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Direct marketing ads are generating more than a 10th of U.S. consumer sales, according to research being presented today at the Direct Marketing Association convention in Dallas.

The three-year study prepared by WEFA Group, Bala-Cynwyd, Pa., also reveals the aggressive expansion of business-to-business direct advertising and the growing popularity of the telephone as the tool of direct advertisers as postal rates continue their ascent.

Direct media advertising, at $134 billion in 1995, will account for 57.1% of total U.S. media spending of $234.5 billion (see accompanying chart).

Direct marketing advertising will generate 7.1% of combined U.S. consumer and business-to business sales. On the consumer side, direct will spark 12% of sales-$594.4 billion out of $4.9 trillion. Direct will generate 5% of total business-to-business sales, or $498.1 billion of $10.6 trillion.

By 2000, those percentages will rise 1 point as consumer sales from direct grow 7.2% annually and business-to-business sales advance 10.2%.

WEFA tracked direct advertising across all major industries and media. Media in the study included direct mail, telephone marketing, newspaper, magazine, TV, radio and "other" (out-of-home, online, facsimile, package inserts, point-of-purchase, etc.). Neither Yellow Pages nor newspaper classified was included in the research.

The direct portion of each of these media, including TV, if not already weighted toward business-to-business advertising will be so in five years. Direct advertising in TV will grow to a projected $23 billion in five years, when 51% of the direct-ad volume will be business-to-business.

Business-to-business direct response already claims 54% of direct media advertising. In five years, it will climb to 56% of direct's total projected at $191.7 billion.

The study suggests the small number of marketing services agencies typically regarded as purveyors of direct are responsible for only a minor portion of the direct ad volume, given the propensity of the direct message surfacing in the nation's media.

WEFA considers an ad to be direct when it either stimulates a direct order, generates a qualified lead that can result in a sale or drives store traffic that results in sales. As an example, out of direct's $14.1 billion contribution to TV's $38.1 billion advertising pot projected for 1995, almost $10 billion is termed lead generation. The use of direct to develop "leads" is the dominant purpose of most direct.

Data show retailers, from general to specialty and catalog mail-order houses, dominate use of direct expenditures by industry groups. Growth in the next five years, however, will come from less traditional users such as educational services, non-depository institutions (such as credit agencies and mortgage bankers) and wholesale trade (businesses selling merchandise to retailers or industrial, commercial and institutional business users, or to other wholesalers like agents and brokers). Each of these three emerging groups will record direct ad growth of at least 9% per year over the next five years.

Greater use of telephone marketing is feeding the higher projections. WEFA places the direct portion of phone marketing expenditures at $54.1 billion in '95, or 65% of the $82.7 billion in total phone marketing advertising. The direct portion will hit $78.9 billion in five years.

Al Dyon, president of Allstate Motor Club and current chairman of the DMA board, said phone marketing has already captured his corner of the market.

"In 1990, [Allstate Motor Club] generated 10% of new sales over the phone. Now it's 75%," he said.

The reason is the increased cost of postage.

Catalogs, the largest component of direct mail, will face the brunt of new postal hikes in the next 18 months aimed at penalizing "non-machinable" mailers. Size and addressing on catalogs run counter to postal automation. Catalog postage rates were last increased in 1991, a 40% boost; that followed a 35% increase in '88.

Direct mail accounts for an estimated $31.2 billion expenditures in '95 and should hit $41.8 billion in 2000, the study reports.

With direct mail losing its edge as an inexpensive provider, direct marketing in general will become more expensive.

Phone marketing in particular is the medium of choice among business-to-business advertisers. This group generates 66.3% of direct phone expenditures and will claim 68% by 2000.

This labor-intensive technique may explain why it currently takes 1.47 persons on the business-to-business side to generate the same amount of sales as one person in consumer direct marketing.

The WEFA report placed the employment in consumer and business-to-business direct response advertising (agencies, in-house and service bureaus) at 1.9 million in '95, a number that will grow to 2.2 million in five years.

But that is less than a 10th of a 19.1 million work force currently affected by direct. Employment goes three tiers deeper than this "creative" side. Creative is fed by sellers, sellers by suppliers and suppliers by inter-industry providers, consisting of manufacturers of equipment supporting the production of direct response advertising and order fulfillment activities.

This four-strata work force will mature to 23.1 million in five years, a growth rate in employment of 3.9% per year, compared with the general economy's expected annual growth of 1.6%.

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