Letters
Target Says It’s Poised to Raise Second-Half Marketing Spending
CFO Says First-Half Savings Will Be Rolled Into Pre-Holiday Efforts
By Natalie Zmuda
Published: August 18, 2009
NEW YORK (AdAge.com) — Target plans to come out swinging in the second half.
Executives today said marketing spending, as a percent of sales, would be up compared with a year ago as the retailer looks ahead to the all-important holiday period. Executives are still feeling cautious about whether consumers will be spending in the second half, but as Target and other retailers begin lapping weaker sales results from last fall, same-store sales are likely to improve.
Douglas Scovanner, Target’s chief financial officer, said that the third quarter, leading into the holidays, is typically a seasonal peak in Target’s marketing and advertising efforts. This year, he said, the retailer has “elected to exaggerate that trend.”
Money to spend
“We expect to spend more as a percent of sales in Q3 and Q4 this year than we did last year,” Mr. Scovanner said during an earnings call. “For the year, our marketing plan is right on. But we have saved some money here in the front half for the expressed purpose of being able to invest it in the back half.”
In the second half of last year, Target spent $451 million on measured media, according to TNS Media Intelligence. In the first quarter of this year, the retailer’s ad spending was down 3% compared with the same period a year ago.
The move comes as execs say the retailer is finally gaining traction in its fight to convince consumers that it’s just as cheap as rival Walmart. Part of that strategy has included the introduction of a “low-price promise.” In March, Target began testing the program in Denver and Orlando, matching competitors’ prices on identical items in local markets. Target took the program nationwide July 12 and has promoted the effort in its circulars and in-store signage.
“We have been confident our prices are right, and we’re seeing our prices are right, because there are very few adjustments being made,” said Gregg Steinhafel, president-CEO, of the low-price program. “It might be one per store every couple of days. So it’s relatively modest. But we think this will be a terrific credibility builder and marketing umbrella to reinforce that we have strong values both every day and on sale.”
Same-store sales down
Same-store sales during the second period continued to lag, however, down 6%. Overall sales fell 3% to $14.6 billion.
When asked directly by an analyst why Target’s sales performance hasn’t been on par with fellow discounters such as Walmart and T.J. Maxx, Mr. Steinhafel said that it was due to consumer perception that Target’s value proposition is not as strong as those rivals. But, he added, the retailer’s research shows that its advertising and in-store signage is starting to “slightly” shift those perceptions.
“We’re starting to see slight basis points improvement in our price perception vis-a-vis where we were in prior periods,” he said. “So, we believe that we’re on the right track. We have made the right adjustments. [We] believe that over time we’ll continue to narrow that perception gap.”
In the second half, Target plans to focus on its pharmacy and grocery areas, both areas that have been outperforming the more discretionary home and apparel categories. A campaign to promote the pharmacy business, including Target’s first TV spot to highlight the category, is planned for the second half. The retailer also plans to sharpen its focus on Halloween, which falls on a Saturday this year. Plans to promote party favors and accessories under $3 are in the works.
Plunge in Credit-Card Mailings Slows
Could this be some good news for a change!From Brandweek
Aug 14, 2009
- Mark Dolliver
When the credit crunch took hold last year, it stanched the usual flood of direct-mail credit-card mailings to U.S. consumers. The subsequent meltdown of the financial system had its own restraining effect on such offerings. But now, a report from Synovate says the research firm’s Mail Monitor operation has detected a bottoming out in the volume of such solicitations.
In the second quarter of this year, says the report, households received 349.1 million credit-car offers in the mail. That’s 67 percent lower than the level of mailings in the same quarter of 2008. But it’s down just 6 percent from the level of first-quarter 2009. Some of the big mailers even increased their volume during the second quarter. Bank of America’s mailings were up 77 percent from the first-quarter-2009 level, and Citibank’s were up 65 percent. Noting that credit-card issuers have been growing less risk-averse than they were earlier in the recession, Synovate goes so far as to predict an “uptick” in card offers next year.
An earlier report from Mintel Comperemedia noted a stabilization (after two years of declines) in the number of mailings sent to households promoting mortgages and home-equity loans. But the nature of the offers has shifted, given lessons consumers have learned the hard way in the past year. Notably, direct-mail offers of adjustable-rate mortgages have “fallen out of favor,” according to Mintel’s analysis.
