Tribulations of the List Industry

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I am an owner of a list marketing organization and I am an optimistic prognosticator -- even facing adversity, as we do today.


The views herein will be colored with optimism, while shaded in realism and pragmatism. To those cynics out there ready to scoff at predicting the future, I agree with you wholeheartedly and offer as evidence the following comments made by individuals who, in retrospect, could hardly be regarded as visionaries:


"This 'telephone' has too many shortcomings to be seriously considered as a means of communication. The device is inherently of no value to us." -- Western Union internal memo, 1876.


"Who the hell wants to hear actors talk?" -- H.M. Warner, Warner Bros., 1927.


"I think there is a world market for maybe five computers." -- Thomas Watson, chairman of IBM, 1943.


"The concept is interesting and well-formed, but in order to earn better than a 'C,' the idea must be feasible." -- A Yale University management professor in response to Fred Smith's paper proposing a reliable overnight delivery service. Fred Smith went on to found Federal Express Corp.


Foreseeing the evolution of anything, of course, is not easy, and where humans and communications are involved, confident prognosticating is even more challenging. The discipline of list marketing, with all of its nuances and idiosyncrasies clouding the horizon, is also difficult to affix with a long-range perspective. However, there are certain influencing factors.


The forces of economics. All industries, direct marketing notwithstanding, are feeling the weight of a tightening economy (dare we say recession). The stock market is down; the dot-coms are going through industrial liposuction; layoffs and unemployment are up; and consumer spending is down. We are all facing a digital Darwinism: If we fail to adapt, we will become extinct.


Direct marketers are paying more to be in the mail and are seeing less return in the form of response rates and average order size. Many mailers have diverted funds from traditional direct mail into the Internet. And while few, if any, have figured out how to make the Internet work, all believe that they need to be there in some form.


Even on the Web, the signs of decline are clearly marked as evidenced by the rise and fall of banner advertising (some say banners are dead) and the failure of e-mail as a prospecting tool. As if the evil forces of the economy were not enough, other trends are at work within the business that even this optimistic prognosticator finds disturbing. For example:


Escalating costs, privacy concerns and credit crunches. Bad debt has grown. While bad debt for list rental remains very low -- less than 1 percent industrywide -- you now see it in many market sectors: cataloging, publishing, business-to-business and others.


Mailers struggle to contend with the rising costs of doing business in the direct mail industry. Some are paying slower than ever. In response, some list owners are tightening their credit terms for mailers. (Note: It is amazing how quickly and seamlessly mailers/list owners can switch hats -- most list owners are mailers and know what it is like on the other side). Whereas previously, owners extended credit for their lists' rentals, their terms now often include cash with orders or guarantee of payments.


Privacy issues at odds with technology. The privacy genie is out of the bottle and will not go away. Let's take a brief survey: Would you like to provide some personal data via the Internet for what is ostensibly some companies' marketing purposes? The majority of consumers and even businesses see little to no value in providing their personal data for the marketing purposes of another business. This has not been lost on our legislators, who have seized the moment and the limelight to protect their constituencies by introducing privacy legislation galore.


From restricting the use of information obtained from credit card applications, department of motor vehicle records and the U.S. Postal Service's National Change of Address cards, to new telemarketing regulations and government-restricted phone number listings, the once large and seemingly infinite pool of data is drying up under the intense heat of privacy policy. Student information, Social Security numbers, "credit headers," health data -- it has all gone bye-bye. And what about sweepstakes names and addresses, the plankton of the direct mail ecosystem? Where have you gone, sweet data?


Blame it on the Internet. The fear of the Internet as the ultimate invader of privacy, seducing us to reveal the intimate details of our lives, has drawn the world's attention to direct marketers. And even though the Internet is rumored to be dead (it is, at least as a marketing tool for cold prospecting), it has done irreparable damage to traditional list marketing.


Well, even without the privacy war being waged, technology (i.e., the Internet, wireless, etc.) has met its nemesis in what can only be regarded as a too much, too soon syndrome. There is more technology available than practical applications for it. (Have you bought a high-definition TV yet? Are you burning your own compact discs? Have you actually used your wireless Palm to get stock quotes?).


Riding the wave of the future. I once read that a trend is like a wave. It is a whole lot easier riding it in the direction it is going. For the list business to experience more endless summers than bleak winters, you must identify the more significant trends influencing your future and accommodate them with new attitudes and business models. Following are some of the most important trends and how those within the list industry should ride them:


• Clients will look to outsource more marketing functions. This work will go to list companies or advertising agencies or whichever best fits the clients' needs. List companies will assume a broader and more strategic role in supporting client-marketing programs.


We are well-suited to help our clients do this. No one understands this better than we do. Clients needing to mail smarter will expect a more integrated and customized approach to their direct and Internet marketing, encompassing more response modeling and regression analyses. This evolved role will place a greater emphasis on helping clients to better service existing customers and their overall relationship marketing programs.


• Amid growing privacy restrictions, marketers will seek out alternative data sources to mitigate the shrinking pool of prospects. We will be the ones who find them. List companies will need to cultivate and offer marketing databases, in addition to using the Internet for self-contributed survey/data collection and e-mail list development. We will help mailers build more proprietary databases in order to raise the mailers' margins. Concurrently, list managers will help owners earn more income by building more public use databases through file aggregation.


• To survive, more and more list companies will be merging -- not merge-purging, though there is sure to be plenty of that. To meet the needs of their marketing clients (i.e., provide them with more value-added services), retain clients and create higher profit margins by eliminating redundancies, smaller list companies will have to become part of larger ones. It is the way of the world and happens in mature industries everywhere.


• Competitors will find new ways to work together such as joint thematic advertising or a joint display at trade shows. Competitors will join forces to develop a centralized Web site for exchanging data. This information nexus, with its open and closed pass-coded entry points, will reflect the more symbiotic relationship among brokers, managers and service bureaus, each of which gain a greater appreciation for the others' importance in the equation.


As part of this higher level of cooperation, e-mail will be used for list promotions to keep operational costs down. Also as a cost-saving measure, the Web will be used for research (i.e., what mailers are doing, who is mailing what, list selections, list counts from service bureaus, etc.), and for online list ordering.


The level of cooperation, in the most ideal world, will give rise to an environment where today's tendency toward overnegotiation of fees is frowned upon. As everyone knows, in today's market, the harder a broker works on behalf of his client (i.e., fewer selections and names for a more targeted mailing list), the less compensation he earns. Tomorrow's compensation system will establish more equitable practices based on performance. Mailers will reward brokers by the results they achieve.


Some in the list industry are probably shaking their heads and thinking that list companies venturing into new relationship marketing territory is not practical or that a centralized database is unrealistic, no less new industry standards. However, things are different from last year, and the status quo simply will not do. Clients are demanding more. Retaining them, acquiring new clients and becoming more profitable requires a broader vision and the changes needed to fulfill it.


List marketers are some of the industry's brightest and most talented marketing professionals. We have the skill sets clients must rely upon to grow and survive. We are well-positioned to grow in this adverse economy, but we need to do it together in a spirit of cooperation.
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