Direct Mail Marketing Trends:

1
Direct Mail Marketing Trends United States and
Western Europe
Luis Jimenez Senior Vice President and Chief
Strategy Officer

Direct Mail Advisory Board 11 October,
2005 Bern, Switzerland
2
Myth Paper will Disappear
The paperless office is close Business Week,
1975 By the turn of the century we will live in
a paperless society Fortune 10 CEO, 1986 If
mail service fails to improve, 60 of mail will
be delivered electronically by the year
2000 Wall Street Journal, 1987 Electronic
mail could replace 25 of snail mail by
2000 TIME Magazine, 1998
3
Ahh Predictions .
Its very difficult to make predictions,
especially about the future. - Niels Bohr,
Nobel Prize in Physics, 1922
4
1. Trends
5

• How is mail volume evolving?

Volume growth rates peaked in the 80s 2000-2005
averaged flat volumes, although many markets now
see slight positive growth
Mail Volume Growth Rates
7.00
US Peak
Europe
6.00
US
5.00
Euro Peak
4.00
3.00
2.00
1.00
0.00
00-05
95-00
90-95
85-90
80-85
-1.00
Source Pitney Bowes Analysis 2005 figures
estimated
6

• How does mail intensity differ across countries?

1960-2004 CAGR
2,500
Switzerland
2,000
Rapid growth
US
1,500
Group 1
Sweden
Total Pieces per HH per year
1,000
500
-
1960
1965
1970
1975
1980
1985
1990
1995
2000
2003
2004
Source Mail Database (2005)
7

• How does mail intensity differ across countries?

1960-2004 CAGR
2,500
Switzerland
2,000
Rapid growth
US
1,500
Group 1
Sweden
Total Pieces per HH per year
France
Uneven growth
Netherlands
1,000
Group 2
UK
500
-
1960
1965
1970
1975
1980
1985
1990
1995
2000
2003
2004
Source Mail Database (2005)
8

• How does mail intensity differ across countries?

Mail per household will not reach the same
level in all countries
1960-2004 CAGR
2,500
Switzerland
2,000
Rapid growth
US
1,500
Group 1
Sweden
Total Pieces per HH per year
France
Uneven growth
Netherlands
1,000
Group 2
UK
Germany
Flat growth
500
Spain
Group 3
Italy
-
1960
1965
1970
1975
1980
1985
1990
1995
2000
2003
2004
Source Mail Database (2005)
9

• What is the effect of competition in Europe?

The low growth for some European Posts can be
explained in part by competition
Volumes Delivered by Posts
(Addressed Unaddressed)
160
Market
Volume
(Billions)
120
80
40
-

60

65

70

75

80

85

90

95

00

03
Unaddressed Mail
Addressed Mail
Source PB Analysis based on published postal
reports and FEDMA
10

• What is the effect of email on mail volume?

US and EU mail per capita remains steady
despite email explosion
Email / Mail 33 1
Email / Mail 23 1
Total Email
Source Mail Database (2004) and IDC Worldwide
Email Usage
11
Mails share in each segment is evolving
differently depending on the range of available
alternatives
U.S. Market
Mail Email Instant Messaging Fax Voice Mail
80
Mails Share by Value
47
40
1992 2000 2002
Messages
Source Pitney Bowes and Arthur D. Little
12
Mails share in each segment is evolving
differently depending on the range of available
alternatives
U.S. Market
Mail Email Instant Messaging Fax Voice Mail
80
Mails Share by Value
Mail Retail Online
47
40
3.4
2.5
2.5
1992 2000 2002
1992 2000 2002
Messages
Publications
Source Pitney Bowes and Arthur D. Little
13
Mails share in each segment is evolving
differently depending on the range of available
alternatives
U.S. Market
Mail Email Instant Messaging Fax Voice Mail
Direct Mail TV Radio Print Internet Telemarketing
80
Mails Share by Value
Mail Retail Online
47
40
6.7
6.4
6.3
3.4
2.5
2.5
1992 2000 2002
1992 2000 2002
1992 2000 2002
Messages
Advertising
Publications
Source Pitney Bowes and Arthur D. Little
14
Mails share in each segment is evolving
differently depending on the range of available
alternatives
U.S. Market
Source Pitney Bowes and Arthur D. Little
15
2. Forecasts
16
Direct mail volumes have traditionally followed
economic activity. After the downturn of
2000-2003, volume has resumed its historical
trend.
USPS Advertising Mail Volume Actual vs.
Forecasts
Billions
1
Actual
-
of Pieces
2
USPS to GAO
120
115
110
105
2
100
95
90
85
1
80
75
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
Source USPS, GAO (1999), Tolley (2001), IFTF
17
Direct mail volumes have traditionally followed
economic activity. After the downturn of
2000-2003, volume has resumed its historical
trend.
USPS Advertising Mail Volume Actual vs.
Forecasts
Source USPS, GAO (1999), Tolley (2001), IFTF
18
3. Drivers
19

• What factors impact mail volumes?

