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DMA: Direct helps insulate economy

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Direct marketing will grow in terms of expenditures, sales, ROI and employment through 2007, which will help soften the effects of a cooling economy, according to the Direct Marketing Association.

"Direct marketing is actually cushioning the U.S. economy from a downturn," said Peter A. Johnson, VP-senior economist, research and market intelligence at the DMA. Several economic indicators currently point to a potential slowdown in the U.S. economy in 2007, most notably in the housing and automotive sectors.

In response to the DMA's assertions, one economist referred to the days of the Coliseum in Rome, saying the DMA's claims are overstated. "There's an old phrase the gladiators used to say when they entered the arena: Nemo dat quod non habet, meaning no man or woman gives what they don't have," said Ken Goldstein, economist at the Conference Board. Goldstein said that while "every dollar that goes into the direct marketer's till is money not going into Macy's and Wal-Mart," the dollars are moving from one place to another rather than cushioning any potential downturn.

Economy stuck in slow lane

"The most important equation in economics is consumers with money and a willingness to spend," he said. "These numbers are not down in the dumps, but they are middling kind of numbers. [The economy is] not necessarily going to cool more next year, but it's certainly not going to reheat. For all the talk about hard landings and soft landings, it misses the point. It's neither. It's like being stuck in the slow lane because there's a traffic jam up front. The traffic may be moving, but we won't get through that bottleneck for a while."

The DMA presented findings from its annual report, "The Power of Direct Marketing," in a media briefing at the DMA06 annual conference last month. The report was conducted by the DMA in conjunction with Global Insight, a research firm that specializes in economic and financial data. The DMA's report combines government data and trade statistics, including proprietary DMA data, as well as data from the U.S. Bureau of the Census, Global Insight's U.S. Economic Service, Global Insight's industry analysis, annual reports and advertising spending data from multiple sources, including Competitive Media Reporting.

Total U.S. sales are projected to grow 3.8% in 2007, while direct marketing-driven sales will grow 6.5%, to $2.064 trillion. That is slightly slower growth than in the past year, but still enough to pad the overall economy, according to the DMA. In 2006, sales will reach $1.939 trillion, a 7.4% increase over 2005.

The top industry in the b-to-b market in terms of advertising spending this year was the services, professional, technical and management services industry, which garnered $9.10 billion in spending, a 2.3% increase over last year. Rounding out the top five industries were information and communications which raked in $6.70 billion, a 3.8% increase; wholesale trade, with a $6.40 billion share of the pie, up 8.4%; manufacturing, computer and electronics, with $5.40 billion, a 6.6% increase compared with last year; and financial insurance carriers and agents, which brought in $4.40 billion, a 5.0% increase.

The dollars spent in the services, professional, technical and management services industry were well-invested because that industry category came out on top in terms of sales volume for b-to-b direct marketing. It amassed a total $120.10 billion in 2006 direct marketing sales volume. Manufacturing, computer and electronics did well despite much lower spending: $85.50 billion in sales, a 10% change over 2005.

Direct marketing spending will show more moderate growth in 2007, estimated at 5.2%, to $175.20 billion, after increasing 6% to $166.50 billion this year, according to the DMA.

Direct makes up 10.3% of GDP

The DMA said direct marketing sales this year make up a full 10.3% of the U.S. gross domestic product. "That's huge," said John A. Greco Jr., president-CEO of the DMA. Direct marketing advertising across all economic sectors is expected to contribute more than $1.370 trillion in incremental final demand nationwide, the DMA said.

One executive said he is not surprised about the healthy numbers being posted by direct marketing.

Matthew Ross, CEO of the Global Microsoft Account at McCann Worldgroup in San Francisco, said, "convenience, time savings and broad selection on the Web" are big drivers of the growth in direct marketing. He added that direct marketing as a discipline cuts an ever wider swath.

"Even areas that before weren't considered direct marketing are now becoming more targeted and accountable," Ross said. "That used to be reserved for direct marketing but, in our business, it's harder and harder to make the distinction between direct marketing and other forms of advertising. For us, the lines are blurring. Marketing investments that were outside of the field that we thought of as direct marketing prior to now are taking on direct marketing characteristics."

Ross said his clients have long been direct marketers. "They are already spending more than 50% of their investment in direct and relationship marketing," he said.

ROI and employment figures are also expected to grow, according to the DMA's report. An investment of one dollar in direct marketing advertising is predicted to return an average $11.65 in incremental revenue across all industries in 2006. That's an improvement over last year's $11.50 return. ROI is expected to grow again in 2007, to $11.79. To put that into context, the DMA said every dollar spent on other types of marketing advertising in 2006 is expected to return $5.29 in sales on average.

In terms of employment, the DMA said it expects to see a 2.6% growth in direct marketing jobs in 2007. Overall, U.S. employment is forecast to increase only 0.6% next year. M

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