With a new year, we all get the chance to renew our vows, so to speak. At the Fall DMA, we had the chance to do that, and it was extremely intriguing. As a group of over 50 top-level list company executives, we tackled many big questions that challenge the industry, and I think we each were able to reflect on our own feelings about where we want our businesses to go. Like our LLG event earlier in the Spring, we hammered at the questions, but moved quickly to solutions. For instance, in the Changing Role of the Broker/Manager group discussion, one of the top ideas to emerge was that list company compensation should be structured more in line with agency payment structures, using retainer fees for services versus commissions, exclusively.
In another group, The Shrinking List Universe, there was healthy debate about universe sizing, but solid agreement that the consumer audience was shifting to multiple channel shopping and that list companies need to adapt their analytical tools to better understand the impact on results. With this event, our Spring event, increased collaboration with the DMA’s legislative communication, and the launch of The List Leader, the List Leader Group had a very successful 2005.
For 2006, we are planning events as well, and anticipate increasing our involvement with the leadership of the List and Database Council to co-develop networking and educational opportunities for senior executives.
On the legislative front, even this week, we have seen legislators and policy enforcers like the FTC increase the pressure on compliance, particularly of Can SPAM, the telemarketing rules, as well with data security laws. For sure, the LLG will be intimately involved with the DMA to sort out the relevant issues affecting our industry and to provide the proper forums for senior-level dialogue, one of our most important mandates.
Both in The List Leader as well as via email, be on the lookout for upcoming events. We’ve had sell-outs for all of our events, and we are eager to see you this year, and want you to become an active participant in our activities. Please be in touch directly with Lee or me, or any of the LLG board members. Our role is to serve you and the industry, and we are proud to represent you.
The last page of this newsletter will capture and summarize the challenges and resulting solutions that were proposed during the Fall DMA show.
We always want your input, so please feel free to contact any of the LLG Board members listed on the newsletter masthead by phone or e-mail with any ideas or concerns you may have. You can also e-mail to ListLdrs@the-dma.org with any additional ideas that you may have.
Until next time...
Leland Kroll and Chris Paradysz
From the LLG Board
The need for us all to stay connected and keep communication lines open has probably never been more important than it is in these times. Therefore, we invite you to access the DMA Member Directory to
contact your list leader colleagues in the hopes of fostering a continuing dialog on the issues and challenges within our community. The more we communicate, share, and work together, the stronger and
healthier we can become. (Sign-on with your password to access the DMA Member Directory: www.the-dma.org)
Integrated Customer Marketing: The Next Phase
By Dennis Bissig,
We know we have to maximize our sales and profits as the economy continues to grow and change. The challenge is HOW!
We have learned, during this time of change, to successfully manage each and every line of a P&L in order to remain viable in the direct marketplace. The challenge is GROWTH.
We have kept sales coming in during this period by wisely using a variety of media. We have proven that making increased use of targeted promotional techniques, in both online and offline promotions, lowers customer attrition and keeps inventories lean. The challenge is INTEGRATION.
Going forward, it’s the ability to integrate online marketing more fully into our sales programs that will generate significant increases in sales and profits for catalog/web merchants.
Look at the economics: Email advertising costs can be as low as 5% of net sales compared to the traditional promotional costs that are often in the range of 25-35% of net sales. Harnessing the power of e-mail marketing can put a significant dent in advertising costs, which are traditionally the second biggest drain on the P&L after merchandise costs.
Replacing just 10% of our offline customer contacts with e-mail promotions, without losing sales, could add a full two or three percentage points to our bottom line! Is there any one of us who would decline an opportunity like this?
To fully benefit from this opportunity, catalog/Web companies need to aggressively
test and research various programs like:
- Contact Strategies to determine the most profitable combination of online and offline contacts with Web-only, catalog-only and combo buyers. The goal here is to quantify how many catalogs should be mailed and how many e-mails delivered to each customer.
- Offer Strategies to define what types of product, price point, and promotional offers work best for each medium and each group.
- Upsell and Cross-sell Strategies to increase the value of a telephone or Web order utilizing traditional methods and some of the state-of-the-art computer technology that now exists.
