Direct Mail: Still a Reliable Source for Consumer Marketers

The use of direct mail by magazines may have declined in the last 20 years, and volume is under constant scrutiny for significant cuts, but the format remains at the heart of the source mix.

By Chandra Johnson-Greene
Monday, March 2, 2009

With tightening budgets and rising postal and paper costs, one would think that direct mail would get put on the back burner—quite the contrary. A fair amount of publishers still, in fact, swear by direct mail as an important marketing tactic, especially for their core audiences. But that doesn’t mean consumer marketers aren’t feeling the pinch is some form or the other.

AD spoke with audience developers from Hearst, Emmis Communications, Ogden Publications and Kiplinger’s Personal Finance to find out how the economy is (or isn’t) effecting their use of direct mail and what they’re doing to better target their key audiences. We also asked them to weigh in on the ongoing debate of whether direct marketing tactics could be shifted to online strategies.

A Look at the Statistics

While direct mail economics have improved, the use of direct mail as a part of the source mix has declined to its lowest level in 20 years, according to the 2008 Industry Survey conducted by Capell’s Circulation Report.

The survey—which was compiled during the period of April-June 2008 and included respondents from the ABC and BPA audited paid consumer magazine marketplace—found that overall industry net response rates for direct mail were up 2.27 percent in 2007 compared to the year before, and direct mail rate pay-up rates were up 6 percent.

Overall industry net response rates increased slightly to 2.27 percent as well as did direct mail pay-up rates (66 percent in 2007 versus 60 percent in 2006). Seventy-five percent of respondents reported losing money on every direct mail sold sub in 2007—down from 90 percent in 2005. Average loss per direct mail sold sub in 2007 was also down to $9.71 from $13.60 in 2005.

These slight improvements, however, are overshadowed by the decrease in direct mail use in the overall source mix. While direct mail had 26 percent of the source mix in 2004, it’s now down to 19 percent in 2007—the lowest level in 20 years. Insert cards (-3 percent), gifts (-1 percent), and surprisingly, the Internet (-3 percent) have also declined between 2004 and 2007.

Agent use seems to be on the rise: 90 percent of respondents report using direct mail sub agents and 60 percent report using cash field/PDS agents in 2007. Fifty percent report higher agent volumes in 2007 versus 2006. The use of DM agents in the source mix increased by one percent between 2004 and 2007, while the use of field agents increased by 2 percent.

The Economy’s Effect on Direct Mail

Because of the economic downturn, audience developers are being pressured to do some cutbacks in the direct mail department—not so much in the amount of campaigns they send out each year, but in the amount and type of people they send the packages out to.

“Those that are still mailing are mailing only to the core, profitable lists and are cutting out unprofitable lists,” circulation consultant Nicole Bowman told AD. “They are still testing packages, offers and lists, but in a much smaller way so they can maintain their overall mail profitability and/or acceptable loss.”

That is exactly what Ogden Pub­lications, publisher of Mother Earth News and Utne Reader, did, according to publisher/editorial director Bryan Welch. “Between 2006 and 2008, we decreased the amount of direct mail we sent out by 50 percent,” he told AD. “And during that time period, our net direct mail response rates increased by 36 percent, so while we decreased output we increased efficiency.”

Welch says that the company took the money it saved from decreasing DM output and diverted it to Web site development. And as a result, online subscription rates have gone up across the board. “Although we decreased our DM output, we still managed to increase our production of subs, but through our Web sites,” Welch says.

But Welch adds that the company’s use of direct mail will not become obsolete—at least for now. “Right up until the response rates completely disappear, we will continue to send out direct mail,” he says. “But how long direct mail will remain important to us—and I think it will be for a long time—depends on how quickly our channels online develop.”

Kiplinger’s Personal Finance has also cut the amount of mail it sends out each year, but not because of a tightening budget. “We send out two campaigns per year—two million pieces go out in May and four million go out in December,” circulation director Sandy Hunt told AD. “But this year, we’re going to send out half that much because we were able to get a multi-year offer we sent out to work. Therefore, we’re able to cut some of the volume.”

Hunt says that she doesn’t expect Kiplinger’s direct mail output to decrease any more than it already has. “We have a rate base to meet,” she says. “We need to keep our 800,000 subscribers, so we don’t have the luxury to cut down now. It just so happens that we felt comfortable enough with our multi-year offer to cut down on our output. It was a coincidence that it happened at the same time the economic downturn hit.”

For Emmis Communications, which publishes titles such as Texas Monthly, Los Angeles, and Cincinnati, cutbacks were made in a different area. “We’re still mailing out campaigns four times a year for our larger markets and two to three times a year for our smaller markets,” consumer marketing director Mark Harris says. “And we still plan to send out direct mail on that schedule going forward. Direct mail continues to be viable for us and is necessary for the long-term source mix. But we are taking a look at cutting the size of our mailings, as well as marginally performing lists.”

With Texas Monthly, for example, the staff has been looking at its audience from more of a “global perspective,” according to Harris, and has done some ZIP penetration analysis. “We looked at where we were mailing to, and we were able to eliminate some areas that weren’t performing as well,” he says. “We saw where our best readership was coming from and focused on those areas. We also joined a co-op database, where we were able to do some modeling of our subs and come up with alternative list sources.”

