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In the face of an advertising recession, direct mail has been showing continual growth, with spending in the UK rising 4.6 per cent in the first quarter of 2003 and total expenditure at £658.2 million, according to the DMIS, which provides direct mail figures for Royal Mail. But that's not necessarily bad news for digital marketing. Again, according to Royal Mail, 42 per cent of marketers using direct mail also use email marketing, and this figure rises to 50 per cent among the top 500 advertisers.

More marketers and agencies are realising that digital media, such as SMS and email, can enhance their use of direct mail in an integrated campaign.

"We see email and SMS as complementary to the established strengths of mail media," says Tim Rivett, head of advertising markets at Royal Mail.

The company is so confident of this that it has launched two email-marketing services, which equip advertisers with tools to develop and run email-marketing campaigns they can integrate with direct mail.

Users of direct mail should ensure their interactive communications, whether web or email, are consistent with the mailings they send out, in terms of branding and message. For example, if mailers include a web address, this should take users to a splash page relevant to the message or offer being communicated rather than to the company's generic homepage.

In theory, companies which rely on direct mail for a large part of their marketing activity should also be investing in digital media to enhance the effectiveness of their mailings. "A lot of heavy direct-mail users are either using or considering using email," says Rivett. According to the Direct Marketing Association (DMA), the biggest spenders in the sector are financial services and home-shopping firms. "Home-shopping companies, such as Argos and Next, use email a lot and very effectively," he adds.

"Financial services companies are slowly getting into email, but they are very concerned about potentially damaging their brand by taking it into a new environment. On the other hand, email makes home shopping really sing."

Of the top 10 direct mail spenders, six are financial services firms, three are home-shopping firms, and one is a publisher, Reader's Digest, according to Nielsen Media Research. Heavy users of direct mail tend to shy away from talking about the medium, and their marketing strategy in general, claiming this is down to the competitive nature of the industry.

The firms in the top 10 vary in their use and understanding of the internet.

Companies spending a lot of money on direct mail also need to be aware of how internet users will perceive them. MBNA Europe Bank, for example, spent a whopping £46.4m on direct mail last year, according to Nielsen.

However, anyone who receives a mailshot and turns to Google to find out more about the bank will find the third result takes them to mbnasucks.org, a site devoted to the perceived iniquities in the firm's service.

Hospital Plan Insurance Services spent almost £12.9m on direct mail last year, according to Nielsen, bringing it in at number 10 on the list of big spenders. Many of its mailings are based on a prize draw mechanic whereby users enter the 'lucky number' on their mailing on the HPIS site (www.hpis.co.uk), which allows the firm to add email addresses to its postal database. HPIS also uses web site Cashmatch.com to gather email addresses and promote its insurance products. Under the 'frequently asked questions' section of the prize draw site, it claims that 'because we have no costly high-street shops and no salesforce, this is our exciting way of attracting your attention'.

Financial services company Capital One, number two on the Nielsen list, spent more than £22m on direct mail last year E and says the medium forms 'a very large part' of its marketing strategy. "Direct mail often leads the way and we take what we learn from there to other channels, if appropriate.

We use direct mail to solicit new customers and to communicate new offers and information to existing customers," says a spokesperson.

However, although Capital One has done some testing, it has not run any major email-marketing campaigns and says it spends a considerable amount more on direct mail spend than digital. The company does view email marketing as a future possibility and even says this may overtake direct mail in its marketing mix one day but, according to the spokesperson, "that seems a long way off. We will continue to use a variety of channels as long as they are effective. If customers are more receptive to alternative forms of communication, then we would be happy to use it," he adds.

Michael Stewart is new media director at agency JDA, whose clients include home-shopping firm Damart, sixth on the list of top direct-mail spenders.

While he believes that both email and direct mail have a role to play, Stewart says clients have a finite budget and must therefore go with what works for them. "You can use email to drive people to the web, but they still like to sit on their sofas and flick through catalogues," he suggests.

"We are researching the effects of getting the two channels working together in terms of return on investment. For example, is it more effective to precede a piece of direct mail with an email or follow it up with one? Both media have a role to play."

It will be interesting to see if Littlewoods adopts the heavy emphasis on email marketing adopted by GUS, which its owners, the Barclay brothers, have just bought through their company March UK. Earlier this year, it partnered Freeserve, which offered web access in 266 of its stores. The partnership also sees Freeserve and Littlewoods undertake joint direct-mail and email initiatives. Littlewoods.com will get premium placement on Freeserve's e-commerce channel in a range of categories, as well as in Freeserve's email communications with customers.