- Cross-Channel Sales Tracking of your company's Web, retail, and catalog sales to determine the effect each promotion has on sales from all channels.
Our industry has been very proactive in recognizing the power of e-mail marketing to drive sales. The job now is to utilize this knowledge more fully, to integrate it into our marketing plans, and utilize its efficiency to increase the bottom line.
Consider the potential operating efficiencies when e-mail programs are fully integrated:
- Each and every order that is migrated from the telephone to the Web can save your company $5 or more in processing costs, so long as your fulfillment and Web software are integrated.
- This transition can also significantly improve customer service and lower costs, by cutting down on the number of order inquiry calls and letters.
- Once an order is placed over the Web, there are opportunities for follow-up contacts with that customer during the ordering and shipping process — e.g., the order confirmation, shipping confirmation, and follow-up e-mails. Each of these contacts — which the customer is expecting and is thus more likely to open and read — affords an opportunity to offer your customer another product and thus increase lifetime value.
Catalog/Web companies have done an outstanding job of capitalizing on the Internet to increase sales and move slow-selling product. Next there needs to be more testing of the Web's ability to optimize and target the number of offline catalogs we mail, the size and design of each catalog and the targeted buyer segment to receive each catalog.
This is truly the next big opportunity for our industry. The most successful companies will be those that start now to generate the data, analyze the results, and capitalize on the full integration of e-mails, Web sales, and targeted catalog delivery. Will your company be among them?
(Agree? Disagree? Give us your thoughts: ListLdrs@the-dma.org)
Evolving Compensation for Brokerage and Management
By Cate Mumford
Senior Vice President, Gnames Advantage, LP
Our clients demand ever-increasing levels of expertise, involvement, and productivity from us as organizations and individuals, while the average compensation for all of our efforts remains at (or even below!) the old industry standards of 20% of billing for brokerage and 10% for management. Clients are well aware of the value in our efforts, and yet we have no basis of compensation for the special services we increasingly provide.
When we face the facts, I think we can all agree that there must be a better way. Everyone has considered options within the scope of business as usual. However we may need to look further outside the box to find a model which might ultimately deliver a more equitable, if not profitable, work/compensation ratio.
Some facts. These are sometimes painful, but still facts of which we are all aware. Although there are a multitude of reasons, there are some that may have the greatest influence on our business economics.
- We wrote the book. We set our own standards many years ago and we’ve stuck to them, providing clients with all of the services needed to successfully market lists or rent lists for their own mailings, on a simple, low commission basis. To an extent, we’re stuck in a rut of our own creation.
- Costs are increasing. The basic costs of doing business are increasing across the board—postage, office space, advertising, supplies, salaries, technology, etc., become more expensive each year.
- Productivity demands are growing. As margins shrink, organizations demand more of each of their employees. Higher costs also lead to client staffing reductions, especially in marketing departments, which in turn increase existing staff workloads and produce greater needs for outsourced support.
- A shrinking knowledgebase. Expertise in client marketing departments may also be scarcer due to salary and staffing reductions, leading clients to call more often on the expertise of their brokers and managers.
- Competitive pressure. Someone will always do it for less, right? In the interests of retaining our valuable clients, we simply meet their increasing needs for services and expertise.
- Increasing industry legislation. As government involvement in consumer and industry affairs grows, we are faced with increasing needs to understand and cope with expensive and time-consuming legal issues.
Some options for change. Outside of bringing new clients aboard, we’ve each had, heard, and even employed any number of ideas in an effort to stay in the black. Some of these are successful, while others may be weighed and simply discarded as unworkable for one reason or another. Here’s a small sample along with some thoughts about their workability:
- Commission increases. Managers and brokers might reasonably command a higher percentage based on increased effort alone, but it is likely that competitive pressure limits the viability of this option.
- List Owner contributions. We might ask list owners to contribute funds for advertising and marketing of lists for example. However in view of their own shrinking margins, such requests may not always be popular.
- Performance-based commissions. Scaling commissions up once an agreed baseline is achieved can be an option for both managers and brokers. For managers, the baseline might be a revenue level. For brokers, it might be a percentage of successful list tests. The hurdle here is often in reaching agreement on what the baseline should be, since clients will always want more.
