The Direct Marketing Association's Quarterly Business Review for fourth-quarter 2007 shows that direct marketers, agencies and suppliers are anticipating a considerably smaller rate of growth than they were less than a year ago. And that's not the only change that's taken place in the industry in the past few months. The survey, released today, also shows that "general economic conditions" has been bumped to the top of the list of factors expected to affect direct-marketing revenue in the first quarter of 2008.
While revenue projections have been slowly declining since the second quarter of 2007, this most recent drop reflects a legitimate concern about the unpredictable state of the market. One of the marketers surveyed said the economy "is marked with a high level of anxiety and anticipation as to what is going to happen next and how it will shake out."
Using an index of 50 to represent no change in growth, the survey of 447 DMA members and nonmembers revealed that marketers, agencies and suppliers project an overall growth index of 57 for the first quarter of 2008. Marketers were the least optimistic, at 55, while agencies and suppliers projected an index of 59.
Early last year, the industry forecasted a very healthy index of 66 for the second quarter of 2007. From there it dropped to 65 for the third quarter and 63 for the fourth.
Anne Frankel, senior research manager at the DMA, said the lower projections didn't surprise her.
"There is profitability," Ms. Frankel said. "But they are working that much harder to get it. We haven't seen anyone holding up a red flag. [Their projections] are just more conservative and realistic."
That doesn't mean some agencies aren't setting lofty goals. Daniel Morel, chairman-CEO of Wunderman, said he expects 2008 to be as good as or better than 2007. Building on a big fourth quarter in 2007, the agency has had a strong first quarter, Mr. Morel said. "I don't know what the rest of the year is going to look like, but our forecast has double-digit growth for the whole year again."
However, Mr. Morel said he has noticed some areas of concern. "Retail clients are more timid than my business-to-business clients," he said. "They are slow to confirm existing budgets. We notice a gap between the time they say, 'Go ahead,' and when the money shows up. It's only weeks right now."
Nearly half (47%) of the marketers surveyed said a recession is likely, and in the event of one, the same percentage said they would keep marketing budgets at their current levels but reallocate spending. While direct mail may be one of the harder-hit areas -- 42% said they would reduce postage expenses -- other direct methods such as e-mail marketing (50%), database segmentation (44%) and search-engine optimization (35%) would see an increase in funding.
More than half of agency respondents (51%) said general economic conditions are likely to affect their direct-marketing revenue this quarter, as are client budgets (48%) and consumer confidence (32%).
Carla Hendra, co-CEO of Ogilvy North America, said the economic climate coupled with the fragmentation of media has created an "interesting and dynamic time" for the business.
"It's almost an all-bets-are-off kind of moment where you have to reinvent yourself," Ms. Hendra said. "We don't have a business anymore where we make a marketing plan for the year. We're making them every day, and that's had fundamental implications for how we staff and how we get compensated."