Outlook: Industry Can Expect More Regulations in Months Ahead

As this year progresses, one thing is sure: Direct marketers will see more restrictions placed upon them by state and federal regulators.

The government is listening to consumer feedback and introducing legislation to limit when and how people are marketed to. It is a clear setback for self-regulation.

“This consumer backlash and falling direct response rates are both signals that 'interrupt marketing' will be much less effective in a few years,” said Yuchun Lee, CEO of CRM software company Unica Corp., Waltham, MA.

Shifting consumer attitudes toward marketing have led to anti-spam, no-call, ad-blocking and privacy laws and movements. In that sense, the United States is copying Europe. Such legislation, however, limits customer prospecting, making retention marketing all the more critical for repeat sales.

Society will attempt, more than ever, to disengage from marketing messages as their number proliferates. Exposure to media, information overload and stresses of life will leave consumers more cynical and jaded.

“Consumers and business buyers alike are increasingly receptive to the marketing messages of just a dozen or so trusted suppliers,” Lee said. “Marketers will be challenged to attain this status with their desired target segments, putting more pressure on the science and creativity of marketing. The tried-and-true outbound channels — direct mail, outbound telemarketing and e-mail — will not get the job done.”

Marketers need to think about alternative methods for contacting and engaging existing and potential customers, Lee said, suggesting DRTV/interactive TV, contextual advertising and micro-marketing events. Even then, the homogeneity of products and services and the lack of clear positioning are breeding an indifference to branding. Is the era of marketing giving way to another?

The answer lies with Wal-Mart Stores Inc. The retailer accounts for 2.5 percent of the U.S. gross domestic product. It takes in 10 percent of China's exports to the United States. It can make or break suppliers and competitors in category after category, and its promise is a consistently low price.

The Power of Wal-Mart

This year alone, Wal-Mart will add 50 million square feet of retail space, raising its total to 650 million square feet. It will expand at the expense of other discounters, specialty retail chains, mom-and-pop stores in towns around a Wal-Mart and, yes, direct marketers.

“Wal-Mart's strength is proof that most companies are doing a lousy job of branding, especially packaged good companies,” marketing consultant and author Al Ries said. “Line extensions, coupons, deals, et cetera, are killing many brands, making them ripe targets for Wal-Mart, which sells on the lowest price.”

To compete, marketers will need to match Wal-Mart's supply-chain management, technological prowess, economies of scale, pricing strategy and laser-sharp focus on consumers' needs.

These consumers also display conflicted values and shopping habits. They increasingly want to buy on price, yet they — and the media and statehouses, too — lament the flight of white-collar service jobs to cheaper labor markets like China and India.

Telemarketing jobs are smack-dab in the middle of this debate. India, for example, is steadily winning U.S. and British contracts to handle English-language call-center operations. The U.S. telemarketing industry is expected to lose thousands of jobs in the next several years as call centers continue to migrate overseas.

In reaction, state legislatures are introducing bills banning export of government jobs to other countries. New Jersey even got an Indian outsourcing job revoked.

However, critics cannot simply blame the recent drop in employment on outsourcing. They forget rising employee productivity from technological investments made in the 1990s. They forget a recession that wrung the excesses out of the economy. They ignore a decline in manufacturing jobs because of high domestic labor costs.

Forrester Research calculates that 83 percent of the 2.9 million U.S. jobs lost since March 2001 have not reappeared abroad. The direst forecasts estimate that the United States will lose 3.3 million service jobs — out of 135 million in the private sector — to overseas markets in the next 15 years.

But attrition affects not only the United States. According to Alliance Capital Management Corp., China has lost 25 million factory jobs since 1995. There are a host of reasons for this, but economics certainly is one.

DM Is Growing at Healthy Pace

The U.S. economy is resilient, but Americans will have to retrain and re-educate to stay ahead of the curve in a global, interdependent market.

That said, the state of U.S. direct marketing is healthy. The Direct Marketing Association estimates that U.S. marketers spent $203 billion last year in direct response advertising, up 5 percent from 2002. This growth is expected to compound annually at 5.2 percent over the next five years.

Even better, U.S. marketers generated $635 billion in direct-order sales last year, a 6.6 percent increase over 2002. Business-to-business sales are growing at a slightly faster clip than consumer. The DMA anticipates direct-order sales will compound at a 7.3 percent annual growth rate over the next five years, crossing $900 billion in 2008.

The economic outlook for this year is not bad, either. The U.S. Chamber of Commerce, the biggest business lobby in Washington, predicts 4.8 percent real growth for the year.

In his State of American Business 2004 report, chamber president/CEO Tom Donohue anticipates balanced economic growth in consumption, residential and business fixed investment and net exports. The unemployment rate is expected to drop to 5.5 percent by year's end. Core inflation will stay under 2 percent.

Of course, the economy will remain prominent along with the Iraq war in political debates nationwide. Businesses and workers clearly are still struggling, and much is needed for a conclusive recovery.

But as the parties battle in one of the most philosophically divisive national elections, the temptation to meddle with more federal and state regulations — ostensibly on the consumer's behalf — may blunt the edge of U.S. competitiveness.

“In what promises to be a high-stakes year of partisan politics, we will not permit any attack on the business community to go unanswered,” Donohue said.

Of course, almost any DM venture includes mail, and that means relying on the U.S. Postal Service and a discussion about postal reform. Though revenue, service and productivity improved last year, the USPS is straining under the weight of its mandate and obligations. Despite that, postal officials have guaranteed that rates will not rise this year or next. However, there are rumblings of a double-digit rate increase waiting in the wings for 2006.

President Bush has taken notice, issuing five guidelines that met the conclusions of his postal commission. For example, the USPS is urged toward financial self-sufficiency and use of best practices. It should measure accurately to quickly inform the public about postal product costs and performance. Flexibility for management to reduce costs and set rates is recommended. So is independent oversight to protect consumer interest and universal mail service.

“The time to make changes is when you're doing well, not when you're in the tank,” deputy postmaster general John M. Nolan said.

Lawmakers say they understand the postal service's problems and have promised an answer this year.

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