Ready for Alternate Media Yet?
Next month, the postal rates will rise again for the second time this year. Here's a little more salt for the wound: In the past seven months, your postage costs most likely have increased by an average of $14/M to $16/M for letter-size mailings and $18/M to $33/M for flat-size mailings.
Is it any wonder that managers and brokers of alternate media programs are seeing more interest in these less costly alternatives to solo direct mail?
"Anytime you see an increase on a fixed cost of doing business or a declining of response rates, you will find mailers investigating alternate sources of getting customers," says Dennis Erickson, director of alternate media, at Paradysz Matera, a direct response marketing solutions company in Minneapolis, MN.
Certainly, both of those factors are affecting direct marketers these days. Declining response rates are always a concern, but even more so for catalog companies and publishers right now.
Still, Dan Plunkett, vice president of marketing at Fred Singer Direct Marketing, a firm in Scarsdale, NY, that specializes in management and brokerage for alternate media programs, sums up the current market pressure best, when he says, "What scares clients is that there is no guarantee that postage rates won't change again and again."
Who's Joining the Fray?
According to Asher Abelow, director of alternate media at 21st Century Marketing, a list management and brokerage firm in Farmingdale, NY, there is a solid core of companies that use alternate media, but new companies have been joining the ranks.
There is widespread interest in all forms of alternate media, because catalog companies and publishersthe big users of lists in the mail-order industryneed more names, explains Jim Lynch, vice president of AM Direct, the alternate media arm of The Millard Group, a list management and brokerage firm in Peterborough, NH.
This common ground has propelled catalog companies and publishers to look more favorably on partnership opportunities. "In the past, these two groups were like bad family members," says Lynch. "They felt one another's names didn't work for their offers."
He adds that the economy also has changed the dynamic of the alternate media industry somewhat by bringing new programs to market. For example, catalog companies are now offering package insert programs and blow-ins, where they weren't before, because they can generate some revenue.
But the floodgates aren't exactly opening. Lynch reports that catalog companies with new alternate media programs are being very selective about which inserts they will take for blow-ins and other
acquisition-type programs. While the extra revenue is nice, it won't come at the expense of the program owner's response rates and reputation.
Who else is competing for alternate media names? Both Plunkett and Debra Goldstein, manager of the LH Management division of Leon Henry Inc., an alternate media management and brokerage firm in Scarsdale, NY, report seeing more aggressive usage from the telecommunications sector.
Goldstein adds that credit card companies, as well as dot-coms that were only using the Web to generate sales, are exploring more alternate media.
New Traffic Patterns
In the past year and a half, says Erickson, business in the alternate media category has picked up.
The number of package inserts programs and typical alternate media programs have not grown that much, he continues, but he has seen more off-market partnerships between companies that reach like customers.
"Many of our clients are asking us to source other companies that reach the same customer base to develop deals, like welcome packs, statement inserts and other ventures," says Erickson. These new sources of names are important, because they broaden the marketer's reach outside of the traditional list universe.
Another trend that continues to grow is that of targeted sampling programs.
"For the first time, we're seeing the marrying of package goods companies with mail-order businesses," says Erickson.
Goldstein has witnessed the same pattern. "Product samples for insert placement have increased. Many of the package insert programs are agreeing to accept this type of advertising for additional fees covering hand insertion, as well as overweight or oversize costs. The program owners like the additional revenue, and the advertiser is reaching a targeted consumer. The consumer loves the sample. Everyone wins!"
Erickson says he also sees more companiesespecially publishersusing marriage mail, like ADVO, FSIs in the Sunday paper, etc. With higher usage on traditional alternate media, it's harder to get into these programsespecially at an affordable CPM.
Depending on the mechanics of production for a particular alternate media program, Plunkett explains, the vehicle can take only so many inserts, and those slots are filling up fast these days. Previously, program managers would have empty slots, or remnant space, and now even those are disappearing!
New programs are coming onto the market, almost daily, says Goldstein, but you want to keep a sharp eye on whether these are a good fit for your offer.
Abelow has found that the pricing for many of these new offerings is high, and the programs have not proven themselves to be worth the cost. He advises marketers to be skeptical of programs that originate in the retail sector. Mail-order companies usually can't get these names to work.
The CPM Linchpin
While the competition for alternate media programs has gotten brisk, price is still a highly negotiable area, says Lynch. But, he points out that marketers can drive the rates down only as far as the prices they are willing to accept for their own programs.
Plunkett adds that the CPMs of alternate media programs haven't gone up in a long time. "Our mailers, quite frankly, can't pay any more than the current rates," he states.
The thing about alternate media is that each marketer knows its own allowable CPO, and that number can differ from product to product and offer to offer. The objective, says Abelow, is to get your alternate media costs to the point where you can do as well as you do with your solo direct mail. Since alternate media programs also offer a very definable cost, explains Abelow, program owners also know what they can accept to make a profit. To get more business, program owners must be willing to negotiate, he says, despite the postage increases.
Plunkett thinks the recent postage increases shouldn't affect pricing of programs that greatly. That's because the $14/M that marketers would absorb on solo direct mail campaigns gets spread across the multiple participants in an alternate media program, resulting in a diluted effect.
The real thorn in the side of owners, managers and brokers is hesitant marketers who play musical chairs with alternate media programs: One minute they're in for the next drop, and the next they're out.
Plunkett reports that the more experienced marketers (read "marketers who get the best rates") know to print extra inserts and have them ready for both remnant space and new program opportunities.
With the economy doing a number on solo direct mail response rates, you can expect those for alternate media to be struggling, too.
One vehicle that is holding up in this economy is the cooperative program. The program managers are able to offer sophisticated targeting that produces better response, and the pricing is low enough to make a profit, says Abelow. He adds that $20/M is a reasonable rate for cooperative programs.
If co-ops aren't of interest to you, Abelow says that package insert programs are your best bet for decent response rates.
Both Lynch and Plunkett have clients that are seeing success with catalog blow-ins; the allowable CPO offers a much lower threshold than for many other media. Plunkett reminds marketers that they don't have a lot of room to sell on an insert, especially a blow-in, which makes a stable, obvious product and offer paramount.
The expansion of take-one inserts into more retail establishments other than grocery markets now allows marketers to reach different types of customers, says Erickson.
Another source Erickson predicts we'll be seeing more of in the balance of this year and the next is a CD-ROM cooperative, with multiple offers from different types of marketers. The distribution points can be movie theaters, for example, with movie trailers coupled with offers from an Internet service provider, an automobile manufacturer, and others.
The advantage of these venue-driven deals is the ability to add value to the CD, to make the vehicle interactive and, of course, to bypass the U.S. Postal Service and future rate increases. And Erickson predicts this is only the start of such non-traditional joint marketing ventures.
"Using many sources [of prospecting media] keeps you less at risk when any one of your sources begins to flag or is affected by external costs," says Erickson.