Separate Tables

WILL THE LIST BUSINESS “WIN WITH Vin?” Or will InfoUSA's acquisition spree ultimately spell trouble for the name-and-address game?

This was one of the many topics covered during Direct's annual list roundtable. In June, we gathered separate groups of managers and brokers to discuss everything from cooperative databases to the use of incentives and price negotiations.

Kathy Duggan-Josephs of D-J Associates and Adrea Rubin of Adrea Rubin Marketing Inc. served as moderators for the panels, gamely filling the role of the late and much missed Bob Castle, who held the reins of our list roundtables for many years.

Overall, the list pros in the room were upbeat about the industry and their place in it, even if InfoUSA continues to gobble up more of the competition.

“The industry has an entrepreneurial spirit and that's what will drive us forward,” says ALC's Mary Ann Buoncristiano.

IN ANY SITUATION, YOUR view depends entirely on where you sit.

For our annual list roundtable, we decided to get opinions from both sides of the table. On the same day in June, we held two separate panels of brokers and managers to get the dirt on the world of data cards. D-J Associates' president Kathy Duggan-Josephs moderated the broker portion, while Adrea Rubin Marketing Inc.'s CEO Adrea Rubin stayed on after participating as a broker to help facilitate the managers' discussion.

While they weren't physically in the room, the spirits of two men definitely were felt. Everyone missed the late Bob Castle, who for many years served as an intelligent, funny, feisty and impartial moderator for our list roundtables. And all assembled were talking about Vin Gupta and the impact of the recent industry acquisitions made by his company, InfoUSA. Everyone had their say, including Ed Mallin, who gamely stepped up to the plate to represent InfoUSA's Donnelley Group.

Our participants also dished on a variety of other subjects, ranging from incentives and price negotiations to the impact of cooperative databases.

InfoUSA

THE BROKERS SAY…

DUGGAN-JOSEPHS: Let's start out with something that's been on everyone's mind. What's going on with InfoUSA and list brokerage consolidation?

RUBIN: They bought my company yesterday. (Laughter.)

BUONCRISTIANO: Personally, I love it. The industry has an entrepreneurial spirit and that's what will drive us forward. Looking at it as a competitor, I think it's going to be good for some of us. And quite honestly, a lot of our clients have showed concern about how [InfoUSA is] buying up competitors.

DUGGAN-JOSEPHS: A lot of our mailers have said it almost feels like when a lot of the printers were going through consolidation and they weren't happy about that. Mailers want to have choices.

ARNOLD: If it became a monopoly, I'd be concerned about my ability to negotiate for my clients. But right now, I don't see a big deal.

ERNST: It's interesting to watch how the people at two companies with very distinct corporate personalities come into the fold. Bigger doesn't necessarily seem better.

RUBIN: I understand why [Gupta] did it. I'm not certain I understand why the companies sold when they did, other than wanting to get out of the business at that point in time. But I do have concerns about what happens if there are just a few little companies left standing. I don't like to see this contraction. I don't even think we've begun to see what he's going to do with those companies and what they'll look like a few years from now.

ZILLING: He stated many years ago that at some point he was going to own the list industry and the rumor is that there are a couple of more companies he's targeting.

DUGGAN-JOSEPHS: Another issue is dealing with lower margins in the brokerage field. Doesn't that put the entrepreneurial side of the business on a little tougher footing if InfoUSA is consolidating it and creating this monster company?

ARNOLD: A privately held company may have more leeway in terms of making deals because they don't answer to shareholders.

DECKER: It's really valuable for us to stay as independents and continue to negotiate and work with that same spirit.

ZILLING: Our clients value independent recommendations. If there's an opportunity to use a list from InfoUSA, D&B or Experian, it's best to be able to offer that to your client rather than having a single focus.

RUBIN: Objectivity is key.

WOODRUFF: If you look at the pioneers in our industry, it was all about the client. But that's quickly eroding. It's very scary that decisions are made on the basis of ‘what's good for my stockholder,’ not the end result for the client. How do you educate the client to understand that, and that it's not necessarily a good idea to put your eggs all in one basket?

ZILLING: That's one thing consolidation does do. It gives bigger players the opportunity to try and lowball and put price pressure on the market.

DUGGAN-JOSEPHS: How do we get that across without making it sound like sour grapes?

BUONCRISTIANO: It gets down to value and what we can offer our clients. Again, it's all about helping them bring in new customers profitably. What do we do differently? What is customized about our services?

DECKER: It's about response rates and our experience. We all know that a list that's a little bit less expensive isn't all that valuable if it doesn't respond well. We need to sell ourselves and our value.