Of course, the fact that companies are making offers of credit cards and loans doesn’t necessarily mean people are taking them up on it. Polls during the past year have consistently found consumers professing their aversion to taking on more debt of any sort. Typical of the genre was a Gallup poll released last month (based on fieldwork in June) in which 46 percent of respondents said it’s “a bad time to borrow money,” vs. 17 percent saying it’s a “good time” to do so.
Communication Is Best Policy
From Brandweek
Aug 3, 2009
Andrew McMains
From credit card companies increasing penalties for late payments to banks raising interest rates on credit cards, the recession’s bad news knows no bounds. But how consumers learn about such developments can determine how they feel about the companies that dictate them.
Often, people learn about such changes via direct mail. But the good news is, bad news doesn’t have to taint the messenger, according to a recent study from Omnicom Group’s Siegel+Gale. Rather, institutions can actually gain the trust of consumers if they communicate clearly and offer a contextual explanation for such moves, said Lee Rafkin, global director of simplification at strategic branding company Siegel+Gale in New York.
“What we found is, if you can go to the effort of actually explaining why you’re in the situation and what you’re going to do about it in a comprehensive and relevant way, people actually respect you for that,” said Rafkin.
Siegel+Gale’s The Simplicity Survey asked an online panel of 400 consumers to evaluate the effectiveness of four pieces of mail. One, from a credit card company, announced an increase in late fees on a charge card; another, from a bank, an interest-rate increase on a credit card; a third, a need for donations at a not-for-profit that cut its budget; and the fourth, the terms of a mortgage. Half of the panelists looked at two of the letters and the other half, the other two. Each answered questions that probed criteria such as clarity, credibility, relevance and usefulness, according to Rafkin. The mail was real, but company names were redacted.
The bank and credit card company scored poorly in the realm of trust and loyalty because the former’s explanation for raising interest rates was cold and off-putting (“market conditions and maintaining profitability on your account”) and the latter offered no explanation at all. “They’re not interested in me as a loyal customer,” wrote one panelist. “I’m just a number to them.”
Conversely, the not-for-profit’s 2 1/2-page explanation of how and why it cut its budget made it seem “honest” and “forthcoming” to one panelist, and a simple, one-page summary of the mortgage lender’s terms came across as “straightforward” and “inviting” to another.
It’s Time to Stay the Courier
From the New York Times Business Section
By JOE NOCERA
Published: August 7, 2009
Consider the plight of John E. Potter, the chief executive of the second-largest employer in America. On the one hand, he has a guaranteed monopoly for much of his business. On the other hand, monopoly or not, the combination of the Internet and the recession is absolutely crushing his company, just as it is for so many other companies across the country. His last quarter’s results, which were announced on Wednesday, revealed a loss of $2.4 billion. The business is on track to lose a staggering $7 billion in 2009, on around $68 billion in revenue. That’s practically General Motors territory.
What can he do to fix the situation? Surprisingly little. His employees have clauses in their union contracts that forbid layoffs. Nor can he renegotiate their gold-plated benefits, the way, say, the auto companies did when their backs were against the wall. Political pressure makes it nearly impossible to shut down any of his company’s 34,000 facilities, no matter how outmoded or little used. He can borrow money, but under the law, he can add only $3 billion in debt a year — an amount that isn’t going to come close to covering his losses.
Oh, and get this. Every year between now and 2016, he has to put aside over $5 billion to finance health benefits for future employees. You read that right: future employees. There isn’t another business in the country that finances benefits for employees it hasn’t even hired yet.
Welcome to John Potter’s world. He’s the nation’s postmaster general. Yes, that’s right: for the last nine years, he has run the United States Postal Service, which, since 1970, when it stopped being a government department and started becoming self-sufficient, has been the oddest of ducks. It is expected to operate as a business, turning a profit and so on, and yet it is still subject to Congressional oversight and all sorts of legal constraints, like that ridiculous health benefit prefinancing for future employees, which was part of a big 2006 postal reorganization bill. (Its main purpose, it would seem, is government accounting: those funds get counted against the federal deficit.)
