Data is often thought of as the lifeblood of the direct marketing business, and with good reason. No business can survive without finding new customers, while at the same time common sense dictates your existing customers should be a rich source of new business if you can target them with the right offers. Either way, it's all about pitching offers for your products and services to people who do not already have them, and to do so successfully, data - on what these people like, where they live, what they earn and what sort of things they buy - is essential.
Our latest survey of data-spending trends in the direct marketing business reveals an industry in flux. It shows a slow but perceptible shift from acquisition to retention; an increase in custom analysis and modelling; a greater reliance on outsourcing; and, for the first time, it reveals the extent to which email is taking its place in the direct marketing mix. These are the headline findings, but what of the detail?
The Audience
The make-up of respondents to our survey is virtually identical this year to last, with 57 per cent operating in the B2C arena, and 43 per cent in B2B. And their overall data spend also looks very similar this year to last, with an average of 63 per cent of the data budget going on acquisition, and 37 per cent on retention. This compares with a 65:35 split last time round. Interestingly, in 2005, the split had been a much closer 52:48 in favour of retention, so it seems that after focusing their efforts on acquisition in 2006, direct marketers are now coming back to the idea that existing customers are equally deserving of their attention.
"There does seem to be more of a shift to in-house, retention-based work," says Scott Logie, managing director at Occam. "Acquisition targeting seems less sophisticated, but spend is increasing on data warehousing, hosted systems, campaign-management tools and modelling on customer data and retention. This suggests more of a focus on existing relationships and less on acquiring new customers - and this is definitely a shift we have seen this year."
In terms of how companies manage the process, the majority of data-acquisition activity (61 per cent) takes place in-house, with 39 per cent outsourced, identical to last year's survey. When it comes to customer-retention activity, however, there has been a notable increase in outsourcing, with 30 per cent of retention budgets spent with outsourced providers, compared with 22 per cent a year ago.
Dave Cockerill, managing director of GB Group DataSolutions, says the company is seeing a big demand from clients for customer retention activity. "We fully expect businesses to further grow their retention budgets this year," he says. "We are currently working with well-known companies in the retail, online gaming, hotel and financial services sectors on targeted retention campaigns informed by high-level behavioural data."
Clients are looking beyond offline channels to make their campaigns work more effectively, says Cockerill: "Increasingly, consumers are more responsive to being contacted by mobile text message and email, and these 'new' channels are changing the landscape with regards to the more traditional marketing channel of direct mail.
"Email, SMS, MMS and 3G are not killing existing channels. They are simply shaking up the mix and making sure everybody raises their game. Success of a retention campaign comes from maintaining and refining the sound principles good marketers currently apply: right channel, right time, right message."
Data Purchase
Our survey shows data purchase is only a small part of the picture. More than half (51 per cent) of the companies surveyed said data purchase represented under 20 per cent of their overall annual data budget. Fewer than half (41 per cent) said the amount spent on data had increased over the previous year although, more encouragingly, 60 per cent said they expected to increase the amount spent on data in the coming year (see box, page 6).
When it comes to the type of data client-side marketers are buying, there are no seismic shifts to report, with only slight increases in the percentage of the data budget allocated to rented lists, demographic, lifestyle and transactional data.
Huw Davis, chairman of the Huw Davis Partnership, says he is surprised that rented lists, which account for an average 42 per cent of direct marketers' data-buying budgets, still play a major part in clients' cold prospecting activities. "It surprises me given the comments I get from clients about direct mail response rates dropping and the need to find new ways of acquiring," says Davis.
"I think a lot of clients are stuck in a volume game and, like drug-taking, it is hard to wean themselves off the approach. Some clients seem to have an acquisition strategy that is 'volume, volume, volume', rather than 'test, learn, refine'. This is more about how they report results to shareholders or industry monitors than about where they should invest their money for longer-term quality customers."
Yet Richard Webster, group communications director at DLG, argues that the figures reflect the enduring appeal of lifestyle data. "The key here is the emphasis on precision targeting," he says. "Advertisers need to squeeze the most out of every piece of data they purchase, and pinpoint messaging requires keen selection. Both lifestyle data and transactional data tend to provide this better than other sources, such as subscription data."
And Suzanne Lewis, director of list broking services at list broker HLB, says more data is being taken on a multi-usage sponsorship agreement, enabling the data costs to be offset against more campaigns. The data, says Lewis, is then being used for both mailing and/or telemarketing.