Many factors, not just technology, impact the
advertising mail volumes

• 1. Economic and Demographic
• Recession and expansion
• Personal consumption
• Advertising spending
• Customer acquisition spending
• Demographic shifts
• 2. Consumer Preferences
• Paper vs electronics
• Saturation with promotions
• Need for credit and refinancing
• New shopping habits
• Demographic and generational differences
• 3. Electronic Alternatives
• Surge in inexpensive e-mail marketing
• Remote commerce
• Variable digital printing

20

• What factors impact mail volumes?

Many factors, not just technology, impact the
advertising mail volumes

• 1. Economic and Demographic
• Recession and expansion
• Personal consumption
• Advertising spending
• Customer acquisition spending
• Demographic shifts
• 2. Consumer Preferences
• Paper vs electronics
• Saturation with promotions
• Need for credit and refinancing
• New shopping habits
• Demographic and generational differences
• 3. Electronic Alternatives
• Surge in inexpensive e-mail marketing
• Remote commerce
• Variable digital printing

• 4. Competition
• Private Postal Operators
• Growth of unaddressed mail
• Posts setting up operations in each others
  countries
• 5. Postal Products
• Price level
• Price changes
• Quality
• Differentiation
• Ease of Access
• Life cycle
• 6. Mailer Rationalization
• Total Cost of Mailing
• Frequency
• Customer Targeting
• Customer relationship management

21

• Is economic activity still relevant for direct
  mail forecasting?

Ad spending and mail volumes per capita are
directly related to GDP per capita in many
countries. 
GDP per Capita (000s)
40
Japan
US
Sweden
UK
30
Canada
Germany
Netherlands
Italy
France
20
Spain
Argentina
10
Mexico
Chile
Brazil
0
0
100
200
300
400
Advertising Spending per Capita
Source Mail Database (2004) based on Postal,
Census, DMA and Advertising Association Data
22

• Is economic activity still relevant for direct
  mail forecasting?

Ad spending and mail volumes per capita are
directly related to GDP per capita in many
countries. 
GDP per Capita (000s)
GDP per Capita (000s)
40
Japan
US
Sweden
UK
30
Canada
Germany
Netherlands
Italy
France
20
Spain
Argentina
10
Mexico
Chile
Brazil
0
0
0
100
200
300
400
Advertising Spending per Capita
Advertising Mail Volume per Capita ( addressed
and unaddressed)
Source Mail Database (2004) based on Postal,
Census, DMA and Advertising Association Data
23

• Is economic activity still relevant for direct
  mail forecasting?

In the United States advertising spending is
positively correlated with GDP
Advertising Expenditures vs. GDP in the U.S.
1946-2003
250000
12000
10000
200000
8000
150000
Total Advertising ( Millions)
6000
Billions
100000
4000
50000
2000
0
0
1946
1949
1952
1955
1958
1961
1964
1967
1970
1973
1976
1979
1982
1985
1988
1991
1994
1997
2000
2003
Total Advertising
GDP in billions of current dollars
Sources Veronis Suhler Stevenson and U.S. BEA
24

• Is economic activity still relevant for direct
  mail forecasting?

In the United States advertising spending is
positively correlated with GDP
Recent Years
Advertising Expenditures vs. GDP in the U.S.
1946-2003
250000
12000
10000
200000
8000
150000
6000
Total Advertising ( Millions)
Billions
100000
4000
50000
2000
0
0
1946
1949
1952
1955
1958
1961
1964
1967
1970
1973
1976
1979
1982
1985
1988
1991
1994
1997
2000
2003
Total Advertising
GDP in billions of current dollars
Sources Veronis Suhler Stevenson and U.S. BEA
25

• Is direct mail getting its share of the
  advertising pie?

U.S. Direct Mail expenditures as percent of
Total Ad Spending have been stable over the last
20 years.
US Direct Mail Expenditure as Percent of Total
Advertising Spending
Source Veronis Suhler Stevenson
26

• Is direct mail getting its share as percent of
  GDP in Europe?

Direct Mail expenditure as percent of GDP has
also been stable in Europe
Direct Mail Expenditure as Percent of GDP
Source FEDMA
27

• What is the effect of new media?

The introduction of new media such as TV and
Internet has followed a complementary, not a
substitutive pattern
Changing Shares of Various Media in U.S.
Source Pitney Bowes analysis using Veronis
Suhler Stevenson data
28

• How is Internet advertising evolving?

