Business Outlook 2003
Industry experts get serious about privacy, postage, telemarketing and more.
Reported by Paul Barbagallo, Brian Howard & Hallie Mummert
Privacy. The U.S. Postal Service. Telemarketing. Congress. These four topics dominated the discussion at Target Marketing's Business Outlook 2003 breakfast, held during the Direct Marketing Association conference in San Francisco in October.
We gathered a distinguished panel of industry experts to outline the major issues direct marketers will face next year, and found that the more the industry changes, the more it stays the same.
When Target Marketing convened a roundtable seven years ago to discuss the future of direct marketing, we gnashed teeth over these same four topics, and the threat they pose to the industry's progression toward a one-to-one marketing approach.
But industry regulation and rising acquisition costs are not the death knell for the direct marketing industry. They are the realities of doing business in the 21st century that Venture Worldwide President Richard Baumer affirms will force direct marketers to "adapt or perish."
"To survive," says Baumer, "marketers have to be more aggressive and get outside of their comfort zone."
Judging from the panel's predictions for 2003, marketers can look forward to growth and innovation—but they first must address privacy and telemarketing legislation, as well as escalating postal rates.
Prediction #1: Privacy Laws will Further Restrict Direct Marketers
The specter of privacy legislation looms over direct marketing like the grim reaper itself. The industry is being reigned in and regulated by acronyms like DNC, GLB and HIPAA. And that's just the beginning.
As DMA President Bob Wientzen warned in his opening address to the DMA annual conference, there are more than 1,500 initiatives before state and local governments that could drastically alter the face of direct marketing.
Our panel of industry experts expressed deep concern over the shape of the legislative landscape where privacy is concerned.
"One of the biggest boons to direct marketing in the last 20 years has been the rise of database marketing," explains Jock Bickert, president of Looking Glass Inc., "And [database marketing] has been on a collision course with all the privacy concerns of the last five to six years."
According to Bickert, consumers are much more aware of how their information is being used, and while they're still willing to share it, they have come to expect more when they do.
"In the United States, we assume we have a right to market … and we do," offers Liz Kislik, president of consultancy Liz Kislik Associates LLC. "There's also a privilege, and taking that seriously means thinking about what customers want and expect. … The majority don't worry about data [protection] unless triggered by the annoyance of intrusion."
Consumer awareness seems to be at the heart of the direct marketing/privacy dilemma. Everyone remembers the negative experiences: calls during dinner, the deluge of spam, wildly inappropriate offers resulting from poor targeting and segmenting. As Bob Hacker, chairman of The Hacker Group, sums it up, "Right now, I can pick on any direct marketer and Martha Stewart and I'm safe."
It's an unwieldy chunk of cognitive dissonance: How has an industry that has thrived so long come to be seen as little more than a punch line for late-night talk show hosts?
"Part of the problem is that we also wear our consumer hats as individuals," offers Ruth P. Stevens, president of consultancy eMarketing Strategy and a marketing professor.
"I've got kids [in class] who are eager to learn about the availability of data. … They're just aghast. They say, 'Wow, this is great, I can get access to avid readers or people who are interested in motorcycles,'" explains Stevens. "Then they say, 'Oh no, wait a minute, now these guys know about me. And I just bought a toaster. I didn't realize I was giving up information to marketers.' They have a difficult time, just as we do, deciding whether they are outbound marketers or whether they are consumers with their own privacy."
Consumer education is key. "I think we, as an industry, have to do a better job of helping consumers, consumer advocates, legislators and regulators understand the benefits of what we do for a living," implores Jan Davis, executive vice president at TransUnion. "If we are put out of business, or it's made to be too expensive, and less appropriate because we can't target effectively, it will be a death spiral."
Part of the problem is that politicians see privacy legislation as an easy win when appealing to constituents.
"I heard recently that privacy legislation is a given," offers The Horah Group's Dick Goldsmith. "The reason is that they've done surveys, and [they've found] the people who are interested in environmental issues are the same people who are interested in privacy issues."
So legislators wary of passing environmental laws have found they can keep the same group sated with privacy legislation.
"We have to work very hard to make sure politicians know that our agenda, perhaps, is more important to the economy than things that would involve environmental legislation," sums up Goldsmith.
But advocacy is a full-time business, and what direct marketer has time for a second job?
Richard Rossi, president of Envision Corp., questioned the DMA's role in the process. "I've seen outrageous initiatives come up on Capitol Hill, and instead of screaming and yelling and banding together and going up there, the DMA is extremely shy," he offers.
But is the DMA in a position to champion such an effort? "I wonder if you can count on the DMA," ponders Hacker. "Look at how many constituencies they try to serve. It's such a broad brush they're trying to paint with: You've got people from agencies, you've got clients, you've got vendors. … If the companies aren't willing to fight the battle themselves, the battle is going to be lost; in fact, that ship has sailed."
