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					Direct Mail Marketing Trends:
United States and Western Europe

Luis Jimenez
Senior Vice President and Chief Strategy Officer

Direct Mail Advisory Board
11 October, 2005
Bern, Switzerland



                                                   1
                Myth: Paper will Disappear

The paperless office is close
      Business Week, 1975


By the turn of the century we will live in a paperless society
        Fortune “10” CEO, 1986


If mail service fails to improve, 60% of mail will be delivered
electronically by the year 2000
         Wall Street Journal, 1987



Electronic mail … could replace 25% of “snail mail” by 2000
       TIME Magazine, 1998

                                                                  2
        Ahh … Predictions ….




“It’s very difficult to make
predictions,
especially about the future.”

     - Niels Bohr, Nobel Prize in Physics, 1922



                                                  3
1. Trends


            4
How is mail volume evolving?
              Volume growth rates peaked in the 80s;
                 2000-2005 averaged flat volumes,
       although many markets now see slight positive growth
                                 Mail Volume Growth Rates
  7.00%
                                                                Europe
                            US Peak
  6.00%                                                         US

  5.00%
                                                  Euro Peak
  4.00%

  3.00%

  2.00%

  1.00%

  0.00%
                   80-85              85-90             90-95   95-00    00-05
 -1.00%

Source: Pitney Bowes Analysis; 2005 figures estimated                            5
How does mail intensity differ across countries?



                                           1960-2004 CAGR
                                2,500
 Total Pieces per HH per year




                                        Switzerland
                                2,000

                                              US                               Rapid
                                1,500                                Group 1   growth
                                                            Sweden

                                1,000



                                 500



                                  -




Source: Mail Database (2005)                                                            6
How does mail intensity differ across countries?



                                           1960-2004 CAGR
                                2,500
 Total Pieces per HH per year




                                        Switzerland
                                2,000

                                              US                                Rapid
                                1,500                                 Group 1   growth
                                                             Sweden
                                                          France
                                            Netherlands                         Uneven
                                1,000
                                                                      Group 2
                                                                                growth
                                              UK
                                 500



                                  -




Source: Mail Database (2005)                                                             7
How does mail intensity differ across countries?
                                        Mail per household will not reach
                                         the same level in all countries
                                               1960-2004 CAGR
                                2,500
 Total Pieces per HH per year




                                            Switzerland
                                2,000

                                                  US                                  Rapid
                                1,500                                       Group 1   growth
                                                                 Sweden
                                                              France
                                                Netherlands                           Uneven
                                1,000
                                                                            Group 2
                                                                                      growth
                                                  UK          Germany
                                 500                                                  Flat
                                                                Spain       Group 3   growth
                                                                 Italy
                                  -




Source: Mail Database (2005)                                                                   8
What is the effect of competition in Europe?
          The low growth for some European Posts can be
                 explained in part by competition
          Volumes Delivered by Posts (Addressed & Unaddressed)
                            160
                              Market
                              Volume
                              (Billions)
                            120




                             80




                             40




                              -
                                  „60 „65 „70 „75 „80 „85 „90 „95 „00 „03


                       Unaddressed Mail                                     Addressed Mail

Source: PB Analysis based on published postal reports and FEDMA                              9
What is the effect of email on mail volume?
                           US and EU mail per capita
                     remains steady despite email explosion
               Email / Mail 33 : 1                                   Email / Mail 23 : 1
                US: Messages Per Capita                              EU15: Messages Per Capita
25,000                                                     9,000                                               400
                                                     800
                             Total Mail
                                                     700                       Total Postal Mail
20,000
                           Total Email               600                                                       300
                               Sent                        6,000
                                                     500
15,000                                                                                 Total
                                                                                       Email
                                     First Class     400                               Sent                    200
10,000
                                                     300
                                                           3,000
                                     Consumer        200                                    Consumer
                                     Email Sent                                             Email Sent         100
5,000
                                                     100
                                 C-C First Class                                                 C- C Mail
  0                                                  0
         ‟97   ‟98   ‟99   ‟00     „01   ‟02   „03                 „97   „98   „99   „00   „01     „02   „03