- Transaction fees. Attaching a reasonable fee to order transactions in both management and brokerage can certainly help to offset rising operational costs. Still, we wonder whether clients will be willing to accept it, and how much of an offset it actually represents given the risk of poor client reception.
- Invert ratios for testing. We might both encourage performance and improve economics with a 90/10, manager/owner division of revenue on test orders, as opposed to the usual 10/90. In other words, reward the manager for test generation, which leads to continuation and ultimately increased list revenue for the owner. List owners might well see this as a positive.
One feature common to each of the ideas above is that they are rooted in our long standing business model. They make use of the points of leverage that are traditional to our business, without taking into account that we are now more often asked by our clients to support them in roles that are non-traditional to us. Roles like database marketing strategist, strategic planner, circulation manager, forecaster, advertising/media planner, and database developer are more common for us than ever before, as our clients rely increasingly on our expertise. In the past, roles such as these have more typically been performed by consultants or agencies, so...
What about an agency model? I won’t presume to describe the details of this, but perhaps a brief sketch of some components will get the industry brains working to good effect.
- Basic Annual Retainer. This might be calculated as a standard percentage of estimated overall business conducted for a client.
- It might be specific to the client size/needs and should definitely be attached to specific levels and/or types of service. For example, the retainer might cover a specific number of sales hours, number of orders placed or entered, certain types of staff contribution, etc.
- This clearly establishes basic work parameters and helps to manage client expectations of performance.
- If the base retainer can be less than a standard industry commission, it will likely also be appealing to clients, who could then make use of additional services as needed or desired.
- It might be contended that clients will stop at the basic service, and some may indeed do that. However, given compensation balanced with effort, this may not be a negative at all. In fact, it can free valuable resource to pursue other lucrative projects.
- Billable Time. Services and/or staff use beyond those provided and specified under retainer, could be utilized by clients on request and billed at agreed hourly rates.
- Hourly rates might be developed based on the type of service, the level of staff involvement required, or some combination of the two.
- Billing of billable time could be monthly or quarterly, depending on the level of a client’s expected use.
- No matter how it is constructed, billable time creates potential over and above the retainer, and could be a good source of growth.
(Any other thoughts or suggestions? Let us hear from you – ListLdrs@the-dma.org)
The Datacard vs. The Reality
By Jay Schwedelson
Corporate Vice President, Worldata
At what point did the datacard become the start of a negotiation? Regardless of what price is on a datacard, many list brokers tell their clients that they can get a reduction in price. Many times this requested reduction has nothing to do with any calculations related to performance or profit/loss analysis. While some list managers and list owners are firm in not allowing negotiations off of datacard pricing, many give in very easily. This is understandable, as the broker will threaten with any future business from that particular mailer.
So the question is whether datacard pricing is inherently too high, or our list brokerage skills and expertise become so devalued that the only thing of true interest to our clients is our ability to cut costs wherever possible?
If the answer is that the prices are in fact too high, do you believe that a price reduction would actually eliminate the negotiation process or simply drive prices even further down? Unfortunately I don't believe ratecard pricing for major mailers will ever be satisfactory. The mailer feels the need to 'win' at the expense of the list owner or manager.
It is always refreshing to hear from a broker whose mailer has found a list to be "no longer be profitable to mail". This comment is often supported by actual details and facts that result in an intelligent price negotiation. Unfortunately these conversations are few and far between.
In addition to the wonderful world of price negotiation, we have another exciting area of business dealings called "the make-good". In the postal world, a list may be run incorrectly and need to be re-shipped, but generally, if a list drastically under performs, the file is not included in the next campaign. That is the basics of direct marketing 101. In the world of e-mail list rental many mailers feel that a certain level of performance is inherently guaranteed, and if not achieved a "make-good" is due. While this is never stated on an order or even discussed, it is apparently expected. Many newbie and non-traditional direct marketers are at the core of the e-mail list rental environment. Perhaps this is why they do not feel that the creative/copy or the actual offer plays any part in performance.
Perhaps this is more of a rant than an article, but I believe sharing frustrations with my peers is a healthy thing to do.