WOODRUFF: I also think everything can become kind of vanilla with consolidation. They're going to start streamlining and offering the same processes at all of their companies because that is what will work better economically. And as entrepreneurs, that's where we'll see opportunities.

THE MANAGERS SAY…

RUBIN: What do you think about InfoUSA's aggressive acquisition efforts?

SCHWEDELSON: It's great because it's easier to sell against a larger organization when trying to pick up list management clients. And it's great that InfoUSA is recognizing the value of some of the companies in this industry. One of the downsides is that some of the great leaders see this as their exit strategy, and it's sad seeing some of those people disappear and some of those brands maybe not being the same as they once were.

LAKE: It's too early to tell what the long-term impact is going to be. In the short term, InfoUSA has been smart, keeping the leadership of those companies intact and not bringing in outsiders. Acxiom tried to put its business model on Direct Media's employees and it didn't work out very well.

BATROUNEY: In the interest of full disclosure, I'm an InfoUSA shareholder. I echo Jay's comments. I look forward to presenting the credentials of our company and our capabilities against a combined organization that represents — I checked this morning — 4,191 properties under one ownership umbrella. Within that group, there are going to be conflicts. There have to be. Not all marriages, corporate or otherwise, end up happily. Some clients don't want to be part of a conglomerate structure.

LAKE: It'll be interesting to see if someone is a Walter Karl list management account. Would they leave and go to Mokrynski or Millard, or would they consider it going to the same company?

ARONSON: When I was a list owner, there were managers I'd never go with because my competitors were there. Now you have competitive lists under the same umbrella.

PLOTKIN: It definitely presents some new challenges to clients in terms of being in a list company with competitors and being with one that may be able to offer some things that others can't.

CANDITO: It's natural. It happens in every industry. It was time for a lot of the owners to realize the value of their companies, and they decided to sell. I don't think it's shocking.

RUBIN: Ed, you're among friends. Any response?

MALLIN: First of all, we are in a mature industry. If you look at the brands we've acquired starting almost nine years ago — Walter Karl, Edith Roman and most recently Millard and Mokrynski — those are all 28- to 30-year-old companies. So it's a natural evolution that these firms are going to be available for acquisition. The reality is we keep the brands separate. The senior management has stayed. We acquire the businesses for their people and their culture, and for what they bring to the table. And it isn't a guesswork thing. It isn't about what we may do. It's about what we've done. And we've proven that we can bring great value to those companies and give them more resources to sell. We operate them with the benefit of large resources, but they're run like boutiques, with an entrepreneurial spirit. Every company has a budget. We move forward and invest in that, and they have all grown and delivered top- and bottom-line results that have proven our formula works. Are we perfect? Absolutely not. Do we make mistakes? Occasionally. But the reality is we've demonstrated that these small businesses, many of them family owned, can be transitioned. And this isn't just a 10,000-foot view — I'm running those businesses.

BATROUNEY: Can I give you my card? (Laughter.)

MALLIN: I've got a lot in my pocket. (Laughter.)

SCHWEDELSON: Ed, I take exception to the misconception that InfoUSA can consolidate our industry. Our industry isn't a handful of medium-sized firms to be gobbled up. It's 1,500 companies. Some are just one- or two-person shops where you can be a broker and have the largest mailer in the country.

MALLIN: We never said we're trying to consolidate the world. I think we're taking advantage of opportunities when these businesses are available, and we're in a position to do that. Big is not what we're about. We've done 26 acquisitions, but in relative terms, InfoUSA is a small company.

SCHWEDELSON: Not relative to the other list firms.

MALLIN: I'm not talking about the other list firms. I'm talking in terms of public corporations. The reality is that the direct marketing industry is no longer just the list business. It's e-mail retention, it's database marketing services, it's search. We're just a small piece in that puzzle. Ten or 15 years ago, this would have been a much bigger issue. But now you look at where the DM dollars are being spent and we're just a small piece of that global spending strategy.

CANDITO: You're running these companies independently, but they're also vehicles to sell your data. And let's face it, the margin on your own data is a lot better than the margin in the traditional list management/brokerage business. So what's happening? Maybe people worry their data sales will suffer.

MALLIN: No one has thought of that in eight and a half years, so I'm a little surprised. I will tell you that we do what is in the best interest of the customer on the list management or brokerage side. Performance rules. If the Donnelley consumer database or the InfoUSA business file is appropriate, then obviously those are the products we'll suggest.

SCHWEDELSON: Can I rent Experian from you? (Laughter.)

MALLIN: If a broker has a client that needs the data, yeah.

