Putting the Pressure on List Brokers
All service providers in the list and insert brokerage industry face rising costs. But, in addition, their customers expect them to take lower commissions. Sometimes the costs can be passed on. Sometimes, computerization reduces costs for the short term. But many times, the cost has to be absorbed by the broker.
The trend toward clients requesting volume discounts from list and insert brokers presents a problem that is industrywide and should be dealt with in that fashion. However, it probably will not be. The decrease in commission revenue will affect the future of all brokers and eventually the mailers and list/program owners.
List brokers and insert brokers have only their knowledge and contacts with which to establish and build their businesses. Whether a broker is independent - which is increasingly unlikely, given the high level of service that needs to be provided - or part of a small, medium-sized or large brokerage firm, each broker is judged on his success on behalf of the mailer.
The mailer looks for results that hopefully exceed the advertising expenditure. The knowledgeable broker should be able to provide the extra results or limit the downside based on the experience brought to the mailing plan.
Mailers know that competition for their business creates the atmosphere for commission cutting. What they fail to see is that the incentive for the broker, with rare exceptions, is greater commissions. The broker brings his expertise with similar marketing situations and advises the mailer on where to spend most effectively. It may be a cliché, but which doctor would you want to operate on you, the intern or the experienced practitioner?
Most brokers also look for deals for their mailers. They search out new list and insert owners to be first to use the new properties. They often extend credit actively, if somewhat reluctantly, to new mailers. Brokers and their assistants do extensive negotiation and follow through with the list managers and owners on behalf of their mailers. In many cases, brokers are de facto marketers. In some cases, they have done it before and can bring their mailers the experience necessary to be successful.
Brokers also provide analysis for their mailers. The broker prepares reports that mailers use internally and, in some cases, need to be interpreted by comptrollers and presidents of the mailer company in addition to the marketing department.
When the broker negotiates for lower base prices, the commission is lower. If the broker suggests raising the commission, the average mailer undoubtedly will say that the broker's service can be obtained elsewhere at a lower price.
None of this is new, and it is not meant to sound like complaining. The brokerage community thrives on competition, most of which is honorable and creates a larger source of business for everyone. However, squeezing beyond a point will be an issue everyone in the industry will have to face.
This issue is not like postage going from 33 cents to 34 cents. The issue is real money that evaporates when commissions go down. Where are the brokers' cost savings to offset the drop in their commission revenues?
The list brokerage community is necessarily a high-cost industry because most deals are done in person or by phone, fax or e-mail. The computerization that helps defray costs in the securities industry, for example, does not apply to this industry for this reason, as well as the service needed throughout the life of the job.
In the insert industry, there is even more service needed over the life of the distribution of the inserts, hence more cost associated with each distribution.
The future of the direct marketing industry was not undone by the Web or by e-mail. For a short time - two years - many brokers benefited from the unimaginable spending by dot-coms.
The future of mailing list brokers depends on their efficient use of knowledge and experience equitably paid for by the mailer.