 Source: Mail Database (2004) and IDC Worldwide Email Usage                                                    10
           Mail’s share in each segment is evolving differently
            depending on the range of available alternatives

            Mail                              U.S. Market
            Email
            Instant Messaging
            Fax
            Voice Mail


             80%

Mail‟s
Share
by Value             47%
                            40%



           1992 2000 2002
              Messages


  Source: Pitney Bowes and Arthur D. Little                       11
           Mail’s share in each segment is evolving differently
            depending on the range of available alternatives

            Mail                               U.S. Market
            Email
            Instant Messaging
            Fax
            Voice Mail


             80%

Mail‟s
Share                                         Mail
by Value             47%                      Retail
                                              Online
                            40%
                                       3.4% 2.5% 2.5%


           1992 2000 2002 1992 2000 2002
              Messages                   Publications


  Source: Pitney Bowes and Arthur D. Little                       12
           Mail’s share in each segment is evolving differently
            depending on the range of available alternatives

            Mail                               U.S. Market
            Email
            Instant Messaging
            Fax
            Voice Mail

                                                        Direct Mail
             80%                                        TV
                                                        Radio
Mail‟s                                                  Print
Share                                         Mail      Internet
                                              Retail    Telemarketing
by Value             47%                      Online
                            40%                         6.7% 6.4% 6.3%
                                       3.4% 2.5% 2.5%


           1992 2000 2002 1992 2000 2002                1992 2000 2002
              Messages                   Publications   Advertising


  Source: Pitney Bowes and Arthur D. Little                              13
           Mail’s share in each segment is evolving differently
            depending on the range of available alternatives

            Mail                               U.S. Market
            Email
            Instant Messaging                                            Mail
            Fax                                                          Electronic Billing
            Voice Mail                                                   Electronic Payment

                                                        Direct Mail
             80%                                        TV
                                                        Radio
Mail‟s                                                  Print
Share                                         Mail      Internet
                                              Retail    Telemarketing
by Value             47%                      Online                      72% 67% 67%
                            40%                         6.7% 6.4% 6.3%
                                       3.4% 2.5% 2.5%


           1992 2000 2002 1992 2000 2002                1992 2000 2002 1992 2000 2002
              Messages                   Publications   Advertising       Transactional
                                                                            Services
  Source: Pitney Bowes and Arthur D. Little                                              14
2. Forecasts


               15
 Direct mail volumes have traditionally followed economic
        activity. After the downturn of 2000-2003,
         volume has resumed its historical trend.

                    USPS Advertising Mail Volume – Actual vs. Forecasts
     Billions
                1   Actual                              -
   of Pieces
                2   USPS to GAO
       120

       115

       110

       105
                                                             2

       100

        95

        90

        85                   1

        80

        75
             1997   1998         1999   2000   2001   2002       2003   2004   2005   2006   2007   2008
Source: USPS, GAO (1999), Tolley (2001), IFTF                                                              16
 Direct mail volumes have traditionally followed economic
        activity. After the downturn of 2000-2003,
         volume has resumed its historical trend.

                  USPS Advertising Mail Volume – Actual vs. Forecasts




Source: USPS, GAO (1999), Tolley (2001), IFTF                           17
3. Drivers


             18
What factors impact mail volumes?
              Many factors, not just technology, impact
                   the advertising mail volumes

1. Economic and Demographic
   Recession and expansion
   Personal consumption
   Advertising spending
   Customer acquisition spending
   Demographic shifts

2. Consumer Preferences
   Paper vs electronics
   Saturation with promotions
   Need for credit and refinancing
   New shopping habits
   Demographic and generational differences

3. Electronic Alternatives
   Surge in inexpensive e-mail marketing
   Remote commerce
   Variable digital printing




                                                          19
What factors impact mail volumes?
        Many factors, not just technology, impact
               the advertising mail volumes

1. Economic and Demographic                    4. Competition
   Recession and expansion                       Private Postal Operators
   Personal consumption                          Growth of unaddressed mail
   Advertising spending                          Posts setting up operations in each
   Customer acquisition spending                  others‟ countries
   Demographic shifts
                                               5. Postal Products
2. Consumer Preferences                           Price level
   Paper vs electronics                          Price changes
   Saturation with promotions                    Quality
   Need for credit and refinancing               Differentiation
   New shopping habits                           Ease of Access
   Demographic and generational differences
                                                  Life cycle
3. Electronic Alternatives
   Surge in inexpensive e-mail marketing      6. Mailer Rationalization
   Remote commerce                               Total Cost of Mailing
   Variable digital printing                     Frequency
                                                  Customer Targeting
                                                  Customer relationship management


                                                                                         20
Is economic activity still relevant for direct mail forecasting?
           Ad spending and mail volumes per capita are directly
              related to GDP per capita in many countries.