Incentives

THE BROKERS SAY…

DUGGAN-JOSEPHS: How do you feel about a broker getting a payment or a commission from a service bureau or vendor for bringing some business their way?

RUBIN: It's beyond inappropriate. We have full disclosure with our clients and if we want them to trust us, even in a short-term relationship, we just wouldn't do it.

BUONCRISTIANO: As our role evolves with clients, we're getting more involved with other aspects of their marketing efforts and in certain cases we're asked to make recommendations or deliver a solution that is beyond list brokerage. And I'm all about getting paid for it, in an up-front manner.

GIZZO: We have too few policing agents. Problems can be created by brokers who aren't established in the industry.

ARNOLD: If you have clients you've been working with for years, you're constantly working to get them better nets and deals — and you're making less money because of that. A printer or a copywriter might give a commission for hooking them up with a client. As long as they were told, I know my clients would probably be happy for me, because I work so hard for them.

RUBIN: It's all about full disclosure.

THE MANAGERS SAY…

RUBIN: Does your organization offer free gifts and incentives to brokers to entice them to order your files?

SCHWEDELSON: That's a great question. I didn't even know people did that, so I can't wait to hear the answer.

LAKE: We do it. We offer incentives, contests, stuff like that to entice new tests for some of our managed properties. They're done with the list owners, most of which are mailers themselves. I think it's perfectly ethical. We're looking to drive new business for our list owner. The only unethical part could be if a broker is ordering those lists and they don't make sense for their client.

ARONSON: We do it too, and as a list owner I actually made my management company do it, because I thought it was a creative way of bringing attention to our lists. Nowadays there isn't tons of money floating around, and if the broker isn't providing the right lists to the mailer he's not going to be a broker for that mailer very long. So there isn't any room to be unethical. I don't think it brings in sales that aren't a fit, but I do think it's creative and fun and it shows that as a manager you're willing to invest in your list owner.

BATROUNEY: We do not do it. We do not offer any incentives to brokers to order any of the properties we manage. Personally, I consider it unethical to offer incentives to brokers without the mailer being made aware that the broker is receiving compensation other than what's on the data card. I don't like it, I'm uncomfortable with it, and I wouldn't do it. We haven't had a single client ask for it.

PLOTKIN: Statlistics doesn't offer incentives. I'd like to believe it's really more a question of the relationship and the marketing expertise that's shared between the manager and the broker on a particular list, and that a broker is not going to select one list over another based on whether they're going to get a trip to the Caribbean or a free dinner for two. But there are things that can help brand a list within the industry. Presents are nice. If you're working with a group of brokers that have offered added recognition to your file and you want to send them a box of chocolates or whatever as a thank-you, I think that's a better direction to go than actually positioning the list according to an incentive.

ARONSON: Think about what you do with your internal sales staff. How many of us have competitions like ‘Whoever gets the most test orders on this list this month gets a day off?’ Incentives drive excitement for a list and it might get the broker to at least research your list a little bit more and see if it's a fit.

MALLIN: I think we're taking ourselves entirely too seriously. The truth is that every major company and brand outside the list industry offers incentives and programs to draw attention to their products. Every Fortune 500 does it — just look at your e-mail inbox or watch television. Those incentives are not changing the course of our business.

Pricing

THE BROKERS SAY…

DUGGAN-JOSEPHS: How much time do you spend on each order negotiating pricing?

BUONCRISTIANO: A lot. It comes down to analytics and what we can do for our clients. Some suggest price standardization, and I say no to that because one of our competitive edges is being a good negotiator. It's about quantifying what we need and what the client can afford to pay for that name and list. And hopefully, we'll create a win-win situation. It either works or it doesn't.

JOHN: Managers have been better about setting things like a nonprofit rate vs. a publishing rate for catalog files. And mail plans are very different month to month, so inevitably the list costs will be different as well.

WOODRUFF: It's really mailer specific, plan specific and industry specific. And that's something we don't always address. One of my clients is a seasonal mailer. But they mail 12 months out of the year, so there are certain times they can pay more for a name from that list owner than they can pay at other times of the year. But we haven't created a metric to handle that. All our companies are looking at establishing analytical teams to be able to address the needs of our mailers today.

RUBIN: Dave Florence was on to something years ago when he wanted volume discounts. Unfortunately, it never turned out to be revenue neutral. There were companies out there like American Family Publishers, who dug their heels in and said ‘There's no way we're doing this.’ But there must be some way we can embrace it. Do you know how much more valuable we'd be to our clients if we didn't have to go back and forth on price? And there are folks out there who negotiate for negotiation's sake, when they really don't need it. I don't know about you, but that really burns me.

