Straight Talk: Direct Mail Investment Pays Dividends
As group consumer marketing director for Meredith Corp., Jon Macarthy is responsible for circulation for a number of its titles, including Midwest Living, American Baby, and one of the largest magazines in the world: Better Homes & Gardens, which has a rate base of about 7.6 million readers, 7.4 million of which are subscribers. To cultivate and maintain this strong subscriber base, Macarthy makes heavy use of direct mail, relying on the medium to bring in 50 percent to 70 percent of the magazine's new acquisitions. He now pauses to reflect on the challenges of profitability and credibility, and the importance of maintaining a long-term view, focusing on the fundamentals and investing in the future of your direct mail program.
TG: What are some of the challenges facing circulation marketers right now?
JM: The first is profitability. The industry is experiencing continued declines in major sources like school agents and single copy sales. For most publishers, the Internet really hasn't lived up to its hype as a subscription source. These shortfalls only further reduce the ability to increase price in the remaining sources that have to pick up all the slack. So you combine not being able to raise price with increases in postage and paper that are coming down the road, and you are going to end up squeezing profits.
The second [challenge] is potential legislative restrictions at both the federal and state levels on gathering customer data, and I think that the challenge to ... direct marketers of every category is to demonstrate that we are using the data responsibly as an industry and coming down hard as an industry on those who are not, so they don't spoil it for everyone else.
TG: What role does direct mail play in your circ efforts?
JM: Direct mail has been the dominant new business source for Meredith for a while, and its lead is really just growing. I think that's because we are now gathering the rewards of all of our past and continued investments in three areas: our database, which we brought in-house a few years ago; our modeling and statistical capabilitieswe have a large in-house staff of statisticians; and our in-house creative expertise. ... Meredith has always stressed the profitability of investing in direct mail. The idea is that the net present value of a dollar invested in direct mail beats virtually any other new business source, and as long as you don't take the short-term view, you are really building your files and strengthening [them] over the years by these investments in direct mail. And not only is [direct mail] the most profitable for us, but it provides the most engaged readers for our advertisers as well. So it's really a win-win situation. ... I think marketers will find, as we have, that you actually can have a lower price in a direct mail-sold subscriber and the lifetime value of that person is going to be much higher than a higher price-sold sub through an agent source. The focus really has to be on the bottom line and less on the top line.
TG: How are you preparing for what seems to be an inevitable postage rate hike in 2006?
JM: We budgeted for the postage increase, as well as for paper increases that we see coming down the road. One thing that our purchasing and design people are doing is searching for alternative paper and design choices to give the same look in our packages at a lower cost. We've had some wins recently in this area. But, at the same time, it's a balancing act. We rely very heavily on photography in our direct mail, so we are careful not to risk underrepresenting the end product and losing orders, just to save a few cents on the package. We are also trying to improve the efficiency of our list universe to make sure we are getting the most out of the mail volume we do. More of our selections are coming from models or other statistical techniques that have [responded] significantly. Between those two pieces, we have no plans to lower mail volumes because of the postage increases.
TG: What advice would you give to circ mailers?
JM: One, maintain the long-term view. Most shortcut reactions to a challenging environment end up hurting you in the long run. A circulation person really has to be the advocate for keeping direct mail volumes, testing [and] all of those things in their budgets if there's pressure from management to begin trimming. Second, focus on the fundamentals. Strong creative in the mailboxes of the most promising customers still produces the highest response. So [you've] got to be, especially in this environment, on top of [your] game, in both creative and list areas.