Even so, until recently, Mr. Potter had had a pretty successful run. A smart, likable, lifelong Postal Service executive, he got it through the anthrax crisis early in his tenure. He saw it through 9/11 (in no small part by engaging Federal Express to fly long-distance mail during the day, when its planes were empty, something it still does). He has overseen productivity gains and, according to a poll conducted by Rasmussen Reports, a rise in customer satisfaction. Between 2001 and 2006, he even eliminated the Postal Service’s $11.3 billion debt. That year, 2006, was also when demand for mail service peaked, with 210 billion pieces delivered.
But the last few years have been brutal. The Postal Service lost more than $5 billion in 2007, and another $2.4 billion in 2008. And, of course, it is on track to lose that whopping $7 billion in the current fiscal year. (Its fiscal year ends in September.) The amount of mail being sent is dropping like a stone — it will be down to 175 billion pieces in 2009. Mr. Potter has reduced the Postal Service’s head count to 650,000, from 800,000, almost entirely through attrition. He has cut costs every way he can think of. And still the losses mount.
A few weeks ago, the Government Accountability Office added the Postal Service to its list of “high risk†federal agencies, meaning that it is in such dire straits that it needs “to restructure to address its current and long-term financial viability.†Indeed, if something doesn’t change by the fall, the Postal Service will have to renege on those health benefit prepayments — despite its legal obligation to pay them — or start missing payroll. “U.S.P.S. must align its costs with revenues, generate sufficient earnings to finance capital investments, and manage its debt,†the G.A.O. said. Just like any real business would.
“If you are asking me to run it like a business, give me the same tools that someone would have in the private sector,†Mr. Potter said when I spoke to him recently.
But as I discovered on Thursday, when I watched a Senate hearing on the current Postal Service crisis, that’s not likely to happen. For one thing, Mr. Potter isn’t really asking for the tools he needs to turn the Postal Service into a real business. He is asking Congress to relieve it from the health prepayments, which he is likely to get, at least temporarily. He is also asking that the Postal Service be allowed to reduce mail service to five days a week, and to eliminate some postal branches. These aren’t exactly revolutionary ideas — yet they are viewed as highly controversial in Congress, which frets that constituents might get angry if the local postal branch closes.
But even if Mr. Potter were to get his way on these two items, they would still be only stop-gap measures that fail to tackle the bigger question. As the Internet continues to erode the use of snail mail, does the Postal Service’s business model still make sense? Do we even still need the government to deliver the mail anymore?
To me, the answer is obvious: no.
Think for a minute about the mail that comes into your home. In the modern age, very little of it is personal mail. The vast majority is commercial mail of some sort — advertisements, bills, movies from Netflix or catalogs. Once upon a time, said Rick Geddes, an associate professor in the department of policy analysis and management at Cornell University, the postal service was viewed as “a way to bind together the nation. In subsidizing mail service to rural communities you were keeping them connected to the rest of the country.†But today, he added, “it is kind of silly to say we are binding together the nation through advertisements and catalogs.â€
These days, the main justification for keeping the postal service as a quasi-government entity is the belief that no private company would be willing to deliver the mail to sparsely populated rural areas of the country. People fear that it would be a little like airline deregulation: communities that weren’t large enough to justify flights in the newly deregulated environment lost their carriers.
But that mission of universal service has all but blinded just about everyone connected with the Postal Service. Congressmen — many of whom, after all, come from rural areas — are loath to give the Postal Service too much free rein for fear that Mr. Potter’s minions will start shutting down post offices. (Never mind that 2,000 of them serve fewer than 100 people each.) The postal unions, with their no-layoff clauses, have used universal service to justify benefits so generous the Postal Service would save $600 million just by bringing them in line with other federal employees.
As for Mr. Potter himself, while he may want more freedom to run the Postal Service like a real business, he, too, seemed surprisingly wedded to outmoded ideas about mail service in America. “This country needs to have and to protect universal service,†he said. “Our business is all about making sure every American can stay connected with every other American.â€
I failed to ask him the obvious follow-up question: Don’t e-mail messages now do that?