WOODRUFF: What about an RFP that comes across your desk that says: ‘Here are 20 of our continuation lists. Go ahead and tell me the best pricing you can get.’

RUBIN: Don't you hate that?

WOODRUFF: It's like a test for picking a broker.

RUBIN: And you're setting the benchmarks so they can go keep their business with their old broker, but you're wasting your time. It would be great if we could find a way to have a one-price solution. Wouldn't it be great if we had no merge/purge reports and we were back to the days when you paid for 100,000 names and that was it?

BUONCRISTIANO: It comes down to what a mailer can bear. And there's a question for the managers: How do they police it? What information are they getting? What quantities can they commit to? I'd rather do it up front.

ZILLING: Negotiations should really be taken in the context of trying to acquire the customer at a specific rate that's effective for that marketer, so they can return value on that customer in a specific period of time.

THE MANAGERS SAY…

RUBIN: How do you feel about brokers coming to you to negotiate price?

BATROUNEY: I find some brokers come in with the expectation of receiving a reduction in price for testing the list before mailing it and before even looking at the list in the merge. Wouldn't you reasonably mail it, look at the results first and then come to us? I often say to the management staff at the office: ‘That broker's the kind of broker that if we were giving the list away for free, they'd still want a better deal.’

SCHWEDELSON: In fairness, mailers like credit card companies and insurers are putting more and more mail out into the mail stream. Their response rates are going down, postage and paper costs are going up, and they know the metrics they need to have.

CANDITO: That's a different scenario because they're already doing volume on lists. The problem is when someone comes in on a test and says: ‘What do you have for selects?’ There are brokers out there that use that as a strategy to get business — it's not based on list performance. So can we set a standard? Absolutely not. How could we?

PLOTKIN: There are brokers that offer incentives based on the negotiations they do. If you save 20%, you get an extra 5% of that savings. On the other hand, it's important to recognize that the broker is fighting for the mailer, and that costs have gone up. There are numerous circumstances where those kinds of negotiations are really necessary and dependent upon the mailer's success.

ARONSON: But the manager also has to be fighting for the list owner. You don't want to degrade a very high-quality list to a medium-quality list. As an owner, I'd find it very offensive if you didn't fight the broker because I know the quality of my names. Sometimes it's too easy to negotiate right away on the management side. Sometimes you need to walk away from a deal if it's not right for both parties.

MALLIN: For that, you need the list owner's support. You can feel like you have a split personality if you're both manager and broker for the client.

ARONSON: It's true, and I've been on both sides and done it both ways. But I think savvy brokers can explain the quality of the list to a client and be able to say if it's worth the value. You get what you pay for. You can get a list that isn't as high in quality and your cost per order is high by the time you're done, or you can stick with the higher quality list.

PLOTKIN: When a discount is asked for or when negotiations begin, it's important for a manager to understand what they're representing and what's involved. If they say, ‘Well, we're not going to test if we don't get a deal,’ it may be time to walk away. It's really a question of knowing the client.

SCHWEDELSON: I also think we can't be pigs as managers. Look at e-mail pricing. It's ridiculously high, and we all know it costs pennies to transmit an e-mail, not $100 per thousand. In some cases, I agree, the brokers are acting inappropriately. But I do think we have to take some of the responsibility for getting things in line with the way of the world.

CANDITO: It's a two-way dynamic, where the broker is fighting for the mailer, and the manager is fighting for the owner. And it's not fighting, it's negotiating. It happens in every business. And when you're negotiating with a mailer who's been using a list and the owner is cool with you negotiating the best rate, very often you get a revised order for double the quantity and you did the broker right, and the list owner is happy. It's part of the business.

BATROUNEY: It's interesting that if you look at the legal aspect of the relationship between broker and manager, the broker is an agent of the manager. The broker's commission is permitted by the manager, but the broker is constantly representing the interests of the mailer. And it doesn't feel like you're an agent of mine.

Co-op Databases

THE BROKERS SAY…

DUGGAN-JOSEPHS: How does everyone feel about the co-op databases?

RUBIN: I was with a client yesterday that I've had for 28 years, and I asked what percentage of their business was co-op databases. I figured they'd say 15% to 20%. When they said 40%, I thought: ‘This is the big one. I'm going to keel over.’ And there are now six co-op databases. Does the world need six co-op databases? I heard one co-op is going to clients and offering a one-stop solution. What do we as brokers do? I don't believe a one-stop solution would work, other than for a very small cataloger.

DUGGAN-JOSEPHS: A number of our clients are having a major, major issue with the multi situation created by co-ops, to the point where they can't afford them anymore. Shucks. (Laughter.)

