Instatements Verge on Mainstream

Media and advertising channels mature and change over time and follow trajectories dictated by market efficiencies and economics. Successful channels prove themselves over time and morph into a standardized, mainstream medium. Alternatively, niche advertising channels are relegated to JV or sometimes RIP status, typically from economic reasons: either their audiences dwindle or they become marginalized by new alternative mediums.

Rarely is there a chance to examine a channel on the verge of migrating from a niche to mainstream as there is in the instatement billing advertising space.

First we need to define instatement advertising. Advertisers contract to have their ads and offers ride along in monthly bills mailed directly to customers of credit card, gas and oil, retail and utility companies. Benefits for advertisers are plentiful. Statement issuers are varied across geography and income levels with unique file demographics and sizes. Many statement issuers essentially own channels that can provide direct reach to their customers, with some billing files containing 40 million users.

For advertisers, the costs of the instatement channel can be attractive, especially compared with alternative customer acquisition channels such as direct mail. Prices for instatement advertising can be five to 15 times less than direct mail because postage and the recipient list are bundled into the fee paid to an issuer for the right to enclose advertising. Given the stringent limitations on postage weights, the number of offers within a single envelope is limited, making an advertiser’s offer prominent. This exclusivity differs from common bundled shared mail pack offers. Lastly, instatements are opened 100 percent of the time because they share an envelope with billing information that needs to be responded to in a timely manner. Few mediums possess this distinction.

Before we discuss the changes in the instatement space, we have to look at its history. These ads were developed in the 1960s by companies such as Columbia House and Rand. While at Columbia House, Ben Giordano, a veteran direct marketing executive, had an idea to approach various credit card issuers with a simple, compelling offer. He secured the rights to insert his offers with various impulse and functional products at multiple price points within a bill issuer’s monthly statement envelope.

Giordano’s proposition to issuers was straightforward: He would pay a fee to the credit card issuers to let his offers ride along in issuers’ monthly statements. The card issuer also could generate from the purchase of these products additional transactions and finance fees. This simple model worked for all parties: Giordano got to sell products and reach customers by using an untapped and relatively inexpensive channel. Banks and oil companies generated revenue for bills they were sending out anyway, plus they generated further revenue from finance charges and shares of product sales revenue that Giordano wisely mixed into the equation. Giordano’s model was emulated, and more product sellers or syndicators began using this new channel.

The instatement channel matured into a relatively segregated ecosystem that includes two subsets: hundreds of statement issuers and a cadre of product syndicators who have mined this channel to sell products. Because selling product was the main goal, only issuers who could provide the ability for these immediate transactions were targeted. This “immediate gratification sales” focus meant many other potential card issuers and statement sources, such as telecom, utilities and mortgage issuers, were not included in the instatement ecosystem, and the size of the channel remained static.

For years, the instatement channel continued in this format, serving its members well but remaining unknown to most business-to-consumer advertisers or above-the-line agencies and media buying entities. But over time, several direct advertisers discovered the value and effectiveness of the channel. These include Geico with insurance, Bose with higher-end audio products and Synapse, a division of Time Warner that has leveraged the instatement channel as its main stream for customer acquisition for 10-plus years. Synapse has partnered with a key player in the instatement space and acquired tens of millions of new magazine subscribers in the past year via this channel.

So what’s next? Because more traditional advertisers are adopting the channel, the number of new issuers has increased, since “immediate sales gratification” is no longer the requisite issuer criteria to be effective. Several established instatement brokerage players have collected detailed demographic and historical response data in the quest to best match an advertiser’s offer with an issuer’s demographic. New advertisers are finding the channel’s ability to instigate multiple calls to action (drive to a Web site, respond via the insert as direct mail or call a toll-free number) attractive, since all these actions provide a closed-loop system to capture response rates to measure, test and refine.

However, what is on the horizon is most exciting of all. Recent technological advancements soon will allow the instatement channel to segment by individual customer, providing a granular level equal to direct mail while retaining cost advantages. Currently, customers are segmented by the characteristics of a bill issuer’s entire demographic. Imagine this scenario: An automotive advertiser rolls out a campaign to promote several new models, each targeted at a different demographic and buyer income level. Instead of everyone getting the same offer, recent college graduates receive the offer for the new entry-level vehicle with an invite to test-drive at a nearby dealer while the head of the household with four kids gets the offer for the new SUV or minivan and the business executive gets the luxury brand offer.

In summary, the instatement channel has proven itself a scalable, unique ad medium that continues to attract advertisers and issuers. The channel is not yet mainstream, but as its segmenting and targeting abilities become even more refined, you soon may see instatement advertising become a standardized channel no less broad in scope and reach than print, direct mail, Internet, television or magazine advertising.

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