Alec Casey, VP, group consumer marketing director, Hearst Magazines, says the company has no plans to make any direct mail strategy changes for new title Food Network Magazine. “The first year is really about testing and learning—what creatives work, what lists, what offers, and so on,” he says. “We believe the sluggish economy has actually increased the demand for Food Network Magazine because people are cooking and eating at home more often.”

What’s Your Control Package?

Once again, unsurprisingly, the voucher is still winning hands down when it comes to the type of packages that publishers say receive the highest response rates. Food Network Magazine finds that has seen great results with a number of different voucher packages, as well as with a 6x9 traditional launch package.

Kiplinger’s also uses a classic voucher package with a freemium called “The Best of Everything,” which is based on a yearly magazine feature. “It’s a simple, four-sided pamphlet with 30 top tips on the best stuff of the year that our customers really seem to respond to,” Hunt says.

While Ogden uses a different control package for each of its titles, Mother Earth News continues to use a voucher package as its control, but the staff does test the price often. “What surprises me is that for years we operated under the assumption that charging $9.95 for a one-year subscription was gospel,” Welch says. “But we tested a flat price of $10 and it blew everything away. Our audience seems to really love flat pricing.”

Welch is also surprised, in general, that the voucher package continues to beat all others. “You would assume that huge, colorful packages with all sorts of additional components would beat the voucher, but the voucher continues to win time and time again,” he says."

Harris, who says that his customers also respond best to voucher packages, says that his staff is still testing some various twists to the control with added premiums and others, but having a tough time beating it—not from a response perspective, but from a profit perspective.

According to Paradysz Matera’s most recent MarketTrends report, which measures which offers and promotion formats publishers are using each year, not much has changed between 2007 and 2008. The use of #10 packages, however, continues to rise—42 percent of publishers reported using them versus 37 percent in 2007. The use of incentives has also increased from 53 percent in 2007 to 55 percent in 2008 with “premium on pay” still the most popular form of incentive.

Using Direct Mail With Other Sources

While creating hybrid campaigns—whether it’s sending out a DM package and following up with an email, or adding a URL to a direct mail piece—may seem like a great strategy for all publishers, it works better for some than others.

For a first-year title like Food Network, it’s been quite successful. “Direct mail is likely to be our biggest net paid source, followed closely by online-sold subs,” Casey says. “We include a URL to order on our direct mail pieces. We’re aiming to be source agnostic as to where orders are placed. Typically, direct mail is timed to drop (and email blasts are timed to go out) at the same time the issue hits newsstands. The response has been terrific and is significantly ahead of our initial estimates. Rates are among the highest we’ve seen for a launch at Hearst in 20 years.”

An online/direct mail hybrid has not worked so well with Kiplinger readers, according to Hunt. “We tested it before and it actually reduced response rates,” she says. “Giving the people the choice between returning the card and going online turns them off for some reason. The same thing happens when you do anything else, like faxing or calling. We’ve always found that in direct mail, giving them an offer with just one way to respond works best.”

Welch says that his staff is currently setting up special Web pages that will track how many consumers are being led to subscribe online from direct mail pieces they receive or if they coming directly from the magazines’ Web sites. “We don’t know what the results are yet, or whether it’s going to work but direct mail may become a way of driving our customers to our Web sites.”

Although Emmis isn’t currently printing URL addresses on its direct mail pieces (it’s DM offer is cheaper than its online offer), the company is currently testing DM as a way to promote its digital editions. “A lot of our titles have gone digital, so we’re going to have some direct mail pieces that will go out that will hopefully drive people to the Web,” Harris says. “It’s part of a multiplatform approach where we send out an email to outside lists and then follow-up with a simple postcard.”

Can Direct Marketing Strategies Work Online?

When we asked audience developers whether direct marketing tactics could be shifted online, AD receive a wide range of responses for both sides. We concluded that it depends on the market and the message.

“We don’t find that to be true. Our strategies online are quite different from those in print. Pricing seems to be consistently received on both online and direct mail promotions. Direct mail offers a complex set of alternatives to marketers, while online offers the complex set. Once you’ve tested on option, in our case, we haven’t found any common ground other than price and message. Beyond price and message, the tactics are pretty different.” —Bryan Welch, publisher/editorial director, Ogden Publications

“We believe tactics that work in traditional direct marketing definitely apply to online marketing. A good selling message works across both mediums. Offers must be credible, special, and make the ordering process easy. The creative must reflect the unique selling points of the magazine and its content. For Food Network Magazine, its brand recognition that sets it apart in the marketplace. We use the Food Network brand prominently because we know it increases open rates for both mail and email.” —Alec Casey, VP, group consumer marketing director, Hearst Magazines

“I think it is true, but it’s more a cost effective approach if you have the right audience to target. One of the ways that we are doing that it is through e-newsletter solicitation. Because we’re asking for their email addresses, we’re able to overlay those with the master file to see if they are active subscribers. And we would speak to those who weren’t differently than if they were. We would send them an offer to subscribe, renew, give a gift or just to continue to receive e-newsletters from us.” —Mark Harris, consumer marketing director, Emmis Communications