But as we learned from TransUnion's valiant but less-than-fruitful stance against the FTC on the use of credit header data for marketing purposes, standing up against privacy legislation is costly, and doesn't necessarily win favor with consumers.
"We [have gone] to Scholastic and organizations like that and said, 'Would you invest in trying to fight this bill?'" explains Rossi. "[And they respond,] 'We don't want to be up-front, we don't want to be misinterpreted as being against privacy.' What can you do?"
According to Tom Wicka, executive vice president-sales, The Instant Web Cos., marketers and vendors in Minnesota recently banded together to fight additional taxation. He feels the tactic could work in the privacy arena.
"It was done grass roots; it was done company by company, president talking to president," Wicka offers. "I will give the associations credit for allowing them to have access to resources, to phone numbers, information, data."
So perhaps the most pressing issue is devising a plan for making legislators more aware of the benefits of this industry, to prevent laws that will keep us from doing what we do best.
"Perchance the model is to let each president or its company be the agent," suggests Experian Marketing Service's vice president of postal and industry services, Dan Minnick. "The DMA can provide that cohesive, coordinated plan, because I think 2,000 or 20,000 independent voices hitting the Hill is not going to have the same impact as a coordinated chorus."
Prediction #2: Postal Crisis Postponed
As Postmaster General John Potter outlined postal reform initiatives at DMA Annual, our panel of industry experts discussed, lamented on, and forecasted the future of the U.S. Postal Service (USPS)—and how it will affect marketers.
Potter stressed during a keynote session that his short-term vision of postal improvement hinges on four goals: reducing costs, improving service, changing the rate-making process and enhancing products and services to expand the business.
"We cannot ignore the fact that the USPS continues to operate with a fundamentally flawed business model," Potter declared, referring to a 32-year-old law that requires the USPS to operate on a break-even basis without taxpayer subsidy.
The challenge of being competitive in the marketplace presents the most hardships for the USPS and mailers in the years to come, says Experian Marketing Services' Minnick.
"It is not a competitive service. The monolith that is the USPS, as created in 1970, is an instrument for the masses," Minnick affirms. "It does not recognize direct mailers individually."
But technically, says Minnick, the USPS has found success in the things it knows best. It is making phenomenal dealings in transportation contracting, namely with Federal Express.
The USPS also has taken other measures to eke out of the black hole it has been submerged in prior to September 11. One example is the negotiated service agreement (NSA) established with Capital One, the largest producer of First-Class mail for the USPS. NSAs, Minnick says, provide variable pricing incentives that encourage greater volume and reward mailers.
"The first of what I hope to be several NSAs surfaced recently. NSAs transform—key word here—the opportunity for mailers to interface with USPS as a true vendor of service in the absence of postal reform," says Minnick. "The breakthrough is that the USPS will save $8.2 million in the first year of the agreement, and Capital One will save $6 million."
In regard to the seemingly perennial postal rate increases, the group was confidant mailers would be spared in 2003, since the USPS has promised not to file a rate case anytime soon.
But postal hike or not, there is no reason to abandon direct mail, says The Horah Group's Goldsmith. He reminds marketers that the country is growing, and there are millions of new addresses to mail.
"As e-mail [marketing] and telemarketing continue to have problems, that's good news for mail," Goldsmith says. "People will have to get back into mail. But in a targeted, cost-effective way."
Goldsmith also stresses that the United States has the lowest postal rates in the industrialized world. Germany pays 60 cents for a First Class stamp, for example.
"As rates go up, we should remember that direct marketing works at those rates in those countries and can work here too," Goldsmith avows.
During the past year, many marketers have emphasized the need for postal reform, to prevent the slippery slope of constant rate hikes from eating up their postal budgets. This year, the focus shifted from postal reform legislation to a presidential postal commission. But the likelihood of either coming to fruition in 2003 remains doubtful.
While a permanent solution to the postal crisis remains elusive, the USPS recently announced that it may be able to delay future rate increases until 2006 due to a financial discrepancy regarding retirement pension liabilities.
However, changes in the payment schedule will require modification of the current law by Congress.
Prediction #3: Telemarketing Faces Stiff Opposition
Consumer disdain for outbound telemarketing seems to have reached an all-time high. Earlier in the year, the Federal Trade Commission (FTC) announced its interest in creating a national Do Not Call (DNC) list that would be mandatory for all outbound telemarketing programs. This sent states scrambling to create their own DNC lists to maintain control over this channel in their backyards.
The result is a complex patchwork of state regulations, which is just killing the telemarketing industry, explains Kislik.