For most of us, of course, it does — and that will increasingly to be the case, as broadband makes it way into, yes, even those rural areas that everyone is so worried about. Michael A. Crew, a professor of regulatory economics at Rutgers told me that that while the Postal Service’s “short-term situation is bleak, its long-term situation is really bleak.†He is one of a number of experts who say they believe that even when the recession ends, the Postal Service’s woes won’t be over. As businesses look to save money in the recession, for instance, they are starting to do end-arounds the Postal Service. Online bill-paying is become ever more popular. Evite is starting to replace mailed invitations to parties. None of that business is ever coming back.
Which is why, instead of trying to find short-term, piecemeal solutions to the current crisis, those involved in managing and overseeing the Postal Service ought to be thinking harder thoughts about blowing up its business model. Maybe the Postal Service should turn itself into a giant outsourcer, handling some tasks but handing out others, for a fee, to more efficient companies. Maybe the government should allow companies to bid on lucrative urban delivery — with the proviso that they also deliver to rural areas. Maybe some areas should get mail deliveries less frequently than others. Maybe there should be radically different pricing structures. Maybe it should even lose its monopoly on first-class mail. I mean, why not?
Mr. Geddes, the Cornell professor, says he believes that the only solution is for the Postal Service to become “just another company†— lose its monopoly, shed its bureaucratic mind-set, become able to negotiate freely with its unions, and answer to shareholders instead of Congress, which is always going to resist significant change that might upset a constituent. Only when that happens will it be able to bring its costs in line with its revenue.
“The post office is not broken,†Mr. Potter insisted. But surely it is. And its current crisis brings to mind Rahm Emanuel’s line that you never want a serious crisis to go to waste.
Alas, here in the middle of its worst financial crisis ever, the Postal Service and Congress seem utterly intent on wasting it.
‘Junk mail’ deliveries drop off: Recession has reduced amount of advertising
From: Business Matters
LAURA RUANE
lruane@news-press.com
• August 3, 2009
If your mailbox is empty more often these days, you’re not alone: Last year saw the biggest decline in U.S. mail since the Depression.
Leslie Alvarez has noticed. “There doesn’t seem to be quite as much junk mail,†said the 47-year-old North Fort Myers resident.
So has the U.S. Postal Service, which doesn’t call anything “junk†mail. Nationally, mail volume fell by 4.5 percent or about 9 billion pieces, year-over-year, in 2008.
The drop-off is steeper in Southwest Florida, said Anne Murray, postmaster for the cities of Fort Myers and Cape Coral. Year-to-date, volume is down about 18 percent. “Southwest Florida is hurting more than some other parts of the country. That’s impacted all of the businesses.â€
Lisa Hixson, a U.S. Postal Service letter carrier for 21 years, delivers mail to downtown Fort Myers’ River District.
On her route, mail volume “has been steadily dropping,†Hixson said. “On one of my streets, I used to have two white tubs (of mail) for two buildings. Now I have one tub for the whole street.â€
To be sure, mailings typically decline when tourists and snowbirds depart for the summer. This is more severe, Hixson and Murray said: It’s the economy cutting into direct mail advertising — fliers, postcards and catalogs.
There’s no single answer as to why. Some businesses — seeking to cut costs and try new media — are redirecting some of their advertising to Web sites, e-mail, and social media tools such as Twitter and Facebook.
Others make direct mailings but are more closely defining their target areas. Some businesses just hope to keep their doors open. Some have closed.
At Central Garage in downtown Fort Myers, “we’re still doing direct-mail advertising, but due to the economy, we’ve probably cut back,†said D.J. Hutton, general manager.
Over the past year, Hutton has supplemented print advertising with e-mailed sales pitches; however, he believes no form of advertising is very successful lately.
“Electronic media is cheap and trackable. You save postage, save paper, save a tree,†said Ludmilla Wells, associate professor of marketing at Florida Gulf Coast University. She noted Southwest Florida still has consumers, however, “who like to hold something in their hands to read, rather than peer into a computer.â€
Postal Service health is still a concern
By Juliana Gruenwald CongressDaily July 30, 2009 While there is little disagreement that the U.S. Postal Service is facing a severe financial crisis, lawmakers voiced concerns on Thursday over the proposed solutions, which include closing some branches and possibly reducing deliveries to five days a week.
