Outlook: A Futurist's View: Middle-of-the-Range Area in Danger
Here are 10 trends for consumer direct marketing and another 10 for business-to-business DM.
1. Price chasming. The national obsession with price will divide the marketplace further. The low end of the market will continue to be consolidated by mega-big-box discounters while the high end increasingly will become the domain of small, specialty merchandisers. The chasm forming, however, is the middle of the market. Catalog companies that serve the middle range will be endangered as the market polarization accelerates and deepens. This pressures catalog marketers of undifferentiated, commonly available products to compete either on price or on exclusivity. Either choice requires a dislocating shift in market positioning.
2. Proprietary products. The need for product differentiation in order to migrate to the high end of the market and to sustain margins will demand development of proprietary, exclusive and unique products. Direct and catalog marketers increasingly will find it necessary to take on more of the manufacturing aspects of products and less of the pure reseller or distributor aspects. To develop the essential high-end market position, product research and development will mean far more than simply "sourcing."
3. Web driver mailings. The definition of mailings will begin to change. Where full catalogs routinely were used for prospecting, a shift will be seen in mailing what I call Web drivers, or mailings designed to move prospects to the Web site, either home pages or pre-drilled down to landing pages where specific product deals are featured. Web drivers will be tested and will consist of e-mails, letters, postcards, dimensionals, inserts and other collateral mailings. The need for prospect names will increase, and response lists will be the main source of names, but the physical mailing will begin to change based on the phenomenal increased velocity and momentum of Internet shopping seen over the 2003 holidays.
4. Local marketing. As catalogers and e-marketers begin to compete viciously with retail, the need will grow for local marketing with segmentation to the neighborhood level. My rationale for this is discussed in depth in the DM News CD/DVD "The Wal-Martization of America and the Rebirth of Direct Marketing." DMers who do not move to the local level in 2004 will be another year behind in gaining share from the retail channel.
5. Economic profiling. Mailings and Web drivers increasingly will be adjusted by economic profiling, both for the individual consumer at the local level and for the regional economics. As we search for the best economically performing communities, we also will look for the best economically performing individual consumers, as evidenced by profiles of savings, mortgages, disposable income and other indicators of available dollars for our high-end, proprietary-product offers.
6. Web velocity. The Web has reached nearly 50 percent of orders for many consumer catalogers and direct marketers. The velocity is powerful and about to become dominant. If the same velocity of advanced Web marketing development is not accomplished by consumer DMers to respond to this channel velocity and dominance, then you are obsolete and should look for a place to be buried.
7. Channel integration. 2004 is the year DMers realize and accept that they must integrate all of their channels so that there is one, unified and coordinated message to one customer. The Web has made this occur much faster, but it has accomplished what had not been done previously: integrated offers and operations across all marketing channels. We no longer are simply catalog, Internet, telemarketing or retail store divisions; we are all those channels uniformly, and we have one face, one position, one mission, one message.
8. Co-op exhaustion. The effectiveness of mass, co-op databases will continue to decline as more and more companies use them. This year will begin a return to the use of quality response lists on a one-to-one basis. More names will come to the lists as the economy strengthens and the Web drivers deliver new names. This will put a premium on the trusted-adviser relationship that catalogers and direct marketers have with their list brokers and the exclusivity of those relationships. It also signals the start of an era of higher list rental costs. As the Abacus-inspired co-ops fade, the pure response lists rise again like the Phoenix, but they will be expensive. And they should be.
9. Ad dollars shift. At the high end, among larger direct marketers, the dollars will shift from catalogs and other mail to direct response TV (short and long form), cable and television advertising, renewed experiments in space advertising and other "deep reach" media. Again, with integration these media become Web drivers.
10. Small consolidations. There are 23,000 catalogs in the United States. Nearly all are small companies. Among the top 100 catalogs, you only have to drop down to No. 62 before annual sales fall below $300 million. The No. 100 catalog is only $120 million. This means 22,900 other catalogs are way below $120 million in sales. These are the catalog companies ripe for what I call "small consolidation." Firms with small universes of customers will look for others with adjunct universes. Investment groups are hungry to place money that has been dormant for a few years, and catalogs remain a better growth vehicle than almost any other space.
1. E-mail acceleration. E-mail works in business-to-business. It will expand in both access and effectiveness in 2004. We will learn how to control its use and how to establish relationships via e-mail that are desired and beneficial. This is not spam; this is real e-mail marketing, and it works. E-mail list costs will stay stable, but more names will be available as we begin to evolve this channel rapidly. Costs will begin to rise when the effectiveness is proven and the customer retention is proved to be equal to other prospecting and customer channels.
2. Strong consolidation. Strategic BTB companies at the top such as NEBS, Taylor Corp., W.W. Grainger, Henry Schein, CDW Corp. and School Specialty will continue to acquire companies that can produce top- and bottom-line growth. They have to. Similarly, small catalog and direct marketing companies desiring long-term growth will acquire micro-companies in the under-$5 million range to drive their strategic plans. But the real opportunities are for the middle-market catalog firms that can choose either to be acquired or can be the acquirer.
3. Wholesale channel. This is the year many BTB companies explore the potentials for the wholesale market. The wholesale channel is market share that can be gained. It is also about larger average order values and not relying on one or two line item orders. Some catalogers and direct companies will discover that with the same costs they can drive orders that are 50 times larger, and that makes the lower margins palatable. After all, you already have the operational and fulfillment capacities in place.
4. List values. As co-op effectiveness fades and pure BTB response lists reclaim their place, list owners will raise prices for list rentals. Lists with integrated channel customers will command princely prices. We are about to see BTB firms emerging from the 10th and 12th year of Internet marketing and e-mail experimentation. Those that emerge from their pupae as fully developed multichannel, integrated, 2004 butterflies should charge more. Those lists are gold.
5. House list modeling. This year will bring sophistication and advances to modeling of house lists similar to those that have been done for co-op and proprietary prospecting databases. When we focus on the house list and find sophisticated segmentations on an integrated channel basis, we begin to see why No. 4 above is justified.
6. 50 percent Web. BTB surpasses 50 percent of all orders on the Web this year. For advanced marketers, that level is nearly within reach; a few are already over 50 percent. If you have been waiting to see whether this is really a trend ... wake up!
7. Automated stocking. Many BTB companies will introduce automated reorder programs that ensure level-stocking programs for their customers. All of this will be accomplished on the Web and via e-mail. The whole macro-world of supply-chain logistics will be brought to bear to drive retention, price control and to resolve the massive problems that will be coming because of recent changes to the interstate trucking rules regarding truck driver productivity.
8. Inventory turns. If you are doing four inventory turns a year, you will have to do eight. If you can't gain 50 percent in inventory turns, you are not evolving your efficiencies and managing inventory competitively. Regardless of the amount, you have to focus on inventory turns and improve them.
9. Branding. Direct marketers, both BTB and consumer, increasingly are moving to proprietary, branded products. You need your own line of products for price differentiation and customer loyalty. This can be as simple as having one of your manufacturers private-label or explore self-manufacturing. Catalog and DM companies that brand increasingly over the next years will be ahead of the curve and add to their business valuation.
10. Sourcing offshore. Unfortunately, more offshore sourcing will occur for BTB marketers. As branding increases, so do trips to China and Mexico in all probability. It's about margin.
This is what I see for this year. We'll look at it in 2005-06 and see whether our 85 percent accuracy continues. It probably will, as these are all obvious and common-sense trends. How do you score?