Mining Harder
While basic list rental remains important, however, more companies did increase their spend on geodemographic segmentation, customised segmentation, and on modelling (see box, page 9). This ties in with the anecdotal evidence that companies are mining their customer and prospect databases harder in order to uncover the rich seams. With direct mail retaining its place in the public's perception as the cat that everyone loves to kick, the trend towards improving targeting - while increasing return on investment, reducing waste and lessening the environmental impact of direct marketing - looks set to continue.
Simon Lawrence, chief executive of B2B data firm Information Arts, is encouraged by this trend. "The results of the survey indicate increased analysis of buying behaviours, and an increased understanding of preferences," he says. "Historically, many databases, and indeed marketers, have overlooked several determinant factors which govern the buying and selling characteristics of any given business, but I am pleased this appears to be changing."
These findings are also reflected in the part of the survey that looks at spending on data services. Here, the percentage of respondents who said they had increased their spending on modelling, database building and analysis was up in all cases on last year (see box, page 9).
This, at least, gives Huw Davis cause for cheer. "I am pleased to see the growing realisation that clients need to leverage their investment in data by analysing and modelling customer information," he says. "The lack of resources to do this in-house, and the high cost of recruiting good analysts, are causing a likely shift towards outsourcing of this solution in the next few years. This is why I set up the Huw Davis Partnership."
And Cheri Mayell, senior list broker at Lloyd James, says she has witnessed an increase in demand for analytical support among the company's clients. "This is why we are developing our business offering to incorporate the use of analysts when formulating the data-buying strategy," she says. "Analytics allows you to develop a meaningful relationship with your valuable prospects and we at LJ are keen to promote good prospect relationship management. In the past, it has been difficult to integrate client bespoke analytics with cold data selections, but we have found that by bridging the gap between supplier and client effectively, we can find ways to allow clients access to quality supplier data in a secure environment."
Another area that has seen increased spending is campaign management, with 31 per cent of respondents saying that when it came to retention, they had spent more on campaign management tools in the past 12 months than in the previous year, compared with 18 per cent in 2006's survey (see box, page 13). This, says Tony Lamb, managing director of Lamb Direct Consulting and chair of the Direct Marketing Association (DMA) Data Council, is a sure sign of the growing sophistication of direct marketing campaigns.
"As companies increase the volume and complexity of campaign activity, they require specific applications, rather than Excel spreadsheets, to manage the activity," he says.
Outsourcing on the Rise
Looking at data management overall, this year's survey shows a clear trend towards outsourcing. For list-processing activities, 43 per cent of the budget now goes to outsourced suppliers, compared with 31 per cent last year (see box, page 10). For data quality work, 33 per cent is outsourced, compared with 21 per cent last year. And for customer retention activity, the percentage of the budget allocated to outsourcing has almost doubled, from 15 per cent last year, to 28 per cent this year.
This is supported by the trend in clients' spending on technology. When we ran this survey last year, 40 per cent of respondents spent more than 30 per cent of their annual data budget on technology. This year, the figure is just 12 per cent of respondents. This trend can, perhaps, be partly explained by the falling price of technology.
But there are other factors too, as Lee Witherell, head of analytics at Chemistry Group, explains. "There seems to be a 'bedding down' of customer relationship management projects," he says. "Organisations appear to be finishing the building of their databases (and therefore spending less) and are now moving onto implementing customer management tools and analysis and modelling projects, where they are spending more in 2007 than in 2006."
It does also lend credence, however, to the theory that, such is the pace of change in the world of IT, direct marketers are increasingly entrusting the management of their customer and prospect databases to specialists who can make the necessary technology investment, spreading the cost across their entire client base.
This idea is further supported by the finding that, in terms of data services, only 18 per cent of respondents increased their spend on database hosting last year, compared with 44 per cent the previous year. "Outsourcing, and in particular overseas outsourcing, provides a very cost-effective and flexible way of running many basic data processing tasks," says Witherell. "But," he cautions, "the outsourcing model is more difficult to apply to more strategic areas such as campaign management and creative services."
Ups and Downs
Regarding where the money is being spent in each area, some interesting themes emerge. In the list-processing arena, only five per cent of companies increased their spend on validation over the previous year, compared with 26 per cent the last time we ran the survey; while 22 per cent increased their spend on screening, compared with 26 per cent in 2006 (see box, page 10).
