List specialists see industry in flux

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So many changes that affect the marketing industry overall have a direct impact on the list rental business. BtoB recently convened a select group of list industry leaders to discuss some of the issues they face today from both a list management and list brokerage perspective. The discussion ranged from prospecting to privacy to postal reform. ¶ The participants in the "virtual roundtable," conducted through a conference call, were: Leland Kroll, president, Kroll Direct Marketing; John Papalia, president of Statlistics; Rob Sanchez, senior VP-list management and interactive services, MeritDirect; and Jay Schwedelson, corporate VP at Worldata. BtoB Senior Reporter Carol Krol moderated the discussion.

BtoB: Is b-to-b direct mail volume still down and, if so, how are you compensating for the decreased demand and smaller list orders?

Jay Schwedelson: We haven't seen a real change in the overall direct mail volume as far as a major increase or major decrease. We are obviously hearing a lot of complaints about paper costs and the rising issue there. We are seeing mailers trying to get more aggressive. They are trying to lower the cost of the lists they're using, or their printer cost or whatever other vendors that they are working with. So things are changing, but I wouldn't necessarily say the volume is changing right now. The last six months is fairly strong in comparison to the 18 months prior to that. When I say the volumes have not gone up or down dramatically, we are really looking at it in the last six months. The mailers have said consistently that the next few quarters are looking good. In some categories like technology we've seen some consolidation, which is not really helping the cause. For example, with PeopleSoft being acquired by Oracle, with Symantec acquiring Veritas, there is some gulping up of significant mailers that may have a larger impact on direct mail volumes moving forward.

Rob Sanchez: We are actually seeing a little bit of an uptick right now. I think that's because there's probably been more of a "new normal" established out there. From what we see-predominantly on the business-to-business catalog side and in publishing-mailers have a lot more options at their discretion. They're using private and cooperative databases, which in the long run helps the mailer to be successful but in the short run sometimes has an impact on volume. So our philosophy is to try to be involved in their planning and their buying, especially on the list management front, to launch more products-to have a postal product, an e-mail product, an alternative media product. At the end of the day, it's going to be about customer acquisition, and we want to play a role in as many phases of that as possible.

BtoB:You talked about a "new normal" being established. Can you explain what that means?

Sanchez: From what we see, particularly in the database environment and in the business catalog market, mailers are doing a lot more segmentation. They are doing a lot more analysis. They are building models. They are placing a big emphasis on their customer files so that you don't have the huge volumes that you had in the past. The last few years, with the economy being what it's been, a lot of the good mailers have really honed their skills and tightened their budgets and tightened the way they've looked at mail plans. People are using a lot of different sources to do direct mail prospecting. I think in the long-term what it does is, those mailers that are doing things smarter are going to last longer and be more profitable and be more consistent.

Leland Kroll: We're seeing a mixed bag. Based on activity on the brokerage side, we're seeing that a lot of mailers are talking about implementing campaigns and getting back into mail on a larger scale than they had in the past, which is a good thing. On the list management side, we are still seeing a lot of segmentation, small orders where minimums are not achieved-asking for them to be waived-and we certainly work with the list owners to accommodate the needs of the mailer and the broker. But we are not seeing the tremendous uptick. It's just not happening. We are seeing continued resistance by some of our clients on the brokerage side to the prices of e-mail lists in the marketplace. We are seeing some resistance there where mailers are looking more closely at the responses. In response to what Rob said about the databases, where we have some of our lists that we manage [cooperative] databases, we haven't seen any significant user activity. So I'm concerned about where that activity is coming from and if it really is justified for different list owners to participate in some of the databases that are out there.

John Papalia: We're experiencing a mixed bag also. Depending on which market segment we are talking about, some markets are moving quicker than others are. I have noticed a steady increase over the last six months. I think that it possibly could be, like Rob says, a new normal. We kind of bellied out, and now things are slowly improving in some segments. I do find all mailers have become smarter in regard to not only looking at better list selects, better segmentation, better deals, but also, like Jay said, looking at cutting back on the paper costs and other vendor costs. We are experiencing a new economy where we have to be more flexible; we have to be more responsive. We have to make sure we are paying attention to all those details both for our clients and ourselves and utilizing every opportunity to maximize your mailer or your list owner's success.

