Insert Media Pushes the Envelope
While postage rate increases, lack of hotline names and solo direct mail costs all benefit insert media, many practitioners would rather tout the response rates and revenue that programs generate for mailers.
"Just as in traditional direct mail, insert media testing has led to a tremendous depth in understanding of what the necessary ingredients are for a mailer to conduct successful insert media campaigns," said Dean Barile, managing partner at American List Counsel, Princeton, NJ. "Their success breeds confidence in the industry, which has led to an increase in the number and types of insert media programs and insert media marketers."
Still, some mailers refuse even to test insert media, as Jeff Holland, vice president of new media development at Singer Direct, Scarsdale, NY, and co-chair of the Insert Media Council, explains in his column on page 32.
"Many large companies with a substantial number of customer touch points remain on the sidelines," Holland wrote. "In several instances where I have had some personal experience, I have found these companies to harbor archaic notions as to the impact inserts will have on their image."
In preparation for the Direct Marketing Association's third annual Insert Media Day on Wednesday, DM News talked with Barile and other insert media professionals about the state of the insert business.
It's evident from the number of new insert programs entering the market over the past few years that the medium is increasing in popularity. Why?
John Ahern, senior account executive, insert media division, MKTG Services, Newtown, PA, an affiliate of CBCInnovis Companies: I attribute the increase in popularity to the low cost relative to list rental for advertisers to reach their target market. I also think advertisers are looking at the medium and respecting it more since the name change (to insert media from alternative media) and the launch of the DMA's annual Insert Media Day in 2003. Mailers are realizing the medium is here to stay.
Barile: Today's insert media professionals have made the case that insert media is no longer an "alternative" choice to solo mail, but an integral component of an overall direct marketing strategy. All communications with customers and prospects have inherent value that can be leveraged for additional revenue streams generated by marketers seeking to affordably acquire more customers.
However, the number of new programs is only half the story. Our increased focus and experience with the medium has led to a vast increase in the number of mailers using it as a means of prospecting. Just as in traditional direct mail, insert media testing has led to a tremendous depth in understanding of what the necessary ingredients are for a mailer to conduct successful insert media campaigns. Their success breeds confidence in the industry, which has led to an increase in the number and types of insert media programs and insert media marketers.
Fran Golub, senior vice president/list management, Walter Karl, Pearl River, NY, a Donnelley Marketing and infoUSA company: In terms of new programs, it's a simple matter of revenue, revenue and more revenue. With shrinking hotlines and tougher net name and pricing negotiations, it's harder to make money on list rental alone.
Managers and mailers are realizing that including inserts into their outbound packages and customer direct mail communication vehicles is an easy way to earn revenue with very little work and offer their customers "added value" products from synergistic offers.
In terms of mailers using insert media, that, too, is a result of shrinking budgets. Why spend $125/M plus postage to mail your piece when you can target that same audience on a hotline basis, when they're most receptive, at 50 percent of that cost?
Michael Puffer, CEO, Echo Media, Atlanta: Two factors: vendors looking for incremental revenue and the clients' never-ending search for new and effective media. Any company that has to mail a catalog, statement or product can create a profit center by selling third-party inserts to help offset those costs. As many new companies are learning, the revenue can be substantial. Any option to help offset costs should be examined as mailing costs continue to rise.
In addition to the revenue generated through straight insert sales, many vendors are also developing strategic partnerships with clients that can increase sales for their own products.
On the client side, any program that mails to a targeted demographic, a responsive buyer or has a guaranteed opening rate is always appealing. These programs generally will allow only a couple of inserts, which will again go to better exposure. There is also the implied endorsement associated with riding along with another company.
With brand clients such as Dodge, P&G and Home Depot starting to use these outlets, and thus legitimize these channels, I anticipate a much larger participation from non-direct response clients.
Jim Zuckermandel, president/CEO, Zed Marketing Group, Edmond, OK: A combination of greater education (by brokers and managers in the industry directly involved in insert media), better coverage by the media and simple observation. Advertisers/mailers and catalogers are observing the increased usage by their contemporaries in the industry, and that breeds interest. They say to themselves, "Golly, if ABC Company continues to use this media, it must be working. Maybe we can make it work as well."
Certainly, the apparent decline in response rates from traditional list rentals has contributed to the increased consideration of insert media.
Do you think the postal rate increase for 2006 will have a positive effect on insert media use?
Ahern: I think it will definitely have a positive effect. One benefit of insert media that I have been preaching for the past 12 years is that advertisers can reach their markets for a flat cost per thousand and the postage is included. With yet another postal increase coming, advertisers will need to consider testing insert media as a way of maximizing their marketing dollar.
Barile: Given the overall increase in insert media's popularity over the past few years, it would be fair to say that our industry will see a boost further fueled by the postal increase. However, it will be difficult to discern exactly how much of the boost can be attributed to rising postage versus increasingly popular programs. Consider the impact that the print industry can have. Many of today's users of insert media were offshoots from the print advertising arena. As on-page print ad sales continue to increase, it is probable that many marketers will develop an insert media campaign to supplement their marketing efforts only to further increase usage within the industry.
