Beyond Data Cards

ONCE UPON A TIME, LIST BROKERS MIGHT HAVE FELT their job was as simple as finding the right mix of names for their clients. And list managers may have thought all they had to do was make sure their owners' files were generating sufficient revenue.

It's time to wake up from that fairy tale.

Consumer and business-to-business professionals at Direct's annual list roundtables agreed that today, clients expect much more. Both groups of panelists cited several challenges to their business, not the least of which is competition from cooperative databases.

“To dedicate an entire prospecting program to [pulling names out of a] black box is a risky proposition when you really don't know who else's names are in there,” offered MeritDirect CEO Ralph Drybrough.

“We're modeling ourselves to death,” said Andy Ostroy, chairman/CEO of ALC of New York LLC. “Everybody is mailing to the same names.”

Talk about a united front.

At this year's Direct consumer list roundtable, participants were unanimous in their concern about two facets of their business: list exchanges and cooperative databases — and how both inhibit their ability to work creatively for their clients.

“I find it particularly frustrating that we've lost the ability to be creative,” said Direct Media's chief marketing officer Rosemarie Montroy during the discussion moderated by Bob Castle. “We're so busy negotiating that we're not thinking [about] what has to be done to grow a business.”

“If we stop trying to come up with new and better ways to use individual lists, [the] databases will have the names,” added Mokrynski & Associates' president Dennis Bissig.

CASTLE: What areas are strong for you in business this year?

OSTROY: From a core standpoint, business is flat to slightly up. From a new business perspective, we've seeing strong sales overall. But looking at year over year, where we're experiencing strong growth is in the compiled list/lifestyle area. This division is seeing strong activity from both the SOHO markets and large packaged goods companies.

MONTROY: For us at least, the fundraising business is very strong. The catalog business and publishing are pretty much year-to-year, across the board about the same. And in the B-to-B arena, our databases are doing very well.

DUGGAN-JOSEPHS: Where we're seeing the growth is in new business, new clients. What's interesting this year is we're dealing with more companies that have an online presence but never had a catalog before. They're realizing people aren't finding them, and maybe they need a catalog.

ROVELSTAD: We've seen growth across all the vertical markets — and as long as the economy remains strong, the outlook is good.

BISSIG: The catalog business is soft to slack. But we've been doing a lot of things to take people from the catalog online. We've found that to be a very successful growth area, because it's something people really need.

KNOEBEL: 2004 was a record year for us. We recovered from a slump that we saw in 2001 and 2002. [This year has been] kind of weak, but then as a small firm we're more affected by individual clients pulling back, so I expect it'll recover.

MANDEL: Our first quarter was the strongest in many years. I think a lot of that has to do with our company's diversification. We're also seeing new business coming in from established companies.

CARNEY: My compiled division is doing very well, to the point we're going to start investing in that more. We're finding on the brokerage side, in publishing, our established clients are starting to come out with new books. That's a bright spot. On the list management side, it's growing but by single digits. It's nothing to write home about, but it's going in the right direction.

BATROUNEY: The nonprofit side of our business is booming, with an extra twist. We do a lot of work in the Hispanic market, which the general market has just discovered for the seventh year in a row [Laughter]. I think our average order sizes in management are up over 10%, and our test scores are also up, which is helpful and encouraging.

DUGGAN-JOSEPHS: You know, we've noticed the same thing, which I find really interesting this year. I think everybody is expecting a good season for holiday mailings, just because of the postal increase in January. [But if] people are testing now, that means they're planning to continue to mail, even with the postal increase. That's a nice change of pace.

CASTLE: It's my perception that the average hotline order in consumer direct mail has gone down radically in the last two or three years. If that's the case, it means the number of orders you've been writing is greater and your overhead has increased correspondingly. If you're breaking even, it almost has to come from new clients.

MONTROY: I think that's absolutely correct. The amount of process that we have to do now compared with before is really remarkable.

BATROUNEY: [That's true,] if your client mix is heavily in publishing and opportunistic offers where recency is really, really important. But if you have a client mix where the mailers are not that recency sensitive, then you won't be as affected.

ROVELSTAD: If you specialize in a compilation area, you're not experiencing that.

OSTROY: The number of orders is way up, the number of mailers is way up, but then you get to volume and that falls off. You're working much harder to generate much less revenue.

MANDEL: I think the key metric that's misunderstood is when list owners say their file is growing. We look and say, ‘Yeah, the file's size is growing but a big piece of it is from Internet sales.’ When mailers are using the list, they're omitting the Internet names, so at the end of the day the files are shrinking.