Kroll: One thing that we've noticed, putting on a brokerage hat, is that the traditional January price increases across most of the traditional publishing files have not occurred this year. So it seems like it's business as usual from last year's price structure. Every year for many years, we saw upticks of either base rates and/or selections. And we haven't seen that type of activity, which is probably a good thing because when the list owner is also mailing, they're seeing that their costs are being impacted.

Papalia: I agree with Lee on that. This January we were much more selective in which lists we did a Jan. 1 increase with and which ones we didn't.

Sanchez: We did raise some prices this year but that actually was after holding them down for maybe the past year or two years. We've been kind of sensitive leading up to this. We have some list owners that haven't gotten any kind of increase for the past year just because we were talking with the brokers and everybody was talking about cost and cost per acquisition, and really taking a sharp pencil and looking at everything. A lot of these business categories behave very differently. They each have very specific criteria that they're looking at. Publishing is going to behave a lot differently than catalog. We have some publishing clients that can't get enough out there in the mail and they can't find enough names. We have some business catalog clients that can't make anything work. You really have to look at specific categories.

BtoB:Let's talk about prospecting. Are your clients renting b-to-b prospecting lists, particularly in e-mail?

Schwedelson: Obviously, without prospecting, we probably wouldn't even be having this talk because there would be no reason to have lists on the market. There's a sophistication level of the marketers that's just getting to a whole new level. On the direct mail side, I think it's been there for some time. Mailers have been pretty savvy about going in and doing different modeling, different selection criteria. Over the last 12 months, we've seen many of the e-mail files come out with almost identical selectability that their direct mail counterparts have.

We are starting to see a lot of the same analysis applied to e-mail programs that you've seen on the direct mail side. There are a number of key mailers that have built private prospecting e-mail databases that are still deployed by the list owner or their transmission company, but they're able to apply models and bring the data in-house. Thankfully, there's been a real big trust built between the list owners and their managers and the mailers when it comes to e-mail, and that's been a radical change on the prospecting front for all marketers.

Sanchez: One of the things that happened by focusing on the e-mail front, with the CAN-SPAM regulation, was that it forced e-mailers to ... come up with ways to eliminate duplications and apply suppression files. It has forced the issue of e-mail merges and database activity and also files and lists that are linked that have both channels, that have postal and e-mail. When you have a postal address you can apply overlay data, you can participate in databases. You can do a lot more when you have that kind of multichannel offering. The direct mail and e-mail channels, although they have different challenges, the ability to be able to do both and link them is important for what's going on now.

Kroll: We found that there have not been that many mailers on the b-to-b side take advantage of the multichannel opportunities that exist, and I think one reason is because the list universes for e-mail selectability kind of deteriorated to 15% to 25% of the postal universe. When mailers look at what the potential is, they determine that they'll stick with the postal arena. That's what our findings have been. We have actually had a few mailers in the technology sector delve into e-mail and then realize that results weren't what they had anticipated, and then jump back into the postal side; and the results had been stronger than they had been before they went to the e-mail arena.

BtoB:So there is still a significant number of people who are not prospecting at all in e-mail?

Kroll: Well, they've dabbled and then they've come back into the postal side.

Papalia: I think postal will always be the meat and potatoes of what we do in our new acquisitions. It's what people continue to come back to. E-mail is a good ancillary. It's multichannel. I agree that not as many people are involved in it as I thought would be involved in it. The ones that have dabbled in e-mail may continue to, but they always come back to postal. And I think they're getting some better results in postal because the postal lists have been put on a hiatus for a bit.

Sanchez: I agree with that, but I think when you look at e-mail, you have to keep in mind that it's pretty young. The biggest challenge we have is getting mailers to be consistent [across media]. We could be dealing with a catalog mailer or a publisher that will think nothing of mailing 20 to 30 million direct mail pieces. And when it comes to e-mail they very often will get skittish. They are worried about response on the first test. I think there's got to be an investment. The second thing that is really important that we tell our clients is, "Be realistic about the business model. E-mail works very well for lead generation, but you may not be able to sell products right off the bat." That's probably the second thing we've seen as far as marketers making mistakes is just not having a realistic assessment of what should happen with their business model. Now the upside is, once they do hone a business model, either lead generation or if they're doing product sales or whatever ... the mailers that have done that and been successful now have something they can go back to in relatively short order and get customers or get leads.