$40    GDP per                        Japan
        Capita
       ($000s)
                                                          US

                                  Sweden
$30                                                UK
             Canada
                                Germany            Netherlands
                            Italy
                                   France
$20                   Spain

       Argentina

$10
      Mexico
                   Chile
                   Brazil

 $0
      $0       $100           $200          $300        $400

       Advertising Spending per Capita



Source: Mail Database (2004) based on Postal, Census, DMA and Advertising Association Data   21
Is economic activity still relevant for direct mail forecasting?
      Ad spending and mail volumes per capita are directly
         related to GDP per capita in many countries.

       GDP per                                                          GDP per
$40     Capita                        Japan                              Capita
       ($000s)                                                          ($000s)
                                                          US

                                  Sweden
$30                                                UK
             Canada
                                Germany            Netherlands
                            Italy
                                   France
$20                   Spain

       Argentina

$10
      Mexico
                   Chile
                   Brazil

 $0                                                              $0
      $0       $100           $200          $300        $400

       Advertising Spending per Capita                                Advertising Mail Volume per Capita
                                                                        ( addressed and unaddressed)


Source: Mail Database (2004) based on Postal, Census, DMA and Advertising Association Data                 22
          Is economic activity still relevant for direct mail forecasting?
                                   In the United States advertising spending is positively
                                                    correlated with GDP



                                 Advertising Expenditures vs. GDP in the
                                              U.S. 1946-2003
Total Advertising ($ Millions)




                             250000                                                   12000

                             200000                                                   10000
                                                                                      8000




                                                                                              $ Billions
                             150000
                                                                                      6000
                             100000
                                                                                      4000
                                 50000                                                2000
                                    0                                                 0
                                         1946
                                         1952
                                         1958

                                         1964
                                         1967

                                         1973
                                         1976

                                         1982


                                         1991

                                         1997
                                         2000
                                         1949
                                         1955

                                         1961


                                         1970


                                         1979

                                         1985
                                         1988

                                         1994


                                         2003




                                         Total Advertising   GDP in billions of current dollars

                  Sources: Veronis Suhler Stevenson and U.S. BEA                                           23
              Is economic activity still relevant for direct mail forecasting?
                                    In the United States advertising spending is positively
                                                     correlated with GDP
                                                                                                           Recent Years


                                  Advertising Expenditures vs. GDP in the
                                               U.S. 1946-2003
Total Advertising ($ Millions)




                                 250000                                                12000

                                 200000                                                10000
                                                                                       8000




                                                                                              $ Billions
                                 150000
                                                                                       6000
                                 100000
                                                                                       4000
                                 50000                                                 2000
                                    0                                                  0
                                          1952
                                          1946
                                          1949

                                          1958

                                          1964
                                          1967

                                          1973
                                          1976

                                          1982


                                          1991

                                          1997
                                          2000
                                          1955

                                          1961


                                          1970


                                          1979

                                          1985
                                          1988

                                          1994


                                          2003




                                          Total Advertising   GDP in billions of current dollars

                      Sources: Veronis Suhler Stevenson and U.S. BEA                                                      24
Is direct mail getting its share of the advertising pie?
      U.S. Direct Mail expenditures as percent of Total Ad
      Spending have been stable over the last 20 years.