GAO this week said it was adding the Postal Service to its list of “high-risk areas” needing attention by Congress.
It said the USPS is facing a “deteriorating financial situation” and is on track to end the year with a net loss of $7 billion. Its financial woes are due to the ailing economy and declining mail volumes as more people and businesses bypass snail mail for e-mail, text messaging and other forms of electronic communications.
At a House Oversight and Government Reform Federal Workforce and Postal Service Subcommittee hearing, lawmakers pressed the USPS for details on what criteria would be used in determining which of the proposed 3,200 suburban and urban branches under consideration would be closed.
USPS acting Vice President Jordan Small said fewer than 1,000 post offices out of the list of 3,200 are likely to be closed. The criteria USPS will use in determining whether to close a facility is a branch’s proximity to other branches and the consuming habits of postal customers in that area.
He declined to give an estimate of how much would be saved by the closures and by eliminating Saturday deliveries. Small said USPS would have a better sense of the estimated cost savings in October when a study on such moves is complete.
But some lawmakers voiced concern about the potential impacts on their communities. “While I admit, the finances here are very grave … there is a need to conduct ourselves with, I think, a thoughtful approach … and do it in a way that causes the least amount of disruption,” Federal Workforce and Postal Service Subcommittee Chairman Stephen Lynch, D-Mass., said. Rep. Gerry Connolly, D-Va., said many of his constituents who have long commutes to work would be unable to visit a post office if they are not open in the evening.
Del. Eleanor Holmes Norton, D-D.C., chastised the postal service for taking too long to implement the necessary reforms but then quizzed Small on whether any post offices in Washington are on the list of possible closures. For the most part, business groups dependent on the postal service said they support the proposed changes if they will help ensure USPS’s viability.
But they voiced strong opposition to raising postal rates. Noting that the bad economy has hurt their industry as well, “mailers cannot shoulder another rate increase,” the Direct Marketing Association’s Jerry Cerasale said. Federal Workforce and Postal Service Subcommittee ranking member Jason Chaffetz, R-Utah, said lawmakers should consider providing USPS with economic stimulus funds and urged USPS to do more to make itself more relevant, perhaps through assisting in conducting the 2010 census.
Quick Action Expected On Senate Bill to Ease USPS Financial Crisis
APWU Web News Article #083-09, July 27, 2009
Quick action is expected on a Senate bill that would provide the Postal Service emergency, short-term financial relief, and APWU President William Burrus is urging union members to ask their Senators to support the legislation.
The Postal Service Retiree Health Benefits Funding Reform Act of 2009 (S. 1507), which was introduced by Sen. Tom Carper (D-DE) on July 23, would restructure the USPS obligation to pay retiree healthcare benefits, and would generate savings of billions of dollars over the next several years. The USPS is projecting a loss of $7.1 billion in Fiscal Year 2009, despite predictions that it will cut costs by $6.1 billion this year.
A Senate panel could act on the legislation within a matter of days. The Senate Committee on Homeland Security and Governmental Affairs is expected to “mark up†the bill at its next business session, on July 29. Amendments to the legislation could be offered and considered at that time, or by the full Senate at a later date.
Like its counterpart in the House of Representatives (H.R. 22), the Senate bill would help the Postal Service remain afloat for the next several years, although the methods for achieving that goal differ.
White House to Support Efforts
The Obama administration supports the restructuring plan, White House Deputy Chief of Staff Jim Messina told postal union presidents at a meeting July 24. The Senate bill reflects the approach the Office of Management and Budget (OMB) favors to resolve the crisis, he said.
The presidents of the four major postal unions had asked the White House to address the deepening crisis facing the Postal Service. Attending the meeting were APWU President William Burrus, National Association of Letter Carriers President Fredric V. Rolando, National Rural Letter Carriers Association President Don Cantriel and National Postal Mail Handlers Union President John F. Hegarty.
S. 1507 would reduce postal contributions to the Retiree Trust Fund for a five-year period, by:
$2.4 billion in FY 2009;
$2.5 billion in FY 2010;
$1 billion in FY 2011;
$300 million in FY 2012, and
$100 million in FY 2013.