Here’s what three of Jay’s peers have to say about his “rant”:
“The data card became the start of a negotiation when managers started raising the prices of selection charges to the point where $40-$50/m in selections became commonplace. I might be cynical, but selects have increased a lot more quickly than base cpms in the past few years. The fact that they're not commissionable to brokers wouldn't have anything to do with that, would it?
“I can't speak for the negotiating stance of any other brokers, but seeing exorbitant selections, and base prices upwards of $125/m in certain categories like technology and financial services, it doesn't take a financial genius to recognize that list costs can become prohibitive very quickly. Most of our clients have significant house files, and if we can't bring outside lists in at a reasonable cost, they will substitute poorer-performing house names, which will be more profitable based on the lower cost.”
“I understand where Jay is coming from. However...
“In this competitive industry, a data card is like a 'sticker price' on a car. Since brokers are expected to negotiate on behalf of the mailer, it is necessary for list managers to anticipate that. Hence the hiked up data card price. If brokers don't watch the mailers' costs (among other things), he just isn't doing the job. I guess this is a necessary exercise.
“Further, the mailer isn't obligated to justify the cost reduction with facts. When was the last time you shared your domestic budget with your car dealer to justify a cost reduction? The mailer is the buyer. The list manager/owner can always say no.
“I have more concern about the datacard that 'sells' and doesn't provide a description that is substantive and honest. That is the job of the data card. As a broker, I want to see facts, not fluff.
“In the world of e-mail, many lists are vague with reference to source site. If poor performance is accompanied by high volumes of bounce backs, make goods make sense to me.”
Response Media Products
“Reading Jay's 'rant' made me chuckle. It’s for the reasons he set forth that we have NOT dramatically or artificially increased our datacard prices. It is very rare that we will negotiate down from our datacard base. That's not to say we won't negotiate a lower net based on need (rarely for a test), or that we won't waive a selection here and there. But list negotiations have gotten completely out of hand. When was the last time you heard paper or merge/purge providers negotiating their prices down to help improve response?
“We don't actively rent our e-mail addresses, but it sounds from Jay's comments that a re-education might be needed for some of these more novice direct marketers. (the make-good!).”
Hackette Filipacchi Media
US List Management
By Chicca D'Agostino,
President, Focus USA
On March 2, 2006, at a breakfast seminar sponsored by the List and Database Council, Jerry Cerasale, VP Government Affairs for the DMA, provided an update of the legislative landscape, covering the following areas: security breach legislation, Kids Do-Not-Email (UT, MI), Do Not Fax, proposed Do Not Mail bills, spyware legislation, cell phone marketing, postage for e-mail and postal reform. Following is a summary of these discussions.
Security Breach Legislation
Congress and the House are putting together a bill that will require notify those whose Personal Privacy Information (PPI) has been accessed or lost in order to prevent identity theft. The final bill will pre-empt any State law and is expected to come out of committee and be signed by the President by October. A brief overview of the proposed legislation follows:
Four bills are pending in the House and Senate dealing with:
- Notice (to consumers when there is a breach)
- Access and Correction (allowing consumers to correct inaccurate data)
Three of the four bills define Personal Privacy Information (PPI) as name and address (or e-mail address) along with any one of the following:
- social security number
- financial account number (e.g., bank account, credit card, etc.)
- driver’s license
One of the bills proposed by the Senate Judiciary Committee wants to also include the following in the PPI category:
- exact date of birth (YYYY/MM/DD)
- mother’s maiden name
- any government license number (e.g., hunting, fishing, nursing, etc.)
Three of the four bills contain language regarding the triggering of this notification to include “significant risk of identity theft.” The House Energy and Commerce version wants the trigger to be “reasonable”...
The term “information brokers” is referred to in all four bills. This refers to the controller of the data, or the list owner – not those who broker the sale of data between the list owner and the end-user.