Salvation may come in federal legislation—but from the FCC, not the FTC. If the Federal Communications Commission takes over jurisdiction on a national DNC list, says Kislik, its requirements would preempt the states', making life a little less complicated for marketers.
But is any government-imposed regulation a good thing?
Kislik sees both a promise and a threat: "The one actual advantage to regulation is that it levels the playing field. I'm not suggesting there [won't be] industry casualties … but then everyone starts out equal again. … If you have a better business model or smarter marketing plans, then effectiveness carries you forward."
The threat that a federally-run DNC list poses, says Kislik, is that it won't be long before someone's calling for a federal Do Not E-mail list; which will be followed—but not anytime soon—by a federal Do Not Mail list.
Another regulation facing telemarketers is an FTC proposal that would impose an 18-month time limit on phone contact with new customers. The sticking point, Kislik explains, is when should the clock start on this "established business relationship"? If it's at the point of transaction, then continuity offers with multiple shipments are in jeopardy of being ineligible for phone renewal. For example, a two-year subscription would expire six months after the time limit on phone contact.
The telemarketing industry is lobbying the FTC to make sure the clock starts after the last delivery of product or service. Otherwise, Kislik warns, marketers who rely solely on telemarketing will have to diversify into other media to gain the next contact that allows the sales dialogue to move forward.
Prediction #4: Salvation in the Media Mix
The consensus of the panel was that a growth-oriented direct marketing strategy is one composed of multiple channels, offers and creative approaches.
"Multichannel marketing is a great catch-word, but not enough [companies] have embraced it," says Richard Baumer. "It's great in theory, but difficult in practice. … I believe that all marketers need to get good at it to counteract all this other stuff that's not going to go away."
The "stuff" Baumer is referring to is rising postal rates, privacy legislation, crammed e-mail inboxes and the resultant declining response rates.
Lon Mandel, president of list firm ClientLogic, points out that as the quality of e-mail lists improves, spam will decline. Just as list managers and brokers approve sample campaigns on the postal side of the business, so they will for opt-in, response-generated e-mail lists. No one will be able to spam those names without the consent of the list manager or broker, Mandel explains, and that's the crux.
But if e-mail isn't performing for you the way it used to, Baumer contends, you can't wait until it has hit a point of diminishing return to move on to another vehicle, channel, etc.
Savvy marketers always analyze their marketing efforts and find a way to prospect effectively. It was smart for marketers to turn inward this past year and mine their house files, says Baumer, but the companies that are ahead of the game are the ones that didn't walk away from prospecting.
"You can use the mail less to prospect, but that doesn't mean you can afford to prospect less," he explains. "You have to learn how to prospect differently."
Both Baumer and Mandel have noticed a recent pick-up in prospecting efforts. That's good news for list universes; in the past 18 months slower activity has decreased average file sizes.
And response appears to be coming around again, albeit slowly. TransUnion's Jan Davis notes that some of her clients have reported encouraging September numbers for programs that have not been working for a year.
That's the difference between testing during a soft climate and merely hiding out with your house file, says Baumer. Those companies that continued to try new strategies, as well as revisit channels that had stopped performing as expected, know a good deal more about what works and what doesn't—information they can use to good advantage to weather any challenge 2003 brings.
Database Marketing in 2003
Mary Ann Kleinfelter wasn't able to attend our Business Outlook Breakfast, so we caught up with her after the DMA annual conference. Here are her thoughts on database marketing strategy for next year:
"Direct marketers should focus their database efforts today on 'best practices.' They need to focus on getting better data—not just more data. ... They need data that helps them understand customers and their purchasing behavior better. Especially in this age of privacy concern, they should not collect data they cannot use in a meaningful way to return value to the customer.
"As far as development, they need to solve the issues that won't go away, such as how to better track orders so they clearly can see what is prompting an order, especially in light of the impact of multiple channels. Or, how to understand direct marketing buyers and non-buyers, so they as an industry can gain market share … who is buying and not buying, and why?"
Media Integration in 2003
"The best way marketers can overcome obstacles [to media integration] is to let consumers be their guide.
"Marketing success today depends on two things: 1) ensuring that each respective marketing discipline (direct, interactive, promotions, sponsorships, advertising and PR) keeps pace with a continually evolving, and increasingly sophisticated consumer; and 2) to include each discipline in the overall marketing plan appropriately.
"For example, we've moved away from the time when advertising's main function was to create awareness and favorable attitudes for a product. We're smack in the middle of an era in which the focus is on the customer's experiences with the product and her subsequent purchase behavior. Consumers today ask: 'This is what I need, can you make it? And will you tell me about it in this particular way?'
"'Integrated marketing' is no communications panacea. Successful marketers today will not only convey the right message, they will deliver the message using a combination of channels as dictated by the consumer."
- San Francisco