   US : Direct Mail Expenditure as Percent of Total Advertising Spending




Source: Veronis Suhler Stevenson                                           25
Is direct mail getting its share as percent of GDP in Europe?
                Direct Mail expenditure as percent of GDP
                      has also been stable in Europe
                   Direct Mail Expenditure as Percent of GDP




Source: FEDMA                                                  26
What is the effect of new media?
   The introduction of new media such as TV and Internet
  has followed a complementary, not a substitutive pattern
                       Changing Shares of Various Media in U.S.
                                      Direct Mail
                                                                      Internet


              Radio
                                                          Magazines




                                                                      TV




                                                 Newspaper




Source: Pitney Bowes analysis using Veronis Suhler Stevenson data                27
How is Internet advertising evolving?
                              Forecasts of Internet advertising
                     were grossly exaggerated during the dotcom boom

                     35
                                                                                                               Internet actual
                     30

                     25
     Billions of $




                                               Hype Forecasts
                     20
                                                                                                               99/00 Forecast
                                                                                                               Veronis Suhler
                     15
                                                                                                               99/00 Forecast
                     10          Actu                                                                          Forrester
                                  al
                      5                                                                                        99/00 Forecast
                                                                                                               IDC
                      0
                                        1998
                                                1999


                                                              2001
                                                                     2002


                                                                                   2004
                                                                                          2005
                                                                                                 2006
                          1996
                                 1997




                                                       2000




                                                                            2003




Source: Veronis Suhler Stevenson (1999, 2000), Forrester (1999, 2000), IDC 1999, 2000)                  2007                     28
How is Internet advertising evolving?
                              Forecasts of Internet advertising
                        are no longer in the “hype” stage in the U.S.

                   35
                                                                                                             Internet
                                                                                                             actual
                   30
                                                                                                             2003Forecas
                   25
   Billions of $




                                                                                                             t
                                                                                                             Veronis Suhler
                                             Hype Forecasts
                   20
                                                                                     Recent                  99/00 Forecast
                                                                                                             Veronis Suhler
                   15                                                               Forecast
                                                                                                             99/00 Forecast
                   10                                                                                        Forreste
                                                                                                             r

                    5                                       Actu                                             99/00 Forecast
                                                                                                             ID
                                                             al                                              C
                    0
                        1996
                               1997


                                              1999
                                                     2000


                                                                   2002
                                                                          2003
                                                                                 2004


                                                                                               2006
                                                                                                      2007
                                      1998




                                                            2001




                                                                                        2005



Source: Veronis Suhler Stevenson (2003), Forrester (1999, 2000), IDC 1999, 2000)                                              29
 How is Internet advertising evolving?
         After the introduction of new media, the initially high
          growth rate gradually decreases and the medium
                ultimately settles into the marketing mix
                          Initial Growth Rates for the Internet and TV
                               Advertising Revenues in the U.S.




Sources: Pitney Bowes analysis using Veronis Suhler Stevenson data
                                                                         30
How is Internet advertising evolving?
 Internet ad revenues today are smaller than broadcast TV
revenues were, when we compare both media 8 years after
                    their introduction.
             Annual Advertising Revenue by Year after Introduction:
               Internet (1995- 2002) and Broadcast TV (1949-1956)
                                 Real 2002 dollars




Source: PricewaterhouseCoopers LLP (2003)                             31
How is Internet advertising evolving?
    TV gained market share in total advertising expenditure
               much faster than the Internet

                                Changes in Market Shares
                 for Internet (1995- 2002) and Broadcast TV (1949-1956)




Source: Pitney Bowes analysis using Veronis Suhler Stevenson data
                                                                          32
How is Internet advertising evolving?
 Expenditures in direct mail are still being added at a faster
       rate than expenditures in online advertising
      Online, Direct Mail, and Direct Marketing Expenditures in Europe




  While online advertising has gained some traction as 6% of direct marketing
  expenditure, in Europe 81% of this advertising is concentrated in just two
  countries: the UK and Germany.

Source: FEDMA                                                                    33
What‟s in Internet advertising?
           The diverse uses of online advertising
               have not reached a stable mix
                    Composition of Online Advertising Revenue by Vehicle
                                    2000-2002 ( in MM of $)




   Increased gains found for only a few formats: keyword search, rich media, and barely
   e-mail
Source: eMarketer                                                                      34
Will younger generations want direct mail?
      The predicted ”generational effect” has not materialized;
        all generations step up their mail use as they age.