Looking at spending on data-quality processes, 19 per cent increased their spending on address management, which is encouraging until you compare it with the figure of 25 per cent that increased spending in this area last time round; 22 per cent increased their spending on validation, compared with 33 per cent in 2006; and 17 per cent increased spending on de-duplication, compared with 22 per cent last time.
Mark Roy, chief executive of The REaD Group, says he is surprised at the one per cent drop in those investing more in suppression. "This is the age of consumer choice, and it is important to ensure that respect for consumer preference is adhered to," he says.
"Organisations should, if anything, be investing more, not less, in their suppression. I would have thought that the recent consumer backlash against the direct marketing industry would have served to make marketers more aware than ever of the need for investment in robust suppression solutions, as well as rigorous adherence to best practice, to ensure their database is as accurate as it can be."
However, while the figures suggest some direct marketers may be averse to cleaning and de-duping their database, when it comes to customer-retention activity, the survey shows greater spending on building database platforms and data warehouses, on customised analysis, and on modelling.
"Spend is increasing across the board for geodemographic data, custom segmentations and more advanced analysis and modelling," says Leanne Douglas, head of product management and marketing at EuroDirect. "This reflects the increased importance of targeting and campaign relevance in the mind of the modern marketer. The use of solid analysis and an increase in customer insight is a high priority for the industry, which should positively affect campaign success and return on investment."
The Rise and Rise of Email
For the first time, our survey asked respondents about their spending on email data. The findings provide hard evidence to support the pervading feeling that email is now an essential part of the DM landscape. On average, direct marketers are spending 28 per cent of their annual data budget on email data; 62 per cent boosted their email data budget last year, while only five per cent decreased their spend. In the year to come, 57 per cent expect to increase their email data spend. No one said they were expecting to reduce their spend (see box, opposite).
DMA Data Council chair Lamb says he expects to see budgets continue to move in this direction, away from traditional list purchase. "The key area to watch will be the large-volume financial service and credit card mailers," he says. "But mail still has an important part to play, and as knowledge of the channels grows, mail will become once again integrated into the campaign strategy."
This strikes a chord with Nigel Bennett, sales director at Market Location, who says: "In our experience, email is frequently purchased as an add-on to other data sources. Marketers are finding that email often works best as part of a multi-channel campaign. By using email to supplement and underpin traditional data, companies are reaping the benefits of integrating their communications."
Martin Kiersnowski, chief operations officer at Interactive Prospect Targeting (IPT), says the arguments in favour of email as a direct response medium, notably speed of campaign statistics and lower execution costs, are well known. He points out that while Internet Advertising Bureau statistics suggest that the rate of increase in online advertising spend has slowed, both our survey and the DMA's National Email Benchmarking Report indicate very healthy growth rates for email marketing budgets.
"The question many people are asking is: 'Where are the extra budgets coming from?'" says Kiersnowski. "Is email marketing growth taking spend away from direct mail and online advertising, or is it down to the allocation of new funding? This survey points to a slowdown in both overall and lifestyle data purchase, but it's probably safe to say that email is increasing at the expense of both."
He says IPT has seen a rise in client demand for cost per lead data provision, and for harnessing the internet's potential for real-time lead generation for financial services, telecoms, home improvement and even charities, often with telephone as well as email consent. "I suggest many traditional data purchasers are not only moving away from big acquisition mailings but are also willing to pay more for highly qualified, fresh prospects," he adds. "Traditional lead generation, through sponsored questions in lifestyle surveys, is too costly and far too slow, while outbound telephone calls reach an ever-decreasing audience due to the Telephone Preference Service, and are notoriously difficult to quality assure."
IPT is not alone in chasing the real-time online lead-generation market. Ex-IPT man Craig Carr formed Lifestyles Online last year to do exactly that, and Gavin Male, a director at tmnmedia, also notes the rise of online lead generation. "This gives advertisers a transparent medium to use the web as a means of obtaining contact information for qualified prospects," he says. "One of the ways brands do this is to use tmnmedia products such as 'Plum Offers' which give consumers the chance to win prizes in return for signing up to carefully targeted offers from advertisers."