Kroll: Rob, are you finding that you're getting different requests from brokers to reduce the price for a test or give a free test? There are some high costs, but we are finding from the broker side that there are very few managers and list owners that are willing to budge. And I would think that it'd be a great opportunity to again have that investment for both sides.

Sanchez: First we look at the market. Particular markets where, for example, on the small-business side, a lot of the e-mailers are looking at cost to acquire. We do tests with discounted base prices and then as long as the client or the broker and the mailer will give us the actual response information, we will negotiate and try to get the best deal to make it work. We are trying to make it work from a mailer's perspective. What we end up running into at some point is a mailer that will drop 30 million to 40 million pieces [of postal mail] is just getting into e-mail. And they start testing, and they do a few campaigns, and they're doing 5,000 and 10,000-name tests, and they pronounce, "Well, it doesn't work." And I think it's more than the list. It has to do with the offer, the infrastructure and the Web site. There's a lot that goes into it, and I think there's also some patience that needs to go into it.

Schwedelson: We've been working with a lot of clients and list owners that have been very open to the idea, surprisingly, of structuring CPA deals, cost-per-acquisition deals. The scenario that's really being played out quite a bit is that the two dominant offers that are being utilized in b-to-b e-mail are webinars, where people are going out there e-mailing information and saying, "Please sign up for this free webinar about this product or this topic" and "Download the free white paper about a product or topic." We've seen a big uptick in list owners being open to the idea of guaranteeing a certain number of downloads of a white paper or a certain number of attendees for a particular webinar they may be promoting. If a mailer is guaranteed a certain attendance level at a webinar, they're going to choose that list over a list that's not willing to participate. So we think that for '05, it's going to be a big new portion of business.

BtoB:We marked the one-year anniversary of the new CAN-SPAM law in January. How has that affected your business, and how are your clients handling it?

Sanchez: On the list side of the business, the brokers and the managers that I was involved with seemed to work together. It's a strange business. We order from our competitors, and you have to make things work. I got a lot of feedback prior to the law taking effect from brokers, managers, major service bureaus and major clients, big legal departments that had done their due diligence. The biggest thing that caught people by surprise is all the theories on permission were really from a list owner side. The list owner had to allow opt-outs and maintain their files and really all the emphasis was on their side of the coin. What CAN-SPAM did is put that on the mailer side, and you had some fairly large mailers that had been aggressive in the past and two things caught them off guard. One was the legal bureaucracy of figuring out "OK, what's the right way to do it?" And the second had to deal with the fact that they had big suppression files. What's come out of that is people are doing more of that on the mailer side, they're doing merge-purge, and they're doing CAN-SPAM suppression services. It's made everybody a little smarter, but from our perspective, it caused a little pause in the behavior of some big mailers that drove the market early in the year.

Schwedelson: [CAN-SPAM] warp-speeded the e-mail industry because what it made the whole industry do was to make it more similar to direct mail. List owners, just like in direct mail in many cases, are sending out their lists to a third party, having them scrubbed against an unsubscribe file, getting them back and then e-mailing them.

While they're doing this, they're seeing these incredible duplication rates against their customer files and all of a sudden, we are heading into the zone of net name arrangements in e-mail. We're heading into the zone of talking about undeliverable e-mail addresses the same way you talk about undeliverable postal addresses. I think it needed a little bit of a kick in the butt to move in the right direction.

Kroll: I think that we have seen more of that occur on the consumer side than the b-to-b side. We are seeing that b-to-b side lists are much cleaner and the individuals are much more receptive to receive e-mails as opposed to the consumer side. And it's a much cleaner and much more regimented business, with less resistance and opposition.

Schwedelson: I don't know if I agree or disagree, and the reason I'm wavering is in the b-to-b space you don't really have people that are attached to their e-mail address the way you do with consumers. In consumer, someone switches their address, they notify you and they want you to know they switched. In b-to-b, someone else just comes in and takes that seat from the person before them and they're still inclined to receive a lot of that e-mail the person did before so they can get up to speed on what that person was doing. So I don't know that we're getting a true, accurate sense of the changeover of an individual. It's a difficult picture to read.

