List Firms Are Challenged But StableDavid, David, David, I find myself needing to respond to your recent article ("Deal Making Chokes the List Business," Nov. 4). While I have the greatest respect for you, Mr. Avrick, I think you may have developed a grave case of myopic vision, not to mention an even more serious condition known as unintentional misleadingitis.
You group together 16 companies, then paint them all with the same brush of bankruptcy and liquidation. Of the 16 cited, most were acquired or merged into larger companies and still operate today. For example, Database America is now part of infoUSA; Woodruff-Stevens is now part of MKTG Services; and Novus is fully operating as MaxDirect, a division of MaxWorldwide.
Though some did go belly up in the past five years, you also include events from one or two decades ago. And I know the Gelderman camp has already responded publicly that they are alive and well.
All businesses suffer bad debt. Bad debt is synonymous with risk. No risk, no bad debt. Someone once said the best way to reduce bad debt is to reduce sales. But to be in business means to take some risk. The question is whether the amount is reasonable. Most list companies suffer less than 1 percent bad debt, many less than 0.5 percent.
If you look at the financial performance of the list community over the past 30 years and consider the hundreds of millions of dollars in annual revenue, it is clear that the list business is the best run and financially secure in any industry, even when compared with the banking trade, and far, far better than the mailer community. On that note, it's interesting that you chose to imply that the list companies were going bankrupt or being liquidated when they have proved much more stable in terms of longevity than many of their clients.
However, despite the misleading opening, your comment that there are "simply not enough net dollars to generate a profit for the list manager or list broker" is very perceptive. I'll even go one step further and say that in today's competitive marketplace, managers and brokers are being squeezed like never before, and not just by their clients. For example: reduced prospect mailings, shrinking universes, the loss of sweeps lists and compiled files like driver's licenses and auto registrations, budgets lost to the Internet and more.
In terms of compensation, mailers and list owners often overlook the true value their list professionals contribute and pressure them into performing more work at lower fees. This, more than anything else, is what's "choking" the business, not list price negotiations. Clients (the list owners and mailers, respectively) need to be smart enough to understand the difference between "squeeze" and "choke."
It is my belief that list professionals contribute an incredible amount of value to their direct marketing clients. It is unfortunate for these professionals that their compensation is one of the few areas that mailers and owners can squeeze out some extra revenue. What they seem to miss is that squeezing to the point of choking will hurt everyone in the long run.
I agree that we are negotiating ourselves into a corner and that new ways of conducting business are essential. I also understand that no one wants to accept bad debt. I also will grant you that because of the nature of your list, you may be accepting larger orders from a higher-risk category of mailers. But, again, I think you are overexercising your hyperbole option when you wrote, "And list owners, myself included, will continue to write off huge bad debts."
I respectfully disagree with your proposed "flat-rate discount" based on volume as a solution to quell the negotiation madness. This is, after all, a free market, and if a broker wants to do a better job representing the mailer and the manager wants to serve the list owner's interest to the highest degree, both parties have a right to do so.
No one has a right to dictate what is and isn't fair. The marketplace is the final arbiter. Your proposal of a fixed percentage discount may be a map of your world, but it's not our map. It is not equitable from the mailers' perspective where large volumes often represent many duplicates and necessitate greater discounts.
The reality is that we can't micromanage macroeconomic forces of supply and demand. We can't control the response levels to mailers any more than we should try to control the compensation of list professionals. In a world where every list is a parity product, maybe then we could control things more, but we all know that is not the case.
Moreover, the same list can be more valuable to one mailer than to another. As long as each list represents different levels of opportunity to different mailers, negotiation is the only way to reach a fair price.
Still, as previously stated, I don't disagree that negotiations are getting out of hand. However, we need to spend more time identifying the problems, not just from the list owner's or mailer's perspective, but from the list company's perspective as well.
If you ask many list professionals today, "What is the most significant negative impact on your margins?" I suspect their answer would include a combination of elements, starting with the reduced commissions mailers and list owners pay for increased services they demand, such as more marketing, field representation, analytics, etc.
No doubt they also would comment on the tendency of many clients to end successful relationships on the promise of more services and better things from others. At least some list professionals are having the satisfaction of hearing that their former clients have learned, perhaps the hard way, that the grass isn't always greener and over-the-top promises are more myth than reality.
Enough of the dark side. I think there are other ways to strengthen the list rental marketplace that can represent a win-win for all parties. The List Leaders group, working under the auspices of the Direct Marketing Association, is evaluating a concept known as "Locked Rate" rental orders to replace traditional net-name arrangements and their burdensome back-end adjustments. This is just one idea. I'm sure there are others that could be equally effective.
The important thing is to maintain a healthy, competitive, free marketplace while minimizing redundancies and waste in our processes.