According to DoubleClick's 2nd Annual Digital Marketing Survey Europe, carried out in conjunction with Claritas Interactive and Benchmark Research, email is the most used online marketing tool. Some 38 per cent of marketers allocate more than 10 per cent of their direct-marketing budget to email and 61 per cent expect this to increase. Email is used by 69 per cent of European marketers for customer retention and by 62 per cent for acquisition. However, in the UK, more marketers use email for acquisition than retention.

They are also more likely to use email to upsell and cross-sell (55 per cent) than their European counterparts (less than 40 per cent in France, Germany and Spain). UK marketers also use it more to convey information.

DoubleClick polled 1,500 senior marketers in Europe for this survey in October 2002. It found that external email lists are used more extensively in the UK (by 85 per cent of marketers) than in other European countries, perhaps because UK marketers use it slightly more for acquiring new customers.

Most European marketers use in-house email lists, with single opt-in the most common form of gaining consent. This is as opposed to opt-out where consumers tick a box if they don't want to receive email, or double opt-in where consumers tick a box to say they do want to receive emails and then reply to the first email to reconfirm. In France, however, opt-out is the most common form of gaining consent, for nearly 80 per cent of marketers.

That a significant number of marketers are allocating more of their direct marketing budget to email shows digital is gaining ground. When we see 99 per cent of the firms that use direct mail also using email, rather than today's 49 per cent, we will know the net has become a truly mainstream marketing tool.

BCA INTEGRATES MAIN THREE COMMUNICATIONS CHANNELS

Bertelsmann-owned book club BCA was the third-biggest spender on direct mail last year (£21.27m), according to Nielsen. BCA launched online in 1999 and has since used email to talk to customers, as well as direct mail and telephone.

It holds 300,000 active UK email addresses and sends 3.5m recruitment emails and 1.5m member emails a year. Email marketing generates about 25 per cent of online recruitment. Integration of its three communication channels is key for BCA.

"We are looking into the best sequence of events: is it more effective to send a mailer or an email, or to follow up a mail by phone?" says Tim Schiffers, director of marketing at BCA. "We try to integrate our interactive and offline activity, so if someone follows a web address in a press ad or mailer, they can enter a tracking code so the offer they see online is the same one they saw offline."

Torsten Schuppe, head of interactive at BCA, says: "The magazine is a good engagement device. We try to do things with email that we can't do with the magazine. If we wanted to run a campaign around the BBC 'best books' list, we could turn it around in 24 hours." The book club has started opening up its database to third parties, so offers look like they come from BCA, but they will not sell names.

Obstacles to email include the youth of this marketing sector and some members being less likely to be online.

"The direct-mail industry is very professional, with mailing houses that act as de-duping (remove duplicate addresses) agencies, but it's not the same thing online as there is no-one that you can trust to do de-duping, so it's almost impossible to use third-party lists," adds Schiffers.

LLOYDS BANKS ON DIRECT MAIL FOR ALL MARKETING ACTIVITY

Lloyds TSB was the fourth highest spender on direct mail last year, according to Nielsen Media Research, shelling out £20.1 million.

Mailings comprise its largest marketing channel, both by customer contact and spend, says David Baughan, senior campaign manager at Lloyds TSB. "We use direct mail for everything - cross-selling, customer communication, support, dissemination of information and mandatory mailings."

The bank has one major problem though; its internal computer systems cannot support email addresses on customer records. "If we want to send emails we have to extract the information from other databases, which lessens the relevance and timeliness of the emails we send," says Baughan.

There's another problem. "Most of our products require a signature," he says. "The introduction of digital signatures will be a big factor as to when we start using email marketing more. I suspect it will become a more important tool for us."

With financial services firms being some of the biggest direct mail spenders, it's interesting that Lloyds has a number of barriers to overcome before it can invest in email marketing. However, despite its problems with email, Lloyds TSB does use digital for marketing to some extent, particularly banner ads and search-engine keyword marketing.

Last year, Lloyds TSB Insurance embarked on a £1m campaign on Google UK, which was brokered by Zenith Interactive Solutions. Branded as Lloyds TSB Insurance and Screentrade, ads ran on the results pages for some 1,000 insurance-related keywords with the aim of boosting online sales and driving traffic to the bank's Insurance.co.uk site.