The DMA is lobbying to:
- maintain a distinction between marketing data and PPI. Jerry asked during the meeting if mother’s maiden name or exact DOB are necessary marketing data. It was generally agreed that it was not, provided the industry could keep year and month for DOB. It was felt that including government licenses would crimp the marketing efforts of companies who compile – and use – such licensed information;
- keep “significant” rather than “reasonable” as the trigger;
- exclude “access and correction,” as this could open up numerous problems and be very costly for marketers. However, if it is to be included, the DMA wants to make certain that it pertains only to PPI data – not marketing data.
Kids – Do Not Email List
At present there is legislation on the books in Utah and Michigan that says marketers may not market inappropriate products to minors. This includes products that minors cannot use or that may be considered dangerous to them (e.g., alcohol, drugs, firearms, adult entertainment, and perhaps violence). Both states maintain a self-reported “do not e-mail” file of e-mail addresses that marketers must use to scrub their e-mail lists if they wish to e-mail market in those states.
The law says that this scrubbing process must be completed every 30 days at a cost of between $.03 and $.07 per name passed. One of the states also includes a cost-per-hit. Unlike CanSpam, opt-in does not overcome the opt-out provision. Therefore, if an e-mail address is on the list, marketers cannot e-mail to that address, even if there is an existing business relationship (EBR).
Similar legislation is pending in Illinois, Connecticut, Georgia, Wisconsin, and Hawaii. The Federal Trade Commission (FTC) is opposed to these laws because they believe that, as written now, the process could actually be used to identify children as opposed to protecting them. The DMA supports the FTC position.
Do Not Fax
The Junk Fax Act was signed into law in July 2005 and went into effect at the beginning of the year. The law states that businesses cannot fax into companies or to customers with whom they do not have an EBR. The issue is with the definition of EBR. Currently, it is defined as a customer with whom you have done business within the past 18 months and a prospect with whom you have had contact within the past 6 months. Another wrinkle, which may be very interesting, concerns the California Do Not Fax law, which was recently struck down as unconstitutional because of the language in the Telephone Consumer Protection Act TCPA) that was passed in 1991.
DMA UPDATES INFORMATION ON CALIFORNIA FAX-BAN LAW.
In October 2005, California passed a law requiring businesses to obtain prior express permission before sending unsolicited fax advertisements to prospects and customers. However, in February 2006, the US District Court ruled in a declaratory judgment that the state law applies only to intrastate faxes -- and not to interstate faxes. According to the court, the federal Telephone Consumer Protection Act (TCPA) preempts the law's application to interstate faxes. To assist members in interpreting what the law and the court's decision means, DMA has issued two fact sheets on the California law and federal rules pertaining to the sending of commercial faxes.
** To access "DMA Alert: California Fax Law," click here .
** To access "A Matter of Fax: What Direct Marketers Need to Know About Sending Commercial Faxes," click here .
** For additional information, please contact Serenity Edwards, DMA's director of ethics & consumer affairs, at 202.861.2445 or firstname.lastname@example.org.
Do Not Mail
Do-not-mail legislation is being discussed by state legislators in New York, Missouri, Illinois, and Massachusetts. The DMA is forming a coalition with all mailing entities, including postal unions, the United States Post Office, marketers, and non-profit mailers, along with all vendors, to fight such legislation. The DMA will be requesting a call-to-action of its membership in their 3D newsletter to help prevent this from happening. Be on the lookout for this and be sure to lend your support.
A Spyware bill has passed in the House and follows to some degree the Guidelines released by the DMA, which state that Spyware must be able to be removed easily and without software. The California law seems to be a good one – and neither pertains to Cookies.
In many cases of Internet advertising, the advertiser does not know where its agency has placed its ads. As one example, an auto manufacturer’s ads turned up on porn sites recently, unbeknownst to the marketer. The FTC has asked the DMA to look at the issue of Affiliate Marketing, which pertains to knowing where company ads are running.
Cell Phone Marketing
Marketing to cell phones – either through telephone calls or text messaging – is in violation of the Telephone Consumer Protection Act (TCPA). Within the last 6 months, however, there has been a flurry of internet action warning consumers that telemarketers were creating a phone book of telephone numbers and would soon start calling them unless they added their cell phone numbers to the Federal Trade Commission’s (FTC) “Do Not Call” list. Jerry described this as Urban Legend and said this will not happen. The power of the internet resulted in 40,000,000 cell phone numbers being added to the DNC list.
