. Those who hang in there, in the end, will probably do very well."
In addition to a worldwide economic slowdown, U.S. marketers also need to adjust to rapid advances in technology. "From a pure operations point of view, the Internet has been one of the great benefits of global direct marketing, and has also been the undermining factor of doing business as usual," says Arthur Heydendael of New York-based Probe Communications International. He explains: "The cost of … sending a message is so inexpensive that it basically undermines every business model we've been brought up in."
He asks: "Where do you put your marketing costs, and where do you put your fulfillment costs?" If a marketer is used to reaching people by mail, it will have to balance its marketing dollars with electronic messaging, so they complement one another, he explains.
In adjusting their business models, marketers need to reduce spending. To improve your cost per order, you have to mail smarter, which requires both time and experience.
The availability of international lists, however, is a double-edged sword. While local, national lists continue to grow, the multinational lists that drive the global publishing market have ebbed.
Katz points out that many of the key lists, such as Book-of-the-Month Club, Barnes and Noble, and Shop the World by Mail, have disappeared in the last few years. And the core lists, such as Business Week, Time and Fortune—staples of multinational publishers—are not growing as fast as they previously had because the publications also are not aggressively mailing.
Finding good international response lists currently is a challenge, according to Katz, who is advising her clients to fill in selectively with national lists where possible, and mail core lists more conservatively. She also suggests testing lists that previously weren't successful and trying to find smaller segments on them that work.
Above all else,"If list availability is not there, and you need to get a higher response or maintain response, you have to cut your mail volume," advises Katz, who adds that many mailers currently are maintaining, but not growing their rate base as they once were.
And, as far as Katz is concerned, that's where they should be since list availability is not there to support the growth. "As the market picks up and [companies] begin to mail more, and new players come onto the market, then that market will again pick up and expand."
Increase Your Market Share
Prospecting in a climate with a stagnant list market and rising postal costs may not be the most successful way to maintain your overseas customer base. Marketers also need to figure out how to increase the lifetime value of their international customers.
Bill McNutt, president of Texas-based International Direct Marketing Consultants, offers another way to grow your share of market: "American direct marketers already marketing into foreign markets can adapt several marketing channels to local language and currency," he advises. For example, LL Bean has been selling in the Japanese language since 1989, but only this year did it launch a Japanese language Web site.
Adapting your marketing channels to the market's local language and currency shows commitment, and historically has been proven to increase response.
The Internet is a tremendous source of growth potential for international companies as the lion's share of Internet users now live beyond U.S. borders. Nearly 10 percent of the world's population has Internet access; and Europe has edged out the United States in terms of number of online users. According to newly released figures from Nua.com, 185.83 million Europeans are online, compared to 182.83 million users in the United States and Canada, and 167.86 million in the Asia/Pacific region.
After adding an Internet presence in the markets in which it already had a print catalog and the infrastructure to support a Web site, international direct marketing pioneer Lands' End used the Web as a springboard to three new global markets. In late 2000, the cataloger expanded into Italy, France and Ireland with an e-commerce site only - a first for the cataloger.
While the use of e-mail as a marketing tool is still in its infancy, Katz predicts it will be a huge factor for international marketers.
Far less expensive than a transatlantic phone call, e-mail has simplified customer service and reduced the cost of international customer relations. Says Miller: "It has enhanced the mechanism by which we retain customers over older techniques we'd been using, which were very expensive and difficult before the advent of the Internet." It also offers U.S. marketers new ways to build retention and nurture customers.
When your customer is half a world away, notes Miller, you may have to do a little more to acknowledge his business and its importance to you. This may include something as simple as an e-mail message that says "thank you for your order" after a product is delivered.
Acknowledging a relationship and ensuring quality service is even more important internationally. It builds confidence. For instance, global consumers who purchase from U.S. catalogs feel less isolated if they can send an e-mail, or go onto a Web site and check the status of their order, says Katz.
Customer retention efforts are not limited to the online world. Worldwide telecom rates have plummeted in the past 15 years, according to Miller, who says telemarketing should be part of any customer retention, product upgrade and cross-sell operation—particularly for multinational publishers. (See "Offshore Telemarketing" on page 38.) "It's amazing the economics work considering only a small percent of those calls converts," says Miller.
A Silver Lining
While the decline in value of the U.S. dollar spells trouble on the domestic front, U.S. direct marketers already doing business in Europe, Asia and South America enjoy some benefit.
"The dollar is down 10 percent to the Japanese yen, and 12 percent to the euro in the past few months," says McNutt, who adds that the U.S. government anticipates exports will be up 2 percent this year and 7 percent in 2003.
What's more, American companies already in Western Europe, South American and Asia will benefit from new trade agreements, reports McNutt. "China will get a new bilateral trade deal with the United States at the end of 2002 or early 2003 that will open the market for capital goods and other U.S. products," shares McNutt.
For example, he continues, Singapore and Chile should get free trade agreements from the United States at the end of 2002 or early in 2003 that will create opportunity for American firms, particularly financial service companies. Furthermore, "With a domestic market of 1.3 billion people, an economy growing at 8 percent, and a commitment to large infrastructure spending, China offers a wealth of opportunity for North American companies looking to access that Asian market," he adds.
McNutt sums it up: "2003 promises to be an outstanding year for American exports, and direct marketers are certainly in position to gather their share of that success."