The list industry appears poised for a gradual comeback this year if the current rate of renewed activity-both online and off-can be sustained.
"Several of our customers are giving us strong commitments in direct mail and e-mail," said Ed Mallin, president of Walter Karl Inc., one of several list management companies that have seen an uptick in business in recent months. "We started to see a little light at the end of the tunnel at the end of fourth quarter and clients pulling together mail plans for first quarter."
Deb Goldstein, president of IDG List Services, said: "It has really picked up. My January, which goes from mid-December to mid-January, was abysmal. But my [fiscal] first quarter overall was very good, and February is showing signs of life. The door has opened a crack."
Goldstein said she's also been hearing good news from her peers in the industry, although everyone admits conditions are still somewhat tentative.
Rich Riley, president-CEO of New England Business Service Inc., which sells business products to small companies through catalogs and its Web site, said: "There's a different sentiment than a year ago. Where last year, almost universally, companies were more conservative and said they were cutting back, this year substantially more were saying it was going to be a better year."
Some list managers are restrained in their optimism. They say that while orders are on the rise, they're generally smaller and that companies are taking longer to commit to major campaigns.
"We are growing," said Doug Carpenter, director of list management at 21st Century Marketing. "I don't think it will be huge steps forward. We're not where we were in 2000, and 2003 will not exceed 2000. But we are taking positive steps forward."
A rough year
The list industry took a beating in 2002, as list owners moved lists from one manager to another in an effort to trigger more rental activity amid a slumping economy. That shifting has not subsided completely, as indicated by a number of list management changes since the start of the year. "There are a bunch of files moving around from manager to manager," said Lee Kroll, CEO of Kroll Direct Marketing.
The trends toward discounting and smaller list rentals also seem to have carried over into the new year.
Disregard for established rates was the norm in 2002, as companies offered discounts and other special offers to attract business. In addition to the pricing pressure, b-to-b marketers promoted largely to their own databases, or house files; if they rented lists at all, the quantities were generally much smaller than in the past.
"B-to-b mailers have cut back on prospecting over the last few years because of the economic conditions," said Mike Mayhew, VP-b-to-b list management for Direct Media Inc.With the cutback in prospecting, list sizes overall have gotten smaller, giving list companies fewer names to sell. "Some of our clients are eager to mail more [this year]," Mayhew said, "but list universes have shrunk."
Dealing with soaring costs
Rising paper and postal costs have also hampered prospecting.
"If everyone was being honest, response rates have been declining over the last few years," said New England Business Service's Riley. "It's more expensive to prospect, and you get lower response to it, and that makes it a tougher economic reality for most people."
The good news is that postal costs are expected to hold steady until 2006, rather than rise in 2004, as the U.S. Postal Service had predicted.
Despite the sheer expense vs. the return on investment, companies need to begin prospecting again, advocates say. One of the reasons cited is that companies have exhausted the names in their house files, and that exhaustion has played out in lower rates of return.
"The house file has dropped so much in terms of response, and you beat it up so bad," said Don Libey, principal of Libey-Concordia, a catalog industry investment banker. "House rates are down a half to a third. If you traditionally operate at 6% response, it might be a 4% or 3% response at the moment for those who did nothing but milk the house file. That means your average order will be down," he said.
New England Business Service is among the companies vowing to prospect more. "We'll mail more this year than we mailed last year," Riley said. The company did less prospecting last year with its core catalog products, but more with new product lines, he added.
"You never can afford to stop prospecting," Libey said. "Those people who continued are far ahead of the people that didn't."
Prudent about the future
Direct Media's Mayhew said he is optimistic companies will get back to prospecting, but "a lot of b-to-b mailers are still being prudent and cautious about the future."
That prudence could also be affected by the world situation, list managers say.
"The things we worry about are: Are we going to war and how is that going to affect response rates," said Terry Jukes, president of cataloger G. Neil, which markets products to human resources executives. IDG's Goldstein said, "If we go to war, it dramatically affects the economy and dramatically affects the money spent on advertising."
Another list leader, John Papalia, CEO of Statlistics, said he is concerned about the prospect of war but that he is forging ahead with his marketing plans. "I can't control what's happening in Iraq," he said. "We're going to market as hot as we can."
Sidebar: Cooperative databases gain favor with direct marketers
By Carol Krol Almost two-thirds of b-to-b direct marketers don't rent or exchange their customer files, according to the Direct Marketing Association. But list managers are helping those that do through cooperative databases.
These databases are made up of lists contributed by several companies. In return for sharing their files, cooperating members can access the entire database for their own marketing purposes. Given the soft economy and the imperative to cut costs, these databases are enjoying a surge in popularity with b-to-b marketers because they're much cheaper than response lists.