With consumers now far more knowledgeable and appreciative of how and why their data will be used for marketing communications, says Male, good data marketing companies have realised the value of communicating in an open and honest manner. "Unsolicited or vague opt-in to third-party communications only results in increased complaint levels and damage to broadcast capabilities and reputations" he says.
Retention versus Acquisition
Email remains predominantly, though not totally, a retention medium, with 61 per cent of respondents using it for retention, 39 per cent for acquisition (see box, page 11). If this acquisition figure looks high, it should be remembered that acquisition includes those companies that encourage a consumer to register their email address details, and then embark on an opted-in communications programme of email newsletters encouraging them to make a purchase. Indeed, 66 per cent of email data budgets are spent on driving consumers to a website to register their details in order to build a prospect email database, with 23 per cent spent on renting third-party opted-in email data, and 11 per cent on other activities such as co-registration and email address appending.
That said, Matthew Simons, client services leader at Acxiom Digital (Europe), says he is surprised that the figure for the number of companies using email for customer acquisition is not higher. "In my view, many organisations are looking to replicate successful offline customer acquisition activity online," says Simons. "With the amount of high-quality email data available in the marketplace, customer acquisition has proven very successful, as organisations are able to send targeted and relevant offers at a relatively low cost."
Simons adds that Acxiom is seeing a trend in companies renting third party email data to drive their own email address acquisition, with the primary objective of persuading the recipient to leave their details by signing up for a newsletter, for example. "This then opens the channel for further dialogue aimed at converting the prospect into a customer at a later stage and usually fits in well with the company's customer retention activity," he says.
Simons adds that client retention is an important element of Acxiom clients' multi-channel communication strategy. "Even though retention emails may not convert to immediate sales, they help long-term customer engagement," he says.
Email Frequency
When it comes to the frequency of email communications, 72 per cent of companies using email send a marketing email out to customers or prospects at least once a month, with monthly (33 per cent) and two-weekly (24 per cent), the most popular mailing frequencies.
In Simons's view, there is no right or wrong answer when it comes to the frequency of email marketing communications. "Different customer and prospect groups have different tolerances when it comes to the number of email messages they receive," he says. "Ultimately, the number of email communications a company sends out depends on how targeted and relevant the message is. For example, a sandwich chain may send daily emails to its customers who are likely to be interested in hearing what the daily specials are, whereas an insurance company is unlikely to receive the same level of appreciation."
But HLB's Lewis sounds a note of caution. She fears that email as a channel is already highly commoditised, leading to the risk of channel abuse, with individuals being bombarded with messages by organisations fixated with using the initial acquisition costs as the key measurement for success. "The argument that people are opted in or even double-opted in and are therefore keen to hear from any company falls flat when companies contact as many people as necessary in order to generate a pre-agreed volume of new customers," says Lewis.
"The very fact that email messages are so personalised means that poor targeting can have a significantly detrimental effect not only on the channel, but also on an organisation's brand."
If the channel is misused in this way, Lewis believes, consumers will begin closing their online mail boxes to organisations far more quickly than has happened in the offline world. "This is in no one's interests," she says. "Surely we all want more channels to work for clients, giving them flexibility and reach in terms of getting their message out there?"
Market Location's Bennett shares these concerns, but he believes the results of the survey are encouraging. "It is refreshing to see that the mantra of responsibility is being taken on board by marketers, with more than 60 per cent emailing customers or prospects no more than once a month," he says. "The last thing we would want to see is email go the same route as fax marketing. But the results show that email is, for the most part, being used with sensible restraint."
Conclusion
The move toward digital channels seems unstoppable, particularly in light of the much-reduced environmental impact of email, versus traditional direct mail. And in the current climate, it would be no surprise to see email taking an even bigger chunk of direct marketing data budgets in 12 months' time. But it would be dangerous to write off direct mail just yet. If companies are reducing the size of their mailings, and, by implication, the amount of money they spend on pure names and addresses, they are doing so by carrying out more sophisticated targeting, modelling and custom analysis of their customer and prospect databases.
There is little evidence that there is any less money going into the data pot. Rather, it seems, it is just being allocated in different ways. If this leads to more relevant, better targeted and more successful campaigns, no one, especially those at the direct marketing coalface, will be complaining. Who knows, maybe even consumers will like this modern, more sophisticated form of direct marketing. DM 2.0 anybody?