  Ratio of mail for each
         age group
   relative to total mail




                                                                -1%
                                                   7%

                                              23
                                              %

                                                        Increase in mail
                                        70%
                                                          use as cohort
                                                        moves from one
                                                        age group to the
                                                         next older one




Source: Jimenez, Diakova and Szeto (2005)                                  35
Why do marketers still want to reach us with direct mail?
                                              Household income is still
                                       the strongest predictor of mail volume
Pieces per Household per Week




                                           2003 US Mail Volume by Income

                                20
                                             First-Class
                                15           Standard A

                                10

                                 5

                                 0
                                     <7K    7-   10-       15-    20-    25-   30-   35-   50-   >65K
                                           10K   15K       20K    25K    30K   35K   50K   64K

                                                           Annual Income (USD $)



       Source: US Household Diary 2003                                                              36
Do Internet users get more or less mail?
     Internet users in the US and UK receive more mail than
                  those without Internet access




 Sources: USPS Household Diary 2003, Wright H. (2004) Royal Mail   37
4. Value of Direct Mail


                          38
          Direct Mail has competitive advantages
        in a multi-channel marketing environment

   Consumer preferences

   “Mail Moment”

   Stable response rate and ROI index

   Multi-channel marketing




                                                   39
Will paper and mail persist?
   US consumers perceive paper to be an effective medium
                  for many applications




 Source: “The Future of Paper”, InfoTrends/CAP Ventures (2003)   40
Will paper and mail persist?
      US consumers consistently prefer mail and paper for a
                  wide range of documents
                                                                Financial
                                         New Product           Documents
      All Types of                      Announcements        93% 93%
      Documents                                                        86%
                                          77%
       69%                                         73% 75%
                        66%
                62%




      1999 2001 2003                     1999 2001 2003      1999 2001 2003

 Source: ICR 1999, 2001 & 2003 Mail Preference Surveys                        41
Will paper and mail persist?
         Direct Mail is one of the most preferred channels for
                      direct marketing in Finland.

                     Preferred Channels for Direct Marketing in Finland




 Source: Paper or Electronic? Desired and undesired reception channels for Direct Marketing,” K. Elkela,   42
Will paper and mail persist?
    The mail “smoothes out” life: its interactional properties
                 mediate social relationships

    Consumers are pulled to the mailbox by the promise and expectation
     of finding useful commercial and financial content

    Mail connects the consumer with the market by keeping the consumer
     informed about what‟s going on in the market

    Bringing in the mail is a detour that allows consumers to relax, unwind,
     and come back a little more refreshed

    The person who manages the household‟s mail is also the principal
     shopper for the household

    Mail provides essential “hardcopy anchors” that help consumers “get
     their bearings”


 Source: USPS Mail Moment, Richard Harper                                       43
Does Direct Mail represent good value?
                   Compared to other direct marketing media,
                     Direct Mail has a favorable ROI Index

          Direct Order Revenue and Cost by Media                              Revenue per Contact
                    Revenue per       Promo Cost        Response    ROI       = Total Revenue /
                                                                              Promotion Qty
 Media               Contact ($)     per Contact ($)     Rate %     Index

Direct Mail                3.95                0.55         1.61     7.20
Dimensional Mail              8.99               1.61        3.46      5.60
                                                                              Promotion Cost per
                                                                              Contact
Catalog                    2.88                0.63         2.32     4.60     = Promotion Cost/
E-mail                     1.28                0.09         0.99    14.20     Promotion Qty
Inserts                       1.31               0.18        1.46      7.30
Coupons                       1.32               0.43        2.78      3.10
                                                                              ROI
Telephone                     6.17               1.45        5.73      4.20   =Revenue per Contact /
Newspaper                     0.75               0.35        0.14      2.10   Cost per Contact
Magazine                      0.10               0.22        0.13      0.50
 FSIs                         0.03               0.06        0.09      0.60
 DRTV                         1.35               0.16        0.27      8.40
Radio                         3.77               0.74        0.38      5.10




 Source: DMA                                                                                        44
How is multi-channel marketing evolving?
                    Customers who interact with companies over
                 multiple channels are more loyal and profitable than
                              single-channel customers