Generally, insert media doesn't experience the severe peaks and valleys in business cycles that direct mail does, mainly because the advertiser does not shoulder the postage costs. While the vehicle itself (package insert, catalog, co-op, etc.) must pay increased postage, the increase is absorbed by the consumer or shared amongst the mailer and the many insert marketers so the individual increase is minimal.
Golub: It will. Every time there has been an increase in postage, we've seen an increase in usage of insert media of all kinds. However, mailers are already aware of the necessity to include these in their media mix. They are testing now for rollouts once the increase takes effect.
Puffer: I am not sure that anyone can look at the increase as a "positive," but anytime you have a postal increase, there is a corresponding interest in co-operative efforts. Insert media tends to get more attention as vendors and clients look for ways to offset the increased cost of doing business. Sharing the costs of a mailing is certainly one of the most effective ways to minimize the added expense.
Package insert programs, cooperative mailers and blow-ins/bind-ins have been around for a while. What are some of the newer varieties of programs?
Ahern: Statement stuffers have increased in popularity recently. An advertiser can reach a prospect by placing the insert into their credit card, utility or phone statements. The key to this form of advertising is that the recipient must open the statement, so the chances that the inserts will be seen and responded to increase. Also, co-op programs targeting specific ethnic groups have become very popular in the past three to four years.
Barile: Where there's a physical touch point, there's a chance for marketers to benefit from the customer relationship. That's why we've seen several "newer" programs come to the market such as statement programs, bangtails and polybag ride-alongs.
Golub: More magazine clients are allowing inserts into their billing statements and renewal programs, though many start doing so in the third efforts so as not to decrease response.
We have catalog clients, such as Ashro Lifestyle, an African-American apparel catalog, who are taking on-page advertising from mailers who are already in their insert programs or do not have an insert piece.
The cost is far less for the advertiser than if they went into a magazine, and it is targeted to a mail-order buyer. We are doing the same for Crafts Americana, which has various craft catalogs, and are working with our other catalog clients to do the same.
Though harder to track, in-store package handouts where larger pieces and samples can be included are interesting vehicles for some marketers.
Puffer: More Web-based purchases are carrying package inserts. Along with e-commerce, we have seen tremendous growth in niche market opportunities, particularly in the Hispanic and senior market segments. New opportunities seem focused around the statement channel.
We are seeing a large amount of interest from medical suppliers that have a catalog and an online presence and think that could be a growth area over the next several years as the population ages and medical costs rise.
Zuckermandel: Product sampling is probably the largest growing segment in insert media at this time.
Obviously, Amazon.com putting a package insert on the market was a coup for insert media. Have you seen many other Internet-only retailers following suit or showing interest?
Ahern: Actually, Amazon.com was not the first Internet-only retailer to test this medium. BarnesandNoble.com and CDnow.com beat them to that a few years ago. However, Amazon.com is now fulfilling CDnow orders, and I haven't heard much about Barnes & Noble recently. I hope Amazon.com succeeds so other Internet-only companies follow suit. If I have any criticism at all about it, I believe Amazon.com's program is overpriced. While typical insert media CPMs are $55/M-$65/M, Amazon.com has a CPM of $100/M. That may be too rich for some advertisers' blood.
Barile: There are quite a few Internet-sourced programs: Barnesandnoble.com, Circuitcity.com, Overstock.com, Ticketmaster.com and Vitacost.com, to name a few. Having talked with many Internet retailers, it's safe to say that more will add insert media to their multichannel marketing programs both in terms of offering it as well as using it to drive traffic.
Golub: Many Internet-only retailers drop ship their products from various fulfillment houses, which makes it difficult to manage. Those who ship their products from a central location with at least a 20,000 per month quantity should consider insert media. We are discussing this with a number of major Internet marketers now. Since they are unfamiliar with these types of programs, they need to see how it benefits their consumer and that it will not decrease response to their own advertising efforts. In most cases, it's just a matter of educating them.
Puffer: Most e-commerce programs on the market are offshoots of traditional catalog or retail players moving onto the Web. Several smaller Internet-only retailers are putting package insert programs on the market -- Alphacraze.com, Cooking.com, Databazaar.com, Drugstore.com, Gamestop.com and Snapfish.com, to name a few. Internet-only retailers are getting more comfortable with the concept of allowing third-party advertisers to ride along in their packages.
What hurdles does the insert community still face in terms of broader use and availability of programs?
Ahern: We need advertisers to get over the idea that insert media doesn't work. I was at a seminar last year, and an advertiser claimed they knew insert media didn't work because they already tested it. I asked what they tested. The advertiser said they tested a card pack "around 17 years ago, before I worked here." They didn't know what card pack, what their offer was or what time of year they tested. So, because this advertiser heard his company tested an unknown card pack with an unknown offer at an unknown time of year somewhere around 1988 and the results were not good, insert media doesn't work. Ridiculous.