BUONCRISTIANO: We need to educate our clients as to whether a co-op database is really giving them a good return on investment.

WOODRUFF: The co-ops have gone through an evolution. When you think back to when Abacus was formed, Tony White had an extraordinary idea for its time. Back then, people were barely exchanging with each other. Now, we've had clients who have gone full circle with Abacus. A niche marketer always will use a cooperative because there's a granular segmentation you can't get from the rate-card segmentation of straight list rental. But there's also that broader base and most of our large-volume mailers can't use the cooperatives anymore unless they get an outrageous cost per thousand — which has happened — to keep up the volume. Another point people forget about is that the mailer has to contribute data, and there's a cost. We have a number of clients at Direct Media who pay us a fee to manage the cooperatives for them because they can't do it — it's too involved. The broker becomes the anchor to the process.

ERNST: I'd love to see the database companies address the long-term care of the database. No one has really addressed the fact that there's a saturation limit.

WOODRUFF: They're also not just catalog driven anymore, they're merchandise driven. So a one-shot merchandiser could be in a cooperative. I was really surprised when I found out a large continuity client was in one. They really don't qualify, given the dictate for who should be in this database. What's the impact?

RUBIN: The co-op database is really good for the catalog client who's starting out, to have the economies of learning from other people in the business. If we migrated the co-op concept into other areas of business, that would concern me.

ZILLING: The business-to-business side has a lot of the same issues, but some differences as well. Abacus was the only player on the B-to-B side for many years, and they struggled until they had a critical mass of clients. Experian's B2B Base took a different approach and did something to embrace the brokerage community. But there's also other co-op databases on the B-to-B side that are made up of multiple lists and are not transaction driven. Those are very healthy for the brokers and clients that use them. They provide an opportunity for great list segmentation and give list owners a chance to make some revenue where they may not have been able to in the past.

THE MANAGERS SAY…

MALLIN: On the consumer catalog side, a growing percentage of their mailings go to co-op databases. What will happen is that they'll beat the multibuyers to death and you'll see depleting returns. The prices co-ops garner will drop and ultimately they'll be faced with an interesting metric: They have enormous processing costs and have to maintain hundreds of millions of records of transaction information.

BATROUNEY: Is there room in the industry for six database companies? If the prices come down, we may no longer have six companies.

CANDITO: I hope the performance logic works, but you never know with mailers. A cheap price is a cheap price, so the onus falls on the broker and that's a difficult situation.

SCHWEDELSON: In the consumer catalog space, what Abacus and the other companies that followed did radically changed mail plans. On the B-to-B side it's a very, very different game. There are a lot of B-to-B list owners who are not participating in many of the bigger co-op bases. It's changing, but even the names the bigger list owners are giving aren't necessarily the best ones they can give. What we're seeing is that only small pockets of B-to-B mailers are relying on the co-ops, like the seminar mailers.

ARONSON: The issue in B-to-B is more with larger mailers like Microsoft maintaining internal databases. I've felt that pain as a list owner.

SCHWEDELSON: In all honestly, those private databases, especially on the B-to-B side, are a long time in coming. It really doesn't make sense for a company like Microsoft to have been ordering the way they were ordering. It's cost prohibitive, and it's not really intelligent marketing. We may not make as much money from these guys as we used to, but without those databases, I don't think direct is a viable channel for some of these marketers.

PLOTKIN: Having been on both the consumer and B-to-B sides, I equate it to years ago when consumer mailers first began discussing net-name arrangements. When Abacus started out, they were really successful and then it fell off for awhile. And now it seems to be coming back again. And that makes it more of a challenge.

The Brokers

• Dan Arnold, senior vice president, brokerage, RMI Direct Marketing Inc.

• Mary Ann Buoncristiano, executive vice president, customer acquisition, ALC

• Lynne Decker, vice president, Rubin Response

• Kathy Duggan-Josephs, president, D-J Associates

• John Ernst, senior vice president, ParadyszMatera

• Jackie Gizzo, vice president,Leon Henry Inc.

• Adrea Rubin, CEO, Adrea Rubin Marketing Inc.

• Carolyn Woodruff, vice president, consumer marketing,Direct Media Inc.

• Mark Zilling, senior vice president, MeritDirect

The Managers

• Shannon Aronson, vice president/director, list services,Venture Direct Worldwide

• Geoff Batrouney, executive vice president, Estee Marketing Group

• Peter Candito, executive vice president, Specialists Marketing Services B2B Group

• Ryan Lake, CEO,Lake Group Media

• Ed Mallin, president,Donnelley Group

• Kayle Plotkin, vice president, Statlistics

• Jay Schwedelson, corporate vice president, Worldata