"Cooperative databases have become hot in the b-to-b space," said Herb Torgersen, VP-list management at Response Media Products Inc. "They have enabled b-to-b mailers to lower their list acquisition costs by 25% to 35% because they are getting higher usage with more names to draw from."The economic slump has made cooperative databases attractive for another reason, too. The scarcity of new catalogs and publications being launched in the past year has meant a dearth of new lists. As a result, list marketers and managers have been compelled to promote the combined value of current files.
Steeper price tag
Response lists-made up of known direct mail buyers, magazine subscribers or respondents to specific offers-are universally accepted in the list world as the best way to reach potential new buyers. They also come with a much steeper price tag than cooperative lists.
Although price varies depending on the type of b-to-b list and the amount of data available for each record, response lists typically rent for more than $100 per thousand names. By contrast, cooperative lists rent for about $80 per thousand names. Compiled lists, a third major category, are available for average rates of about $50 per thousand names. These lists are compiled from sources such as directories, association lists and public records.
Abacus, a division of DoubleClick Inc., created a b-to-b cooperative database four years ago, modeled on its large-and successful-consumer cooperative. In the past six months, the universe of b-to-b records has grown by more than 25%, and the Abacus database contains 64 million records from scores of b-to-b marketers.
The sources of information in the database are not provided, but the detail contained in the records is rich. Companies choose data from the cooperative based on individual buyer behavior rather than on who owns the information.
"B-to-b mailers were looking for new sources and good sources beyond the traditional means," said Steve Tinlin, senior VP-business-to-business services at Abacus. "The opportunity [for marketers] was far better than compiled files as an incremental source to find names that didn't exist before."
MeritDirect L.L.C. created its MeritBase cooperative marketing database in December 2000. It comprises the universe of MeritDirect-managed lists and is updated monthly.
"Most [of our clients] mail exclusively from the database," said Blair Barondes, exec VP of MeritDirect. "This is just a better fulfillment environment for clients."
MeritDirect appends its cooperative database with compiled files from companies such as D&B and infoUSA. Unlike Abacus, MeritBase is not a membership database. Companies do not have to participate as list owners or lose control of list rental revenue, Barondes said. MeritDirect breaks MeritBase (which contains 50 million names from 800 b-to-b lists) into six segments. Marketers are charged only for names they mail, rather than being held to a minimum order.
Direct Media Inc. takes a similar approach with its cooperative database, The Direct Media Data Warehouse.
While minimum orders are standard in the list industry, they can be an issue in the b-to-b space, where marketing tends to be more targeted. Clients can pay for a minimum order of 5,000 names but only come away with 2,100 names that meet their needs. Cooperative databases help alleviate that problem by binding lists together. "You don't pay for a lot of 'dupes' [duplicate names] you can't mail," Barondes said. "You don't pay for merge-purge costs, and there's a real improvement in targeting and effectiveness."
Creating private databases
Another tactic that has become increasingly popular is the creation of private databases composed of the lists a marketer uses. "B-to-b customers use 50, 60, 70 lists on an ongoing basis," said Ed Mallin, president of list management company Walter Karl Inc. "We'll merge it into one database. There are more people looking at it than ever before."
Private databases, like cooperative databases, offer cost savings because companies only pay for the names they rent, and they aren't paying separately for individual lists. They can also be overlaid with additional data, such as SIC codes.
Compiled lists, the least expensive of the three major categories, have seen increased activity in this down economy. Many list companies, such as infoUSA and D&B, re-sell compiled data.
Compiled lists can be effective in reaching certain segments of buyers.
"It's useful for trying to reach niche audiences that don't have a lot of response lists," said Jay Schwedelson, corporate VP of Worldata Inc. "If I want to reach dentists, there are very few response lists for dentists. Sometimes compiled is the only option."
List leaders say a successful campaign would ideally combine different types of lists.
"Now that companies are trying other lists and prospecting again, they're looking at compiled files and cooperatives," said Doug Carpenter, director of list management at 21st Century Marketing. "Response files can be very expensive. It's a balancing act for brokers to get the right mix for their mailers."
By Carol Krol Some companies tell horror stories about e-mail marketing campaigns that raise the ire of prospects because they view the messages as spam. But Shoreline Communications encountered quite the opposite results when it rented third-party e-mail lists.
The 4-year-old company, which provides voice-over Internet protocol software for Web-based telephone system management, wanted to improve sales results without paying dearly for it. The Shoreline sales team was spending much of its budget qualifying leads slowly, the old-fashioned way. It dedicated significant time and money to marketing via traditional direct mail such as postcards and brochures.
"I've seen direct mail response rates drop from 5% or 6% to a half percent," said Greg Ness, director of marketing communications at Sunnyvale, Calif.-based Shoreline, referring to the industry as a whole.Last July, the company kicked off an e-mail marketing campaign through an agreement with CNet Networks Inc., based on an approach that uses e-mail to promote 30-minute Webcasts. CNet, a technology content provider, agreed to host the Webcasts, which cost about $30,000 each to produce. Targeted prospects included those on CNet's e-mail respondent lists.