However, in Fiscal Years 2015 through 2019 the agency would pay more than is scheduled under current law, with the increase intended to offset the reductions of FY 2009-2013. The Senate bill also would increase the Postal Service’s borrowing authority by $2 billion in Fiscal Year 2009 and Fiscal Year 2010.
In a statement, Sen. Carper said he hopes the bill will be enacted before Congress adjourns for its August recess.
Postal Officials Ponder Emergency Rate Increases
From the Dead Tree EditionThursday, July 23, 2009
Postal officials are spreading the word that they may seek emergency rate increases next year.
Various scenarios have been bandied about, including one that would raise the price of the 44-cent First Class stamp to 50 cents and other rates by similar amounts. But after several meetings with postal officials, the Direct Marketing Association is telling some members that the Postal Service is more likely to seek an “exigent increase” of only 2% to 3%, including only one cent for the First Class stamp, to help shrink its multi-billion-dollar losses.
Annual increases in most postage rates are generally capped by changes in inflation. Postal officials are realizing that deflation, especially the drop in energy prices since last summer, will probably mean no such rate increases next year, according to accounts coming out of meetings with postal officials. As Dead Tree Edition pointed out recently, USPS will not be able to institute normal rate increases in May 2011 unless the Consumer Price Index rises at an annualized rate of nearly 5% for the rest of this year.
That’s why postal officials are pondering an unprecedented “exigency-based” rate adjustment, which postal regulations allow “only when justified by exceptional or extraordinary circumstances.” Postal Regulatory Commission rules would also require USPS to discuss the circumstances leading to the proposed increases and “whether the circumstances were foreseeable or could have been avoided by reasonable prior action.”
The PRC would hold a public hearing on an exigent rate request and by law would have 90 days to decide whether “such adjustment is reasonable and equitable and necessary to enable the Postal Service, under best practices of honest, efficient, and economical management, to maintain” appropriate service levels.
The Postal Service, which is supposed to break even, is projecting a loss of about $6 billion this fiscal year. To close that gap, which USPS says will grow unless it takes drastic action, postal officials are also discussing plans with mailer groups and postal unions to transition to five-day delivery in the fiscal year that starts in October 2010. That would require Congressional approval.
The closing of thousands of post offices is a possibility, the consolidation of processing and distribution centers has recently accelerated, and USPS continues to shrink its workforce — all in response to declining mail volume that is causing the budget shortfall.
The meetings have also been an attempt by postal officials to shore up union and customer support for legislation that would reduce USPS’ unusually high pre-payments for retiree health care. The Congressional Budget Office estimates H.R. 22 would save USPS about $2.5 billion annually for the next three years.
Lousy economy has a bright side: Less junk mail
Editor’s note: As a direct marketer, you should see this drop in direct mail as a tremendous opportunity to get your message out there in a less cluttered environment!
By Christine Show
From the Orlando Sentinel
July 22, 2009
Sherry Batts used to sort through stacks and stacks of unsolicited mail, from credit-card offers to requests from charities.
But Batts, as a member of a nonprofit group that runs a tiny post office in the small south Lake County community of Ferndale, has noticed a sharp decline in such mailings.
“That kind of stuff I hardly get anymore,” she said. “There’s just not as much junk mail as there used to be.”
Credit-card mail, which spiked in 2006 to 8.3 billion pieces in the U.S., dropped nearly 35percent in 2008 to 5.4 billion pieces, according to Mintel Comperemedia, a Chicago firm that tracks the direct-mail industry. Direct-mail companies — which used to send unsolicited mail to virtually anyone — are now targeting specific customers to cut back on expenses in this difficult economy.
In a reflection of the struggling housing market, mortgage companies also have slashed mailings. Mortgage companies using traditional mail sent 203 million pieces in 2008, down 75 percent from 800 million pieces at the height of the housing boom in 2005.
“It’s fallen dramatically,” said Stephen Clifford, Mintel Comperemedia vice president of financial services.
These businesses have to rethink how they spend on the services to avoid taking big risks, Clifford said.
“There’s definitely a lot less direct mail than there was even a year ago or even six months ago,” Clifford said. “They’re being much more particular and selective of who they’re offering mail to.”
Companies want the most specific information they can get on potential customers — for example, whether someone has children, a swimming pool, a pet or certain ailments, said Ken Lombardi, owner of Action Mail Services in Orlando.
