List Business Needs Fundamental ChangeThis letter was edited for space.
Though David Avrick does an admirable job of pointing out problems and potential solutions from the list manager and list owner viewpoint, he has only scratched the surface ("Deal Making Chokes the List Business," Nov. 4). I agree that the list business is at a crossroads. However, the fundamental models must change for list brokers, managers, owners and mailers to have a viable industry in which value is added with every participant and vendor in the chain.
As my firm is in the list brokerage business, I wish to address some of the issues that list brokers face. First, conflict of interest. List brokers are compensated in the form of a commission from the list owner, not the broker's client (the mailer). The better job we do as brokers in negotiating pricing, nets and discounts on selects, the less we are compensated. This has led to terrible behaviors on behalf of the list brokerage community. To attain a gross margin percent that can sustain a viable business, brokers often negotiate discounts and pass on only part of this (or none of this) to the mailer. Brokers negotiate lower pricing in several forms, and the result is that the mailer never realizes the full benefit. Some list brokerage firms compensate brokers based on the gross margins that they can attain.
We are in direct conflict with the clients for which we are trying so desperately to do a good job. The fundamental role of the list broker is to maximize the mutual benefit of the relationship between mailer and list owner. The broker bears a responsibility to both the mailer and the list owner regarding efficiencies, cost-effectiveness and long-term value potential for the lists that they include in clients' mail plans.
Commission paid to brokers by list owners is essential compensation for services rendered to the supply side of the transaction. List owners rely on professional brokers to create and manage long-term customer relationships with mailers. The commission paid needs to be recognized as fair and just compensation to brokers for packaging and delivering the appropriate segments of the list owner's files to the mailer.
The best list brokers recognize that quality of their efforts is manifest in their marketing vision, their ability to convey the mailer's goals to list owners, their ability to negotiate mutually favorable terms and their ability to maintain access to the best list sources and segments for their clients. Mailers rely on brokers to deliver highly responsive prospects just as list owners expect brokers to package their very best prospect sources for delivery to the mailers.
A possible solution is that the list brokers are paid a fee for the list purchase and an additional fee as a percentage of any discount that they negotiate. As an example, if a broker can reduce the mailer's costs 10 percent while maintaining or elevating quality, perhaps the broker should be compensated at a rate equal to 20 percent of the cost savings. This places the list broker and the mailer on the same side of the table and recognizes the value of the broker's effort on behalf of the mailer while maintaining transparency.
Second, the payment issues. List brokers are expected to receive payment on a transactional basis. If the list purchase is made, the broker gets paid. As brokers, we do an inordinate amount of work on the front end of a campaign and produce a work product that requires specific expertise, specialized systems and hours of manpower.
Brokers and their mailer clients need to recognize the cost and value of the products produced and establish a basis for compensation in the event of cancellation or delay. If the campaign is eventually placed and the media purchased, brokers will deduct previously paid fees from the final campaign invoice. I do not advocate getting paid twice. I advocate getting paid once rather than not at all.
Third, payment timing. List brokers have inherited a failed model of accounts receivable. The accepted model is that brokers are paid 30, 45 or 60 days from the mail date, when in many cases the list recommendation and the list plan are finalized two to three months before the mail date. Let's consider paying list brokers when their deliverables are completed. Let's consider having the AR trigger 30 days from the time when the list recommendation is delivered or finalized, or at a minimum 30 days from the time the lists are ordered.
Another possibility might be that the list broker is paid 20 percent of the media buy at the times mentioned above with the following 80 percent collected on behalf of the list owner at the time of the mailing.
As Mr. Avrick mentioned, negotiating deals has become a "blood sport" as many brokers compete for business with better pricing being the lead benefit of their services. If list brokers continue this ridiculous commoditization of their services rather than forging fundamental change in the way our industry is run, the blood on the floor will be our own.
Larry Weissman, President, chief operating officer, Direct Response Marketing Labs Inc.