SAO PAULO/NEW YORK — Brazil's economic and fiscal crisis that saw the real plunge by as much as 44 percent has put many planned or contemplated US DM projects on hold but may prove to be a boon for Brazil's direct marketing industry.
“Obviously a red flag has gone up in terms of American DMers looking towards Brazil,” Tim Ohnmacht, international manager for Sussix, WI-based Quadgraphics, a billion dollar printer with joint ventures in Brazil and Argentina, said. “Some of our customers who were very interested in entering the Brazilian market have now delayed their entry plans.”
“No question that people are looking at Brazil very carefully now and many are tightening up their marketing budgets, though we haven't seen any decrease in activity yet,” said Charles Prescott, the DMA's International VP.
“The real concern is inflation. If it starts to rise in Brazil all bets are off. I don't think you'll see much DM down there except for brand building and prospect generation. You can't sell stuff through the mails if you know that you have to change the price every day. The postal system is abysmal and there is a serious problem in payments, clearing credit cards and things like that.”
Even Abate de Azevedo, the head of Rapp Collins in Brazil and Argentina, conceded that “we will suffer in micro-market terms. My projections for Rapp Collins growth this year are more modest than they were for 1998. Local companies will be hurt.”
But Azevedo is more upbeat than his American colleagues about Brazil's ability to survive the downturn. “Direct marketing grows in bad times,” he said, echoing Simon Dalby, the Rapp Collins manager in Japan.
“The Japanese are changing how they think about marketing,” Dalby said last year. “We're involved in database building projects for companies who wouldn't have considered that kind of thing in the past.”
“DM is a good crisis defense discipline,” Azevedo said. “It helps maintain customer loyalty, allows cross-selling and some upgrading of a product's market share.”
Brazil, he noted, was addicted to classical mass advertising for which 70 percent of budgets were allocated and to sales promotion, “which doesn't work well during times of economic crisis.”
“Our sales from various direct marketing activities (subscriptions, music club purchases, continuity programs, etc.) are a bit soft, but nothing yet to signal a significant downturn,” Abril's Peter Rosenwald said.
Abril, one of Brazil's largest publishing houses, hired Rosenwald, an American DM pioneer with extensive foreign experience, in 1997 as DM Vice-President.
Rosenwald conceded that “yet” may be the significant word, but said “the silver lining may be that now people may be less inclined to mail to everyone instead of using the facilities available for better targeting and that can only help the industry.
“Certainly we plan to continue our direct marketing programs unless we find that our CPO's rise substantially or that purchasing activity declines.”
Rosenwald said there was concern over a rising slowness in payments, which could signal concern among the lower sectors of the middle class.
That could be a real threat, Prescott believes. “There have been some major cutbacks in the manufacturing end,” he said. “I've heard talk of major cutbacks in a number of Brazilian agencies and DM companies.”
Even more serious, Prescott added, is the failure of President Enrique Cardozo's ambitious reform program to take hold. The current crisis was triggered by the governor of Minas Gerais state who defaulted on a loan.
“There is no party discipline to keep legislators in line,” he said. “They get elected on one party ticket and switch to another and that's not unusual down there. They call their pension system the joy train and the joy train is riding them once again through hell.”
Equally important, experts agree, is the effect of the crisis in Argentina. “Some 70 percent of the Argentine economy is tied to Brazil,” Azevado said, noting that Brazil is Argentina's largest export market.
The Mercusor trade alliance among Brazil, Argentina and Uruguay has boosted trade and led to growing foreign investment with both Volkswagen and Renault putting up plants in Brazil.
But dislocations in Brazil can easily spill over into Argentina and push both countries into serious recession, another concern for US marketers in the region.