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Outlook 2005: List Execs Face Challenging Year as Privacy Issues Loom

This is the year for the list business to straighten out its priorities as consumer concern and skepticism with direct marketing continues, particularly over privacy and targeting issues.

Equally worrisome is the concern that the sources of supply are drying up because of increased regulation and scrutiny of industry practices from Congress and the Federal Trade Commission. The loss of names from 82 million telephone numbers being registered to the national no-call list over 15 months hasn’t helped.

“The list industry reflects the larger marketing communications industry and always must be sensitive to the ever-changing tastes and mores of the American consumer,” said Ray Butkus, president of infoUSA’s Donnelley Group, Woodcliff Lake, NJ. “We must strike the right balance between the industry’s legitimate desire to target consumers and the consumer’s legitimate right to be left alone.”

Still fresh in many minds is last summer’s FTC settlement with Carney Direct, ListData Computer Services and NeWorld Marketing. The three list companies paid a total of $187,500 to settle allegations of involvement in a telemarketing advance-fee credit scheme. The FTC claimed the three companies should have known that the scripts submitted by the telemarketers violated the Telemarketing Sales Rule.

What can list companies learn from this embarrassment? List managers and brokers should scrutinize all offers, particularly those involving telemarketing. They should maintain better records of offer history and eye continuation orders with more diligence.

Of course, these safety locks will slow the order approval process. Both list owner and list manager will have to spend more time reviewing offers. Infomercials, beauty and opportunity offers as well as sweepstakes will require extra caution to avoid legal violations.

Compliance is essential. Congress, eager to act in the absence of responsible self-regulation, already is considering stronger privacy laws. Legislation proposed last year would have prevented the rental of personal information of children younger than 16 for marketing purposes without parental consent. If passed this year, it would be called the Children’s Listbroker Privacy Act.

Other Concerns Abound

Legal issues are not the only ones worrying list companies. The cost of customer acquisition is rising. Some think customer lifetime value is diminishing, though opinion is divided. However, list fatigue may not be the concern it has been since 2002.

“As more direct marketers pursue integrated marketing programs, the ongoing need for fresh names has grown less acute as marketers become more adept at increasing the lifetime value of current customers,” Butkus said.

Marketing budgets have been cut at big and small list companies. The result is lower visibility for the industry. Even a big player like infoUSA blamed advertising and marketing expenses for harming earnings and profitability. Last spring, the company said it would cut advertising and sales costs by nearly $1.2 million a month.

Yet infoUSA still has appetite, budget and leverage in the business-to-business space. Last year, it paid $101 million for business data provider OneSource Information Services Inc., Concord, MA, and $12 million for list firm Edith Roman Associates Inc., Pearl River, NY.

Aside from compliance issues and ongoing challenges, list managers and brokers should thank their lucky stars for an election year. Direct mail, e-mail and Web sites for donations and volunteering were the key tactics supporting television for Republican and Democratic candidates.

Direct marketers now ought to focus on another area of promise: the nation’s nearly 24 million small businesses. Yes, small businesses – firms with fewer than 500 employees – have tiny budgets, but, as 99 percent of all employers nationwide, they also drive the market.

A recent study of 1 million companies with fewer than 500 employees by Experian Business Information Services, Costa Mesa, CA, found that many small businesses are consumer-owned. Not surprisingly, small businesses act like consumers.

While that attitude may irk many, others see the flip side. The Experian study showed that the average household income of a small business owner is 21 percent higher than the national average.

There’s little doubt that this market is ripe for the charms of list prospecting. A 2002 study by infoUSA, Omaha, NE, asked small businesses to name their biggest headaches. Ninety percent cited finding new clients and increasing their business. Alert to this potential, infoUSA last fall relaunched Sales Genie, its Web-based prospecting tool positioned for small businesses. Users can tap infoUSA’s 12 databases online for a flat $250 monthly fee.

Around the same time, Experian reintroduced its National Business Database of 16 million U.S. businesses. Features were added to minimize risk associated with marketing to small businesses.

Meanwhile, Experian bolstered other capabilities with its October acquisition of Simmons Market Research Bureau, a privately held, 55-year-old provider of syndicated consumer research. New York-based Simmons gathers data from 30,000 consumers on which brands they buy, the media they use and Internet sites they visit.

Overcoming the Challenges

For all the challenges, list and data firms still bring new files, databases and services to the market. Forward-looking list managers and brokers undoubtedly have begun planning to offset the postal rate increase in 2006. They should start testing more integrated campaign methods.

Next, they should strike vendor relationships that are true partnerships. Disparate strands of expertise must be offered as a one-stop solutions set.

MKTG Services, for instance, now offers acquisition and tracking services. This expansion occurred through a partnership with SendTec Inc., a St. Petersburg, FL-based direct marketing agency. Clients are determined to better understand the relationship between direct mail programs and the buying behavior of their customers through the Internet, said Stacey Girt, senior vice president of list management at MKTG, Newtown, MA.

“Our clients know that the order generated via the phone can be tracked back to the source list,” Girt said. “A no-brainer, right? Where it becomes confusing is when orders are being placed via their Web site. The common question we hear is, ‘How do I know if they found me via the catalog mailing, space ads, friends and family or search engines?’ Those of our clients that have taken Web orders are determined the search engines must be the primary reason. They have cut back on their DM programs and, much to their dismay, are experiencing a decline in sales. So they know there is a correlation between the DM program to online sales, but how do they track it?”

Clients often push list managers and brokers into expanding beyond their core competency. Many mailers trust their brokers and managers to ferret out new services and help them get involved, said Irv Brechner, chief marketing officer at SendTec.

“Years ago, brokers and managers started alternative media divisions and, more recently, others started offering e-mail rental, append and deployment services,” he said. “Customer acquisition and tracking via e-mail and the Web is a natural evolution. Some brokers and managers are looking beyond what they do today and are being proactive by moving into other areas. I’ve heard the term ‘media brokers’ on several occasions, where list companies get involved in almost any kind of activity that will produce leads and customers for their clients.”

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