As far as availability of programs, many companies are wary of allowing inserts into their correspondence because they are afraid it will cause a decline in their own sales or may diminish the look of their package. My answer to that is to test it.
Barile: A high hurdle is the inability to offer more segmentation. Insert media's inability to provide targeting selectivity can be limiting.
However, I believe that certain types of programs will slowly begin to move in that direction. As lifetime values continue to slide, many marketers are looking for ways to relate to their buyers on a more personalized, one-to-one basis. These can include all points of contact from the time customers receive new catalogs to the time they open their packages. Technology advancements in print and fulfillment segmentation are necessary to allow marketers to speak personally to customers at these moments. I believe we will start to see some insert media programs offer segmentation by virtue of the owner's necessity to do so.
Golub: The biggest hurdle is convincing mailers that these programs are tremendously cost effective -- even though the response rate is below that of direct mail. They need to see that insert media also creates a virtual endorsement of their product by the program owner, which can be tremendously beneficial to their response rate.
The other hurdle is ensuring that these programs run smoothly, ensure inserts get inserted on a timely basis and reporting and billing are done correctly and efficiently. Many inserters cannot find out whether their pieces shipped on time, which hurts their ability to track response.
Puffer: Scale is the most significant issue that insert programs face. While many programs offer terrific targeting ability, brands want scale and rollout potential. A program with 300,000 annual packages will not make it onto a review plan. The inability of many programs to market-select or market-omit is another key concern for financial and insurance brands that have rate and legal requirements that may be state specific.
Zuckermandel: If more advertisers/mailers step up to the plate to try this media, more programs will open up to accommodate their needs. It is difficult to open a new program on the market if you can't identify players that may want to participate in it. It's not so much a case of "build it and they will come" as it is "come forward with a desire and the programs will become available."
It has been said that list owners no longer view list rental income as incremental but now rely on it. Is that the case with income from insert programs?
Ahern: It depends on the size of the program and the size of the company. I previously worked for one of the largest music continuity companies in the country, and insert media generated $10 million a year but it was just considered a line item in their budget. On the flip side, I managed a catalog company that relied heavily on both list and insert income. Different companies view the importance differently.
What I have seen lately is that many companies will only accept inserts that are more brand aware to their own products, so they are willing to turn down revenue to keep their packages and customer correspondence looking the way they want it.
Barile: As insert media programs continue to generate significant revenue (in some cases hundreds of thousands of dollars), owners increasingly rely on this profit center. At first it's extra income, but soon thereafter, companies plan and spend against the income they expect to receive, as they should.
Golub: Yes, insert media income can be almost as important as list income, depending on the size of the program and the amount of inserts allowed into it. It's low-hanging fruit that is part of almost all of our clients' bottom-line revenue. Almost all of our catalogers have allowed us to create blow-in and/or insert programs for them, and they have come to count on this income as well in their own advertising budgets. That revenue can fund an additional mailing, e-mail effort or fund the cost of an e-mail append.
Puffer: It seems to be less true. Package inserts, ride-alongs and statement inserts in particular reflect the brand they arrive alongside. There is an implied endorsement of the materials carried to the consumer. If owners begin to depend on this income, they will have less flexibility to reject creative that is outside of the image they want to portray. That is a dangerous place in terms of a business model, both financially and in terms of marketability.
That said, no one wants to walk away from money straight to the bottom line, and P&Ls are built around the channel internally, so there is definitely an expectation associated with the channel as a moneymaker/cost offset even if there is no reliance per se.
Zuckermandel: Oftentimes yes, especially in the larger programs where revenue represents significant dollars.
What do you think the next two years will bring in terms of innovation in insert media?
Ahern: I think there will be a boom in the number of new users. It's basic economics: If an advertiser can reach a specific audience and get a decent response for a fraction of the cost of list rental, it is in their interest to test it.
Barile: Leon Henry (of Leon Henry Inc.) and I have been working closely with the DMA & Global Insight to publish statistical information in the DMA's upcoming economic impact report. Our goal is to provide not only statistical data on revenue, employment and market share, but also predictability models and response data that can be used as tools by direct marketers. This will attract more of the traditional direct mailers, who rely on research and analysis, to the insert media sector of direct marketing.
Golub: Perhaps interactive TV ads, where you can purchase while you watch the ad (not the same as HSN or QVC).
Retailers will start more loyalty clubs, which will involve special offers and coupons via the mail to their customers -- an easy way to reach a loyal buying audience with targetability.
Puffer: Internet, nontraditional direct response clients and the challenges of higher production costs are all influencing the direction of insert media. As new clients and industries discover the opportunities available through insert media and start realizing its effectiveness, new opportunities will present themselves.