Sanchez: I agree with a lot of what Jay is saying in that it did move people along at a point when they needed to be moved along. A lot of what we are seeing marketwise is that these processes take time to develop, they take technology on both the postal and e-mail side. On the postal side you have a lot more segmentation, a lot of databases. On the e-mail side, it's kind of moving that way. Short-term, it's a bit of a hiccup, but people come out of it a lot smarter.

BtoB:What are the biggest issues with current legislation and with privacy laws on list rental for either postal or e-mail lists?

Schwedelson: The biggest issues that we're seeing from a legislative front have more to do with the SMB [small and medium-size business] space than they do in the overall business category. So many marketers are doing telemarketing efforts into the SMB space and into the home office space, and there's that gray zone of calling somebody at home but they're wearing the other hat. There are many instances where marketers are getting upset because there are do-not-call complaints being issued on the business-to-business side. That's been a headache to deal with. CAN-SPAM has been fairly contained. Logistically, it's been a pain in the neck setting up your operations group to be able to handle all the additional paperwork. Legislatively, I think that the consumer side is far more affected than the overall b-to-b space. It's something that everybody deals with where you're getting marketers complaining about a business file not being scrubbed against the do-not-call list when in fact it doesn't really make a lot of sense. There's a learning curve that needs to take place for the small-to-medium-size marketers, marketing into the small office/home office category.

Sanchez: I look at the whole thing as part of doing business nowadays. In addition to your core services to your clients-management, brokerage-there are a lot of value-adds that you get into in dealing with people's customer files, maybe doing enhancements, as well as the education aspect of staying in front of a lot of these issues and involving them in processes that help them get up to speed. There's a different exchange of information that goes on now that maybe didn't go on 10 years ago, or not to the [same] degree. Everybody was always concerned with privacy issues, but now with e-mail and a lot of the new legislation it has changed a lot.

BtoB:Postal reform is being reintroduced in Congress again. What's going to happen this year?

Schwedelson: Part of [Direct Marketing Association President-CEO] John Greco's new positioning is that he really wants to try to give direct marketers and the Direct Marketing Association the best image that it possibly can have. The industry as a whole is trying to put the best foot forward to say, "Look, we care about the individual-whether they are at business or at home-and what we can do to cater to them." From a self-regulation standpoint, it means lobbying in the best efforts for the vendors and all the recipients.

Sanchez: I agree with that. I also agree one of the things that we found with the way that CAN-SPAM progressed is that list companies can do so much, but we're actually not big in the big scheme of things. The biggest list company is barely anything compared to the biggest Fortune 500 company.

Kroll: No matter what we do, we are always perceived as the bad guys. People blame us for their e-mail boxes being full. One thing John Greco will have to do is to come up with a wonderful public relations campaign that indicates that our industry helps the mailer target better, and people's interests will be better served. And it'll be a whole process that mail will be directed to the right individuals both in b-to-b and b-to-c. Money will be saved and people will be happier with the type of communications that they're receiving. One thing we are hearing about and seeing is that paper costs are a major threat to our clients and they're looking for ways to target more effectively. And if we are going to be hammered by another postal increase and in '06 I believe, it's certainly going to impact our entire industry.

BtoB: How are you handling business this year to prepare for the expected 2006 postal rate hike?

Papalia: We've all been around long enough that we've had several rate hikes. In my 20 years, I've dealt with this a lot. Rate hikes affect everybody. There will be cutbacks, but mailers need to keep mailing, and it's necessary to anticipate our clients' needs. We'll do everything we can to help our clients survive the rate increase. We've learned in the past that if you stick your head in the sand, you won't survive, but if you deal with it head-on, you'll survive.

Kroll: One thing we encourage our clients to do is to test and test aggressively. Different segments, different files, look at a list from a different perspective, because there could be a huge amount of uptick and potential with aggressive testing. We have the ability to negotiate for better pricing terms or greater volume. This is the window of opportunity we have.