Postage for Email
Recent discussion among internet providers is that Yahoo, AOL, etc., might charge for guaranteed e-mail delivery. According to Jerry, there are members on both sides of this issue and the DMA has not yet determined its policy. The DMA is encouraging marketers to get white-listed in order to ensure their brand’s good reputation.
There are two versions of postal reform, one from the House, and one from the Senate. Both relate to retiree health benefits, which refers to the benefits paid by the postal service for military service. Right now there is a likely to be another postal increase of somewhere between 8 and 10% to take effect in April or May of 2007. After Reform, however, it is anticipated that future postal increases will be tied to the rate of inflation or less.
(What do you think? Let us know at ListLdrs@the-dma.org.)
MARK YOUR CALENDAR
Critical List Industry Issues Briefing with John A. Greco, Jr., President & CEO of The DMA
Thursday, May 25, 2006
12:00 noon – 2:00 pm
The Princeton Club of New York City
15 West 43rd Street
LLG Dinner Discussion: "Role Reversal for our Industry – are we the Client or the Service provider?"
June 19, 2006
5:30 pm - 9:30pm
Blair Perrone Steakhouse
885 2nd Ave. at 47th Street
Dinner and round-table discussion format for DMA List Leaders Members-Only. Contact Lisa Merizio Smith or call 212.790.1567.
Direct Marketing Days in New York Conference & Exposition
June 20-22 2006
The Jacob Javits Convention Center
August 15, 2006
Details to follow
“List Leader of the Year” Award Dinner
August 15, 2006
Cocktails at 6:00; Dinner at 7:00
Details to follow
Details to follow
Recap of List Leader Meeting – Sunday, October 16th, 2005
The following are the notes taken at the round tables on these issues:
The Changing Role of the Broker/Manager:
- Brokers and Managers are working harder for less money. There are smaller margins so managers are struggling to do operations and marketing for the standard 10%.
- Mailers are asking for more “out-of-the-norm” services and not paying for them.
- Managers and brokers are taking on more of the decision-making/marketing and processing role.
- Negotiations are fluid, making it more difficult to determine an optimum deal.
- Most of the pressure coming from mailers is due to their increasing costs of doing business.
- Compensation for list company services will vary, and there is always someone who will do it for less.
- Dealing with legal issues has become more daunting, and firms are evaluating whether to outsource or insource legal counsel.
- Ask the list owner for a marketing allocation over and above the management fee.
- Consistent technology with a uniform ordering system.
- List rental agreements – create “shell” LRA’s rather than all the disparate ones.
- Commission for selling a test should be higher.
- Have a labor fee for transactional orders.
- Have the compensation structure like an agency using either a retainer fee or billable hours so we’re paid for our “brain time.”
- Need to evolve and expand services, improve staff and customer service.
The Shrinking List Universe: This was considered more of a BtoC issue.
- Co-op database name contribution is decreasing despite the addition of incremental new programs.
- The internet has empowered consumers to easily get what they want. It is difficult to track this behavior and result, but it does represent the future.
- Big box stores and the internet are major drivers of consumer demand.
- List companies should compel non-traditional marketers to utilize direct response marketing to sell their products and services, creating new sources of names.
- Mailers have become risk-averse and are not experimenting with sources outside of response files.
What Does the List Industry Want or Need from the DMA, or From Each Other:
- The creative needs to be revitalized; need new packages that are directed to the right people and brokers/managers would like a role in it.
- Education is needed to bring perspective on response rates in the market and by category, and list companies need to bring better analytics to understand the dynamics behind where consumers are responding.
- The LLG and DMA board need more communication so that the list and database industry can be better informed.
- Could there be better integration of the DMA board, the List Leaders Group and the List and Database Council to better inform the industry of what decisions are being made that could affect all?
- The DMA itself could do more webinars or information conference calls.
- Work to privatize the post office.
- Could they facilitate better negotiations on deals between mailers and the post office.
- Could the DMA petition major mailers to get additional money for lobbying efforts.
From Each Other:
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Tell us what’s on your mind – ListLdrs@the-dma.org.)
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