Don’t write off DM yet, it’s getting smarter, not just smaller
Monday, September 1, 2014
On the face of it, last month’s annual Ofcom Communications Market Report would have made pretty grim reading for the print industry: volumes are down, direct mail spend is down and the CWU is issuing dire predictions about the future of the universal service.
However, on closer inspection things may not be as bad as they first appear. Part of the problem is that there is a tendency to oversimplify the decline of DM as being purely the result of the rise of cheaper electronic communications and by extension to view the massive decline in addressed DM volumes (down almost a third since 2008) as a death knell for the sector.
But this ignores the fact that the past five years have included the worst recession in the UK in 50 years. As customers ceased trading, fewer advertisers equated to fewer mailings. Think of all the high street giants that have collapsed in that time and the volume of print they would have produced annually. No wonder DM volumes are down.
This is not to say that there has not been a drain of printed volume to other channels; however, this transition is not as dramatic as the top-line numbers suggest.
For instance, advertising spend on addressed direct mail has fallen 17.1% in the past five years, from £1.8bn in 2008 to £1.5bn in 2013. However, DM spend as a percentage of total advertising spend has only fallen 3.7% in the same period, from 17.8% in 2008 to 14.1% in 2013. Anecdotally, there has even been some growth in DM in certain sectors in 2014.
“We have seen the re-introduction of insurance and credit card mailings on a much larger scale this year and this is set to continue,” says GI Solutions deputy managing director Patrick Headley. “In the telecoms and media market, with so many competing offers available, companies are marketing hard to conquer the spend, using innovative DM campaigns as well as all other media.”
Volumes in the transactional market are also reportedly holding up well and, according to Ofcom, are likely to continue to do so as the low-hanging fruit in the print to e-comms transition has already been had.
And yet the pages of PrintWeek continue to be dotted with tales of failed DM printers, Global MP being the largest example in recent months. So clearly the industry is still under significant pressure. In fact, the rise of mobile means that print is under even more pressure than before, although arguably mobile could equally cannibalise ad spend from other digital channels.
HH Global sales and marketing director Tony Massey says that while there was still strong demand for DM in the US and emerging markets, customers in the UK and western Europe are being “more selective about what they commit to print, including mailed items”.
“Print is having to work harder within the overall marketing mix,” he adds. “If Google writes to you, it is very likely that you will engage with the promotion and buy. The state of the market represents a great opportunity for vendors to get creative and innovate. Marketers are always interested in fresh ideas, including methods of linking print and digital in a way to drive a better overall return.”
The reason DM spend is declining slower than DM volumes is that marketers are increasingly viewing print as a premium option and investing more money in fewer, better targeted and higher quality mailings. This is a logical tactic given that postal costs make up by far the biggest proportion of any mailing; it makes sense to make that mailing as impactful as possible by targeting fewer people in a more intelligent and engaging way.
“There are definitely trends towards spending more money on the format that arrives on the doormat,” says Headley. “The thing about DM is that most of the cost is to actually get the piece to the door and if that offering looks cheap then this will make the recipient less likely to respond.”
This is indicative of the evolution of DM from bulk customer acquisition mailings to targeted mailings to existing customers that are intended to build brand loyalty and encourage cross- or up-selling. This trend looks set to continue as does the trend towards finding clever ways to integrate print, digital, mobile and other channels to boost relevance and engagement.
But what of the trend of declining DM volumes – is this also set to continue inexorably until there is little or nothing left that we would recognise of the current mailing house sector? You could argue that much of DM’s fate rests in the hands of Royal Mail, as it holds the keys to the cost of mailing. Progress has been made in the relationship between the postal operator and the mailing houses – especially since the bad days of the reversion charges – but more can always be done.
“Let’s face it, direct mail is a good, under-utilised channel at the moment, with the average household receiving less than one DM pack per day,” says Headley. “Postage is the most expensive element of DM and anything that can be done to keep this under control will help to further sustain the channel. It would be good if Royal Mail could take a view where transactional mail has advertising on it and introduce a halfway-house tariff to try to encourage companies to keep mailing as opposed to just putting it online.”
Successful mailing firms will adapt to an evolving market
John Ellis, sales Director, Sunline Direct Mail, and DMA Mailing Houses Council Chair
There is no denying that advertising mail volumes are down. The latest Communications Report from Ofcom and the DMA Door Drop Industry Report make for worrying reading. Or do they?
Let’s look at the alarming stat in the Ofcom report: direct mail volumes are down 4.5% year on year, and down 28% from 2008. What this fails to consider is we’ve come out of the longest recession in living memory. Volumes have declined because many of our customers have, sadly, ceased trading.
I would go as far as to say that far from worrying about the fall in volumes, I welcome it; because it shows that advertising mail is evolving. We’re seeing more targeted mailings, more testing and more individualised communications. And we are definitely seeing an uptick as the economy recovers and consumer spending power returns.
Marketing managers also have larger budgets. It’s something we’ve noticed as a business, with 80% of our clients mailing more in 2014 than they have in the past five years and increasing the pagination of mailers and catalogues. Another interesting trend among our clients is the move away from downstream access back to Royal Mail as they seek out the best deals possible, and Royal Mail’s offering becomes more commercial.
Mailing houses, however, have faced huge challenges since 2008 and sadly we have seen many close down or be taken over. The ones that have survived – and even thrived – throughout the lean years are those that have diversified. We’re seeing mailing houses offering a wide range of services to their clients, from digital and email to data services.
The businesses that will come out as winners in this post-recession economy are those that can adapt and offer a marketing service that enables them to communicate with their customers at the right time with right message in the right place. And printed mail will always have a place in that mix.
Is the decline of DM as bad as the Ofcom report suggests?
Tony Massey, chief sales and marketing officer, HH Global
“Customers are being much more selective about what they print. Print is having to work harder as technology is increasingly allowing customers to elect how and when organisations communicate with them. Furthermore, organisations are finding that digital strategies can provide lower acquisition costs and more insight about customer engagement. This results in less noise in the printed channels so the client organisations that are committing to print, and/or direct mail, are seeing better returns.”
Patrick Headley, deputy managing director, GI Solutions
“The future of direct mail is forecast to decline but at a lower rate than most people would have you believe. While ‘E’ is cheap and flexible, ‘D’ remains the medium that brings home the bacon for many clients. One has to remember that 40% of our population does not have a tablet or smartphone, so they will not be interested in augmented reality or QR codes, but they still buy things. There is a benefit in sending out DM and then getting the recipient to swap over to the internet when placing an order.”
Mark Hetem, sales director, Opus Trust Marketing
“Our transactional volumes are relatively steady. We’ve seen a slow migration from print to e-services, probably to the tune of about 5% a year. At the same time, we’ve seen a 20%-30% increase in on-demand mailings, for things like compliance and some small cross-selling or up-selling mailings. Print still leads the way in terms of customer engagement. But it’s not just about engagement, it’s about satisfying customer preference and channel relevance, which is why we’ve put a lot of effort into electronic and post as well as into print.”