Schwedelson: Well I would be lying to you if said that I have been on a ton of conference calls discussing the rate hike and planning for it now and structuring campaigns towards that, because that wouldn't be a reality. What is reality is that as we keep discussing it, lots of different prices are going up. Response rates are not necessarily moving up. So, what's happening in many cases, some lists that may have been marginal performers that would have been kept in mail plans are being knocked out. Two years ago if a list just lost a little bit of money it still made it into the next plan. The list has to actually be profitable to make it to the next plan. So I think you are seeing a moving of the pendulum. The reason that I don't think we're seeing list costs increase and CPMs increase is because list owners are getting beat up every day by their manager saying, "I need a deal for this order, I need a deal for that order," and the list owners know that moving the price up is really fiction. All you are doing is changing something on a data card that you probably aren't going to get at the end of the day anyway. So regarding 2006, I think it's just a big onslaught of price pressure and performance pressure that we are trying to deal with on an ongoing basis.

Sanchez: I don't think there is specific planning around it, but it really speaks to the fact that as a broker and a brokerage department, you need to look at your expenses and your profitability and your response analysis. It needs to be part of the equation. It can't just be selecting lists. So I think more and more clients are opening up all that information to us so that we can help them mail smarter and cheaper and more effectively. It also is driving a lot of people toward the database environment where you can mail on a net-net basis and doing things that are just better outside of selecting lists. Doing models, doing enhancements and doing a lot of things within the environment that you might not be able to do on straight list rental. It drives home the point that, as a broker, you have to be involved in the whole planning process and all the costs involved.

Schwedelson: Don't you feel that for a lot of these small and midsize marketers many of the databases may not allow you to access some of the core lists that may not be participating in a given database and that it really is not the end-all be-all for all marketers? Unless you are the mass marketer, in many cases the database environment as a prospecting tool may not be your best bet.

Sanchez: There is no one answer for everything. What we find with e-mail is for certain categories e-mail will work; for another category, databases [might work]. I don't think it's necessarily a function of size or mass market, it's more a function of: Are they a b-to-b cataloger in a specific niche where there are a lot of like lists? A lot of publishers, catalogers and other mailers have very specific needs, and the database may not be the answer; but I think what we're seeing is there are choices. A lot of these things are available, and mailers are being very aggressive at trying databases or trying different co-op bases and mailing different ways and all with the eye on saving money, and short term it does have a little effect on list rental. Hey, as a manager, you'd rather get a gross rental than a net-net, but long term you know everybody is getting smarter through the process. It's part of the broker's role now to be equipped to be able to go to clients and offer some of these different types of prospecting.

BtoB: What are the toughest issues in the b-to-b list industry right now? What are your biggest challenges?

Papalia: We're all looking forward to a better economy in 2005, and my challenge is to maximize that opportunity for my company and my clients. How can I as a vendor better serve my clients as they come back from a downsizing? The e-mail marketing spam issue is another challenge for us.

Kroll: One of the challenges that we face as list brokers is the "flatness" of new lists being introduced to the marketplace. With acquisitions and consolidations, the list universe tends to be shrinking as opposed to expanding at this point. Response rates remain pretty much flat or are decreasing for some of our clients as well, and additional pressure is put on us as list managers to increase revenues when the universe of mailers is remaining at a constant level, and testing and expansion activity are somewhat minimal.

Schwedelson: Lee hit on an important point and that is the aggressive approach list owners have about dramatically increasing list rental revenue. It's ironic. One of the worst things that you can do for a list owner is dramatically increase the revenue. Because once you do that, all of a sudden you are not passive income that was on the side. You're now this critically important hunk of revenue that they want to exponentially grow. So the better job that we all are trying to do for clients, and in many cases accomplishing that goal, is raising the bar to such a point that it's almost impossible to achieve what it is a list owner may now want. It's an interesting dynamic, and over time, I think we are playing too much of an important role from a revenue standpoint for a lot of our clients.

Sanchez: I think the days of passive income are over. I don't feel as much of it as I saw 10 years ago when I started in this business, where a list owner would be happy and say, "Send me the check." There is very little of that, and the stakes have been raised and it does become a more integral part of their revenue. On the prospecting side, getting new customers and acquisitions is measured a lot more, and that's become very important; but that's also an opportunity in that it makes the market more competitive. We also, as industry professionals, have had to hone our skills in a much more competitive environment with higher demands from clients. At the end of the day, having gone through all that, there is a lot of opportunity and we've got a great skill set going forward. The ones that have made it through and continue to do what is best for their clients have gone through this very aggressive time, but along with the higher demand you also hold a higher profile in your clients' eyes. 

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