Forecasts of Internet advertising were grossly
exaggerated during the dotcom boom
35
Internet actual
30
25
Hype Forecasts
20
Billions of
99/00 Forecast
Veronis Suhler
15
Actual
99/00 Forecast
10
Forrester
5
99/00 Forecast
IDC
0
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
Source Veronis Suhler Stevenson (1999, 2000),
Forrester (1999, 2000), IDC 1999, 2000)
29

• How is Internet advertising evolving?

Forecasts of Internet advertising are no longer
in the hype stage in the U.S.
35
Internet actual
30
25
2003Forecast
Hype Forecasts
Veronis Suhler
20
Billions of
Recent Forecast
99/00 Forecast
Veronis Suhler
15
99/00 Forecast
10
Forrester
5
Actual
99/00 Forecast
IDC
0
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
Source Veronis Suhler Stevenson (2003),
Forrester (1999, 2000), IDC 1999, 2000)
30

• How is Internet advertising evolving?

After the introduction of new media, the
initially high growth rate gradually decreases
and the medium ultimately settles into the
marketing mix
Initial Growth Rates for the Internet and TV
Advertising Revenues in the U.S.
Sources Pitney Bowes analysis using Veronis
Suhler Stevenson data
31

• How is Internet advertising evolving?

Internet ad revenues today are smaller than
broadcast TV revenues were, when we compare both
media 8 years after their introduction.
Annual Advertising Revenue by Year after
IntroductionInternet (1995- 2002) and Broadcast
TV (1949-1956) Real 2002 dollars
Source PricewaterhouseCoopers LLP (2003)
32

• How is Internet advertising evolving?

TV gained market share in total advertising
expenditure much faster than the Internet
Changes in Market Shares for Internet (1995-
2002) and Broadcast TV (1949-1956)
Source Pitney Bowes analysis using Veronis
Suhler Stevenson data
33

• How is Internet advertising evolving?

Expenditures in direct mail are still being added
at a faster rate than expenditures in online
advertising
Online, Direct Mail, and Direct Marketing
Expenditures in Europe

• While online advertising has gained some traction
  as 6 of direct marketing expenditure, in Europe
  81 of this advertising is concentrated in just
  two countries the UK and Germany.

Source FEDMA
34

• Whats in Internet advertising?

The diverse uses of online advertising have not
reached a stable mix
Composition of Online Advertising Revenue by
Vehicle 2000-2002 ( in MM of )

• Increased gains found for only a few formats
  keyword search, rich media, and barely e-mail

Source eMarketer
35

• Will younger generations want direct mail?

The predicted generational effect has not
materialized all generations step up their mail
use as they age.
Ratio of mail for each age group relative to
total mail

-1
7
23
70
Increase in mail use as cohort moves from one
age group to the next older one
Source Jimenez, Diakova and Szeto (2005)
36

• Why do marketers still want to reach us with
  direct mail?

Household income is still the strongest
predictor of mail volume
Source US Household Diary 2003
37

• Do Internet users get more or less mail?

Internet users in the US and UK receive more
mail than those without Internet access
Sources USPS Household Diary 2003, Wright H.
(2004) Royal Mail
38
4. Value of Direct Mail
39
Direct Mail has competitive advantages in a
multi-channel marketing environment

• Consumer preferences
• Mail Moment
• Stable response rate and ROI index
• Multi-channel marketing

40

• Will paper and mail persist?

US consumers perceive paper to be an effective
medium for many applications
Source The Future of Paper, InfoTrends/CAP
Ventures (2003)
41

• Will paper and mail persist?

US consumers consistently prefer mail and paper
for a wide range of documents
Financial Documents
New Product Announcements
All Types of Documents
93
93
86
77
75
73
69
66
62
2001
2003
2001
2003
2001
2003
1999
1999
1999
Source ICR 1999, 2001 2003 Mail Preference
Surveys
42

• Will paper and mail persist?

Direct Mail is one of the most preferred
channels for direct marketing in Finland.
Preferred Channels for Direct Marketing in Finland
Source Paper or Electronic? Desired and
undesired reception channels for Direct
Marketing, K. Elkela,
43

• Will paper and mail persist?

The mail smoothes out life its interactional
properties mediate social relationships

• Consumers are pulled to the mailbox by the
  promise and expectation of finding useful
  commercial and financial content
• Mail connects the consumer with the market by
  keeping the consumer informed about whats going
  on in the market
• Bringing in the mail is a detour that allows
  consumers to relax, unwind, and come back a
  little more refreshed
• The person who manages the households mail is
  also the principal shopper for the household
• Mail provides essential hardcopy anchors that
  help consumers get their bearings

Source USPS Mail Moment, Richard Harper
44

• Does Direct Mail represent good value?

