Brands are still using less direct mail, but the decline in spending on the medium has slowed compared with last year, suggesting that it may be levelling off.
Exclusive figures prepared for Marketing by Nielsen Media Research show direct mail spend fell to £1.57bn in the year to June 2008; a decline of 6.2% year on year, com-pared with a 10% drop the previous year.
The survey of 10,000 consumers, who forwarded their direct mail to Nielsen for analysis, shows that some of the biggest market sectors have slashed their spend.
Finance, by far the biggest sector for direct mail, is down 3.5% year-on-year to £522.9m, while the second-biggest category, mail order, has fallen by almost 20% to £352.7m. Charities, the third biggest, have collectively cut mail budgets by 5.6% to £216.6m.
However, there is some good news for the industry, in that travel and transport companies and household-equipment suppliers have significantly increased their spend on direct mail, by 35.5% and 27.2% respectively.
The biggest-spending brands are once again financial-services companies. Of these, MBNA Europe has the biggest budget, spending just over £35m on about 77.8m pieces of mail over the period.
By contrast, last year's number-two brand, Capital One, has plummeted to 53rd place after cutting its budget by 83% from £36.9m to just under £6.3m.
Halifax, Lloyds TSB and Barclaycard all remain in the top 10 spenders' table, while broadcaster BSkyB has slid from fourth to ninth place following a 45% cut in its spend.
There are three reasons for this shift away from the use of direct mail in marketing campaigns. The first is the general downturn in marketing spend as a whole, which has arisen from a gloomier economic outlook.
The second is its relative expense when compared with other direct channels. An email campaign, for example, is far less costly, and with access to broadband more widespread than ever, reaching the masses online has never been easier.
Finally, there is the green issue. Consumers are aware of a need to cut back on pack-aging and paper, and many frown upon direct mail and the waste it creates. The rise of online banking, for example, has been driven in part by consumers' desire to cut back on paper-based communications.
These factors converge to present a challenging future for the industry, says Neil Fisher, a former direct marketing manager at Esure, who left the company earlier this year to launch his own creative, direct response and branding consultancy, The Fish Den. 'The days of mass mailing are well and truly over. The glory years ended in about 2005. Nowadays, it is much cheaper to use email and you can afford to be less targeted with it.'
Nonetheless, Fisher defends the reputation of the industry, arguing that much of its bad publicity is unavoidable when you compare it with other direct media.
'Direct mail gets a bad press. Most people receive more email spam than junk mail, but letter boxes don't have spam filters,' he says.
The decline in direct mail can be explained by the fall-off in financial-services spending, as brands attempt to clean up their communication with existing and potential customers in both an environmental and ethical sense.
'It could be because of the downturn, or a more general hit on marketing budgets. Finance has mass-mailed more than any other industry, so there is a market correction going on,' adds Fisher.
Experts agree that direct mail is best used to provide information and offers to existing customers. Mail that cold-targets potential customers often delivers poor response rates, and inevitably gets dismissed as junk mail.
Indeed, it is interesting to note that five of the top 10 spenders in the table direct more than 50% of their activity toward existing customers - a marked shift from the traditional model of targeting new prospects.
Ben Allan, managing director of door-drop specialist TILT, predicts that 'the future of direct mail will predominantly consist of warm mailings. Cold mail is likely to fall into non-existence as advertisers seek other more profitable and less costly alternatives'.
Ian Cruickshank, head of direct and digital at Billington Cartmell, echoes Allan's view, and is critical of companies that 'see 2% as a good response rate'.
'Direct mail is not dead,' he says. 'There is still a place for it, but it is best used when you already have a relationship. It shouldn't be used cold. Brands need to go back to basics, focusing on relevance and engagement. They should not assume that because they have the customer's name and address right, the job is done. If you have the data, do something clever with it.'
Much of the criticism levelled at the channel has centred on environment-al issues. The idea of millions of envelopes heading through the letter -box and straight into the bin has provided plenty of material for TV documentaries and tabloid headlines.
Fisher says going green is a huge challenge for direct mailers, given the high cost of addressing environmental concerns. 'Generally speaking, it is more expensive to use environmentally responsible stocks and inks,' he says. 'When you consider that ROI has decreased in recent years, it places your average direct mail manager in a difficult position. How many people would feel happy going to their board of directors and telling them that ROI is down, but recommending that they absorb an increased cost-per-thousand in order to be more environmentally responsible?'
However, Heather Westgate, chief executive of direct marketing agency TDA, says it is vital when talking about environmental concerns to separate out the mass-mailers from the more targeted campaigns.
'Using direct mail as a mass-marketing medium leads to unnecessary waste. Big direct mail spenders generally take every effort to reduce waste through complex segmentation, list hierarchies and testing strategies. In fact, many efforts to make direct mail greener - such as using recycled or sustainably sourced paper or avoiding envelopes with plastic windows - are nothing but empty gestures if they are not underpinned by robust targeting.'
Looking ahead, Fisher says the industry's keyword should be 'relevance'. He points out that a car insurer, for example, has a one in 12 chance of reaching a consumer at the right time for their annual policy renewal, and that communication at any other time of year has a far lower chance of being retained. 'We need to make much more intelligent use of data,' he adds. 'There are a lot of data providers out there but it is hard to find one that can truly add value to your business.'
'Most mailers have extensive transactional data, and this could drive highly targeted and personalised communications,' says David Laybourne, managing director at REAL Digital. 'While some organisations are starting to recognise the value of this app-roach, others still dismiss it as "too hard" and continue with a one-size-fits-all mailing strategy, despite the fact that it is relevance of timing, content and offer that is the key to success with direct mail.'
The latest Nielsen data, which we analyse in the following pages, shows that badly address-ed mail carrying incorrect names is still an issue for the industry. This demonstrates the importance of targeting, which is under-pinned by the use of high quality data.
Data providers have a major role to play in arresting the steady decline of direct mail as a communications channel. Inevitably, the brands that use the freshest and most reliable data will gain the best response rates from consumers.
According to Annette Holmes, managing director of data solutions company Prospect Swetenhams, to improve responses, data suppliers and marketers must develop closer relationships.
'In the past we have seen the industry operating on a supply-and-demand model: the client wants names, the broker supplies them,' she says. 'The model emerging now is based on a more account-managed system, where the client and supplier work together to devise a strategy, which they then use to develop solutions.
'It's about working on all aspects of a client's data, analysing what they have, and then developing what they need. As an industry, we have talked a lot about things like the Single Customer View, but until we really crack the relationship between client and supplier, this will not be delivered.'
Brands' use of direct mail is likely to decline again in the next 12 months, as consumers' tendency to ignore communications that do not come via their preferred channel, such as email or SMS, grows.
However, the slowing rate of decline offers the direct mail industry some reassurance that the medium still has a healthy future.