                                     Value of Cross Channel Customers
               $300

                                                                                                 $243
               $250
 Total Spend




               $200


               $150                                                                   $127
                                                                           $124
                                        $90                       $99
               $100
                           $69
                                                     $43
                $50


                 $0
                      Catalog Only Website Only   Retail Only   Catalog/   Catalog/   Retail/   Catalog/
                                                                Website     Retail    Website   Website/
                                                                                                 Retail




 Source: Double Click                                                                                   45
How is multi-channel marketing evolving?
      Catalogs Drive Online Sales: Catalog usage results in
                   increased buyer conversion


 Buyer
 Conversion:            15%       13%
 15% of                                       8%
 consumers that
 received a
 catalog and           Catalog    Flyer    No Catalog
 visited the
 Cataloger‟s web
 site made a
 purchase.




 Source: USPS                                                 46
How is multi-channel marketing evolving?

 Catalogs Drive Online Sales: Catalog recipients spent more
              time online and purchased more
                                   Transactions per Buyer
                                 1.5            1.4         1.3



                               Catalog         Flyer   No Catalog



                          Dollars per Buyer

                $260
                               $194           $224




                Catalog        Flyer     No Catalog

 Source: USPS                                                       47
 Direct mail expenditure will likely remain stable
                 or even grow:



1) The whole “pie” of advertising dollars has been
     increasing, since spending on advertising is highly
     correlated with Gap



1)   In a multi-channel marketing environment Direct Mail
     tends to benefit from technology and complement
     other media




                                                            48
    Electronic Alternatives and
    Direct Mail Marketing
    Elena Diakova (Pitney Bowes)


    Background Paper No. 6, July 5, 2005




This is one of several background papers that are being prepared as part of the
Pitney Bowes research project entitled, “Electronic Substitution for Mail: Models
and Results; Myth and Reality.”

                                                                              49
             Can we grow mail volumes?


   Recent Pitney Bowes work with a UK Consultancy
    (WhatNext4U) has identified some 70 unique examples of
    how posts are developing products to grow mail volumes

   Pitney Bowes shared some of these examples on October 3,
    2005 at the keynote speech in PostExpo, Paris by Mike
    Critelli, our Chairman and CEO (see in PostInsight.pb.com)

   A full report will be published in the coming months

   Following are a handful of the case examples



                                                                 50
         Promoting the Mailstream


Posteitaliane
Partnership to teach small and medium sized
businesses the benefits of direct mail
Campaign includes:
     Direct mail piece
     Guide to direct mail on CD
     Seminar



                                              51
    The Mailstream Enhances Media Mix


Yorkshire Electricity
 Media mix not producing growth as fast as
    expected
   Analysis of target market
   Refined media mix -- TV, telemarketing and
    postcards


    Attribute mailstream mix with enhanced
    customer responsiveness and lower
    costs

                                                 52
Focus on Customer Communication


              Kenko Kazoku
                 Farm-grown organic
                  products
                 Growth strategy around
                  the use of direct mail
                 Regularly include
                  samples
              Attribute 40% growth in
                 annual revenue to
                 mailstream



                                           53
     Focus on Customer Communication

Domino’s Pizza
 40 million pizzas sold in Australia and
    New Zealand
   Customer purchasing profiles
   Customized direct mail offers tied to
    profile


    Attribute mailstream with
    customer loyalty and business
    growth


                                            54
Focus on Customer Communication
France Telecom




     Generic Mailer   Personalized Mailer
                                            55
 Growth in Remote Commerce
Netflix
   Mail order subscription service for
    movie rentals
   Customers receive the movies they
    want at home
   4.7 million will subscribe to mail-
    order services in 2005


Mailstream revolutionized the
  business model for the industry



                                          56
           Growth in Remote Commerce

CendrisVote/TPG Post

                Media        Media
Data                                       Data
               outgoing    incoming




                           Response card
                Printing

                                             Scanning



                           Phone/voice
                            response

                 Mail


 Central                                    Central
members                                    database
                             Website
database                                   and result




                                                        57
             Date Certain Delivery


Swiss Post – OnTime Mail
 Day specific mass mailings
 Three service levels
   –Day specific
   –Within 2 day range
   –Saturday delivery
 Opens up new uses for mail




                                     58

				
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