Compared to other direct marketing media,
Direct Mail has a favorable ROI Index
Direct Order Revenue and Cost by Media
Revenue per Contact Total Revenue / Promotion
Qty Promotion Cost per Contact Promotion
Cost/ Promotion Qty ROI Revenue per Contact /
Cost per Contact
Revenue per
Promo Cost
Response
ROI
Media
Contact ()
per Contact ()
Rate
Index
Direct Mail
3.95
0.55
1.61
7.20
Dimensional Mail
8.99
1.61
3.46
5.60
2.88
0.63
2.32
4.60
Catalog
E-mail
1.28
0.09
0.99
14.20
Inserts
1.31
0.18
1.46
7.30
Coupons
1.32
0.43
2.78
3.10
Telephone
6.17
1.45
5.73
4.20
Newspaper
0.75
0.35
0.14
2.10
Magazine
0.10
0.22
0.13
0.50
FSIs
0.03
0.06
0.09
0.60
DRTV
1.35
0.16
0.27
8.40
Radio
3.77
0.74
0.38
5.10
Source DMA
45

• How is multi-channel marketing evolving?

Customers who interact with companies over
multiple channels are more loyal and profitable
than single-channel customers
Value of Cross Channel Customers
300
243
250
200
Total Spend
150
127
124
99
90
100
69
43
50
0
Catalog/ Website/ Retail
Catalog Only
Website Only
Retail Only
Catalog/ Website
Catalog/ Retail
Retail/ Website
Source Double Click
46

• How is multi-channel marketing evolving?

Catalogs Drive Online Sales Catalog usage
results in increased buyer conversion
Buyer Conversion 15 of consumers that
received a catalog and visited the Catalogers
web site made a purchase.
15
13
8
Catalog
Flyer
No Catalog
Source USPS
47

• How is multi-channel marketing evolving?

Catalogs Drive Online Sales Catalog recipients
spent more time online and purchased more
Transactions per Buyer
1.5
1.4
1.3
Catalog
Flyer
No Catalog
Dollars per Buyer
260
224
194
Catalog
Flyer
No Catalog
Source USPS
48
Direct mail expenditure will likely remain stable
or even grow

• The whole pie of advertising dollars has been
  increasing, since spending on advertising is
  highly correlated with Gap
• In a multi-channel marketing environment Direct
  Mail tends to benefit from technology and
  complement other media

49
  Electronic Alternatives and Direct Mail
Marketing   Elena Diakova (Pitney
Bowes)     Background Paper No. 6, July 5,
2005      

  This is one of several background papers that
are being prepared as part of the Pitney Bowes
research project entitled, Electronic
Substitution for Mail Models and Results Myth
and Reality. 
50
Can we grow mail volumes?

• Recent Pitney Bowes work with a UK Consultancy
  (WhatNext4U) has identified some 70 unique
  examples of how posts are developing products to
  grow mail volumes
• Pitney Bowes shared some of these examples on
  October 3, 2005 at the keynote speech in
  PostExpo, Paris by Mike Critelli, our Chairman
  and CEO (see in PostInsight.pb.com)
• A full report will be published in the coming
  months
• Following are a handful of the case examples

51
Promoting the Mailstream

• Posteitaliane
• Partnership to teach small and medium sized
  businesses the benefits of direct mail
• Campaign includes
• Direct mail piece
• Guide to direct mail on CD
• Seminar

52
The Mailstream Enhances Media Mix

• Yorkshire Electricity
• Media mix not producing growth as fast as
  expected
• Analysis of target market
• Refined media mix -- TV, telemarketing and
  postcards

• Attribute mailstream mix with enhanced customer
  responsiveness and lower costs

53
Focus on Customer Communication

• Kenko Kazoku
• Farm-grown organic products
• Growth strategy around the use of direct mail
• Regularly include samples
• Attribute 40 growth in annual revenue to
  mailstream

54
Focus on Customer Communication

• Dominos Pizza
• 40 million pizzas sold in Australia and New
  Zealand
• Customer purchasing profiles
• Customized direct mail offers tied to profile

• Attribute mailstream with customer loyalty and
  business growth

55
Focus on Customer Communication
France Telecom
Generic Mailer
Personalized Mailer
56
Growth in Remote Commerce

• Netflix
• Mail order subscription service for movie rentals
• Customers receive the movies they want at home
• 4.7 million will subscribe to mail-order services
  in 2005
• Mailstream revolutionized the business model for
  the industry

57
Growth in Remote Commerce
CendrisVote/TPG Post
Mediaincoming
Mediaoutgoing
Data
Data
Response card

Printing
Scanning
Phone/voiceresponse
Mail
Central membersdatabase
Centraldatabase and result
Website
58
Date Certain Delivery

• Swiss Post OnTime Mail
• Day specific mass mailings
• Three service levels
• Day specific
• Within 2 day range
• Saturday delivery
• Opens up new uses for mail