Shoreline e-mailed 100,000 to 150,000 IT executives on CNet's lists, and another 500 to 600 names came from Shoreline's in-house prospect file. The campaign was supplemented with another 40,000 e-mail records rented from both IDG List Services and CMP Media L.L.C.'s subscriber files. Shoreline had been pleased with the quality of the postal names it had rented from those publishers in the past. "We got very good quality from those campaigns," Ness said. "We like to go with content-based publications like [those of] IDG, CMP and Ziff Davis."
Shoreline has also tested cooperative and compiled lists to promote its Webcasts, but they haven't performed nearly as well as the publisher lists, Ness said. "When we've broken away from content-based sites and publications, we've gotten less interesting leads," he said.
Rigorous ROI analysis backed up the company's decision to concentrate on publishing response lists. "Sticking to that core strategy seemed to deliver the best results," Ness said. Other tactics, including telemarketing list rental, produced mixed results.
The July Webcast attracted more than 1,500 executives who were considered qualified leads. Of that number, 50 to 100 sales appointments were scheduled. Ness said the July campaign netted at least a half dozen new customers and accounted for significant sales contracts.
"Any single Webcast will typically generate a half dozen deals, and of those, two or three will be business that dwarfs the cost of the upfront expenses," he said. "It's a pretty compelling case."Shoreline continues to dabble in direct mail campaigns, but the results, when compared with e-mail marketing using targeted lists, have been far less satisfying, Ness said.
Carol Krol Jay Schwedelson, corporate VP of list manager Worldata Inc., sees a better year in 2003 for the list rental industry, with activity picking up across an array of industries. Schwedelson addressed the outlook for this year, list pricing, commission structures and other issues in a recent interview with BtoB.
BtoB: List companies had a tough year in 2002, with list rental and prospecting off by double-digit percentages. What lies ahead?
Schwedelson: Obviously, 2002 was not the greatest year for the list rental business, but it certainly wasn't a terrible year for b-to-b. The consumer side was dismal. B-to-b carried the freight for the list industry. B-to-b ended the year much stronger than the way it began.
E-mail was very strong, but direct mail took a pretty big hit. But direct mail volumes have started to pick up now. It should be a strong first quarter this year. We're not just seeing it in one particular vertical market. That's an indication to us that the marketplace as a whole looks like it's getting healthier.
While mail is starting to come back, the lists are smaller. Companies building lists have lost customers. It makes the job of the list broker more important, because companies have to go out and find new and responsive files worth testing.
Growth in e-mail list availability is another huge area. In the last 12 months, there has been 100% to 150% growth in the amount of lists. It's now commonplace to have your e-mail list available. It's safe to say that there's no major b-to-b publisher that does not have its e-mail list available for rental or is [not] planning to have it available in the very near term.
BtoB: List leaders continue to struggle with rate negotiation. What are the challenges of this situation?
Schwedelson: Mailers, brokers, list managers, list owners all want the same thing, and it becomes a very tense environment. Last year was the year of the negotiated list rental. Everybody was trying to work out a better CPM, a better net name arrangement, anything they could do. List managers and list owners were negotiating with brokers in order to get the business, even if it wasn't close to the rate card. Mailers received certain rates to use certain lists. Now that same mailer wants to use that list again, but the economy has started to pick up, and the list owner doesn't want to offer the same price.A lot of the debate at DMA's annual list leader meeting back in October was about locking in a pricing. There has not been any coordinated resolution.
BtoB: What are the effects of the Web on the list industry?
Schwedelson: Over the last 24 months or so, the traditional list management companies have taken over the prospect e-mail marketing space. Two years ago, the major players in the e-mail list space were Internet companies like DoubleClick, YesMail and 24/7 Media. A lot of those companies are not in that space now. DoubleClick sold off that business; so did 24/7.
The dominant players by far in the e-mail space now are traditional list managers. [They] represent in excess of 75% of all e-mail lists. They already are representing an organization's direct marketing database. It's just another thing they can market.
BtoB: Commissions seem to have become a point of contention. What are the issues?
Schwedelson: As a list manager, you generally receive a 10% commission for generating sales and list rental on a file. The broker who has the client gets 20%, and the list owner receives 70%. A lot of brokers are negotiating with mailers to take less than the standard 20% and give it back to the mailer.
Brokers are upset about that because it undermines the industry. We should be competing on our ideas, our customer service and our organization. It should not be based on shortsighted pricing.
BtoB: Are companies taking advantage of e-mail and postal lists to conduct integrated campaigns?
Schwedelson: The technology marketers are most actively using the multichannel effort. The professional sectors-doctors, lawyers, accountants-tend to be the least technical and to use e-mail the least, so they are a difficult group to do a multichannel effort to.
Beyond the technology marketplace, there's really not a lot of activity. It's an expensive program to test, because you're basically paying for two lists for one campaign.