QUALITY IS KEY
Data strategies are becoming more sophisticated and our customers are constantly looking for better ways to understand and profile their contact data. This is supported by Direct Response's survey, which shows marketers are investing similar amounts in data analysis, enhancement and segmentation. There is also a drive to acquire new data and customers, supported by the rising spend in rented lists, which now account for 42 per cent of the data buying budget (see box, page 6).
However, effective address management is an essential starting point for all segmentation, profiling and future marketing campaigns. This remains true even if the communications are by email, which appears to be the growing trend, as each email address is appended to a customer contact record, containing name and address information.
While it appears that 11 per cent of organisations plan to spend less on suppression, it still remains an area of investment for the majority. At QAS, we have seen increasing sales of our desktop suppression tool, QuickAddress Batch with Suppression. This suggests that customers are moving away from traditional online or bureau services and taking in-house control of their data.
- Rebecca Clayton, director of marketing, QAS
THE TECHNOLOGY CONUNDRUM
In the 12-month period between surveys, the number of marketers spending more than 30 per cent of their budget on technology has plummeted to a third of 2006 levels, to only one in eight. What could have caused such a change in the pattern of spending?
The change will be a combination of two main factors: technology becoming cheaper as part of the same broad spend, and overall marketing budgets increasing. Technology spend falls mainly to software providers or to the outsourced application or managed services market, a highly developed competitive space. Prices have steadily fallen under the pressure of professionalised procurement, while many vendors are showing the benefits of long-term investment at scale, something that allows them to maintain a viable operating margin.
At the same time, marketers have recognised that mass-market technologies only deliver competitive advantage when they are used in a different way from rival brands. The functional performance of the three leading technologies in each sector continues to converge, and few have a truly unique selling point. It's the classic sign of a mature market.
Increased time and budget are being spent on taking commodity technology components and creating value through customisation, enhancement and campaign optimisation programmes. Spend on analysis, segmentation, new data sources and consultancy have all shown growth as the focus shifts from what you have to what you can do with it.
Marketing technology is without doubt here to stay, but the figures suggest suppliers need to keep running lean, while maximising the extent to which their users can customise and configure their software or services. The winners will be those that allow talent to add value through insight.
For the marketers who provide this talent, it may mean that the initial adoption phase of marketing automation is slowing, and practitioner skills and experience are the new battleground. As the platform becomes a "business as usual" cost, brands will hopefully begin to divert investment to new ways of standing out from their own crowded marketplaces.
I will be fascinated to see if marketers can make the budget case for this better than their finance director can make a case for trousering the cost savings next year.
- Chris Duncan, managing director, Infoloop
THE SECRETS OF EMAIL TARGETING
Online Direct Marketing (ODM) has seen massive growth over the past three years: 53 per cent growth in spend in 2005 and 35 per cent in 2006. It is a very effective market: in 2006, 50 per cent of online users went online every day, and their most frequent activity was using email, according to TGI.net. It is hardly surprising that Forrester Research/Interactive Advertising Bureau predict ODM will grow by 18 per cent this year.
A recent survey by ESPC US found 80 per cent of email users hit the spam button without opening an email, while 82 per cent use the unsubscribe link to get off mailing lists they have previously subscribed to. This results in blocked channels, failed campaigns, unhappy users and an increase in unsubscribes. As email recipients become more discerning of what they want, companies using ODM need to become more responsive, more switched on and more appropriate.
To offline marketers, it seems almost trite to say: "Use targeted data." But the stringent, profile-led criteria that most data buyers use to select data for postal campaigns are often forgotten when buying email data. This allows unscrupulous sellers to find a "fit" where none exists and for unwary buyers to embark on campaigns that will impact negatively, both on them and their brands.
All reputable sellers will also broadcast for you, but will look to you for compelling copy, good source code and winning creative. If you're not sure what works, look at what everyone else is doing - as a rule, if you see a campaign several times, it must be producing results - and learn from it. Finally, keep testing, and test in volume. The old offline rule of testing small amounts to see what happens doesn't work online - reducing online broadcast quantity produces a more than incremental decrease in response rates.
As online data becomes more valuable, so our use of it needs to become more targeted; if we get it wrong, we don't just mess up our own campaigns, we risk alienating a buyer for everyone else.
- John Greenacre, head of data, Interactive Prospect Targeting.