Such pinpointing is essential, agreed Jack Curtin of Tribune Direct, a direct-mail marketing company owned by Tribune Co., whose media holdings include the Orlando Sentinel.
“We lead with data to help them [clients] to understand who their best prospects are and target those prospects,” Curtin said.
Postal Service concerned
The industry’s changes have hurt the U.S. Postal Service, one of the largest avenues for direct-mail companies to reach customers. The Postal Service doesn’t record drops in direct mail but is aware of the situation nationwide, said Elaine Pancake, spokeswoman for Orlando-area post offices.
“It affects us in that we have a lower mail volume,” Pancake said. “There’s a concern.”
The Postal Service already is struggling with large deficits, including a potential $6.5 billion loss this year.
Besides declining advertising budgets, the Internet is playing a role in the dwindling direct-mail volume.
Marketing companies now have more options on how they can get the word out, including e-mail, text messages and Web sites to target specific audiences.
“Communication is more effective if you can do it over more than one channel,” Curtin said.
Low point?
One bright spot for direct mail may be banks. Hit hard by failed mortgages and foreclosures, they are pushing to increase new checking accounts, Clifford said.
So far in 2009, bank mail about checking accounts has reached its highest level since 2005 with 226 million pieces of mail, according to Mintel Comperemedia data.
“Despite the challenges banks are experiencing in this recession with mortgage losses, they are continuing to market checking accounts and savings accounts,” Clifford said. “They are looking for more deposits in order to keep sustaining their loan business.”
But Clifford said it’s too early to tell when and if the decline in the direct-mail industry will pick up again.
But as the industry continues to reinvent itself and recovers from economic turmoil, the numbers of direct mail may increase.
“Perhaps we reached the low point,” Clifford said. “It’s definitely anyone’s guess at this point.”
Advertising Will Change Forever
From Advertising Age July 20, 2009
By Josh Bernoff
Digital Spending Will Nearly Double in 5 Years, But Ad Budgets Won’t
Here’s one of the things we do at Forrester Research: we interview as many marketers as we can about their plans, identify trends and project future likely conditions, and then we put together some numbers to make a projection. If you’ve ever seen a Forrester projection, it comes from a process like this.
This means that inside every projection is an idea or ten about the future. Those ideas can be powerful, and they come from research with marketers and consumers.
My colleague at Forrester, Shar Van Boskirk, just published our five-year interactive marketing forecast. The idea inside it is the real kicker.
In this recession, marketers have learned that interactive marketing is more effective, and advertising less effective, per dollar spent. While budgets for online have decreased, they decreased less than other budgets. Six out of ten marketers we surveyed agreed with the statement “we will increase budget for interactive by shifting money away from traditional marketing.” Only 7% said “we have no plans to increase our marketing budget.”
Unlike the last recession, digital marketing is no longer experimental. Now it looks more like advertising is inefficient, relative to digital. More than half of the marketers we surveyed said that effectiveness of direct mail, TV, magazines, outdoor, newspapers, and radio would stay the same or decrease within three years. In contrast, well over 70% expected the effectiveness of channels like created social media, online video, and mobile marketing to increase.
The result is that digital, which will be about 12% of overall advertising spend in 2009, is likely to grow to about 21% in five years. Along the way overall advertising budgets won’t grow much.
This is huge.
It means we are all digital marketers now, since digital is at the center of many campaigns anyway.
It means media is in trouble, or at least in the middle of a transformation. For example, online video ads, which will be about $870 million this year, will grow to over $3 billion in 2014. What will this do to networks plans to put more of their shows online in places like Hulu. How will it accelerate some newspapers plans to become more and more centered around online?
And it means that social “media,” which will account for $716 million this year between social network campaigns and agency fees, will generate $3 billion in five years. And this doesn’t even count displays ads on social networks (which are in the display ads category.) Of all the parts of digital marketing, social network marketing one is poised for the most explosive growth.
Pundits have been declaring the end of mass media and advertising for years now. From my 14 years of experience analyzing this stuff, I’ve learned that things die very slowly, but there are real trends you can see. If you’re in advertising, you’d better learn to speak digital, because that’s the way the world is going.
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