OSTROY: When someone says their house file is growing, it doesn't automatically translate to an increase in income, because most mailers are not using an entire list today. Anyone likely to take an entire file is most likely [doing so] on exchange, and that doesn't correspond to revenue.

MONTROY: Again, that's a category thing. If you look at periodical publishing, for example, how much of the hotline mix today is direct to publisher? Not a lot. You don't have the big agent numbers that really supported the lower end of the business, like the American Family Publishers and the Publishers Clearing Houses of the world. You don't have those kinds of numbers coming in. You have God knows how many agencies publishers are contracting with to keep their hotlines and keep their rate bases up. And then of course you have all the mergers that are going on, so you have more and more people with humongous house files. Take the Meredith purchase [in June] — that's going to sustain Meredith's mail for a while.

MANDEL: There's a lot more segments to test into [today]. We're mailing differently than we did 10 years ago. Then, if you had a list of 50,000 names, you used it. Today, with a 50,000-name list, you might have to segment it into 10 different selections.

KNOEBEL: I think our order volume was down for a while because people were concentrating more on mailing to their customer files than testing. Now I see that coming to an end and more people are beginning to go out and test. But now when they come to us, they want those tests as exchanges or they want much better deals than in the past. We see a lot more requests for negotiations. They want charges waived. Volume is going up but our profit is going down.

DUGGAN-JOSEPHS: We have a party in our office if we get an order in list management that doesn't ask for a deal [Laughter].

BISSIG: We're forgetting about the cooperative databases. They're just playing havoc with us. They're still at the stage where they work well for three weeks and then they're off for two weeks. Mailers look at the databases and think the names are cheap, but then you hit the net counts that they get. That $60 can be very expensive by the time you pay for all the names you're mailing. When it changes and weakens and softens up, they don't really know where to go to make the corrections.

CASTLE: Do you think database use inhibits the effectiveness of a standard mailing list?

MANDEL: Do I think names are getting overmailed? Probably.

OSTROY: I have two bones of contention. One is that we're modeling ourselves to death — everybody is mailing to the same names. I don't think anyone is accurately analyzing the cost of databases. The other is exchanges — they have this mythical feel of being free. It's an accounting decision to recognize an expense or not. The real crime is that serious marketing decisions are being made based on erroneous data. Modeling is good, there's a place for modeling. But its almost like mailers today put an intravenous tube in one arm for exchanges and one in the other for the databases. And that's it. If I take out the tubes, what happens? That's a scary place. In my company, we call that a death spiral. We're just sitting back and watching house file sizes go down, responses go down, sales go down and creativity go down with them.

MONTROY: I find it frustrating that we've lost the ability to be creative. We're so busy negotiating that we're not thinking [about] what has to be done to grow a business. We have a product called CatalogTracker that we use to track promotional activity and so on. All the new catalogs that hit during a [recent] period were coming out of the cooperatives. They're all smaller companies, and they're putting them into the database environment. These people are mailing at what they think is a very inexpensive rate, and all of us are missing that activity.

OSTROY: That's a great point, because years ago, the [co-ops placed] minimums and restrictions on little catalogers, so they had no place to go but the individual files. We're not seeing this [now].

BATROUNEY: Having been a mailer for years for The Company Store, No Nonsense Direct, The Coca-Cola Catalog, and now on this side of the desk, the part I really object to when meeting with database alliance sales executives is that the first words out of their mouth are, ‘Of course you do put our database alliance models in top priority, ahead of all other lists, right?’ And they get crazy because we wouldn't do it then and we won't do it now. You want to make that model work? Fine. Just pop them in right under the buyers. That's not right.

BISSIG: List owners complain about the revenue and that they're not getting the orders. They say we have to get out and do more, yet they contribute their names to the next database and they're not getting paid for it.

DUGGAN-JOSEPHS: Concentrating on the co-op databases will cause sales to implode. There's got to be new blood. I think it's our responsibility as brokers and circulation partners to give it to them in black and white. When you get down to net cost in the mail, [co-op names are] way more expensive. If they're still profitable, you include them in the circulation. But you've got to have other lists in there.

BISSIG: If we stop being creative and stop trying to come up with new and better ways to use the individual lists and show mailers how to do things, those databases will have the names. People will think they're getting better results. My concern is that in two years we'll have mediocre performance from catalogers because you get mediocre performance from the databases. Who's had a test prospecting response rate of 4.5%, 6%? I remember a few years ago you could get it. A bad one might be 1%. Now 1.5%, 2%, you think you're in heaven.

BATROUNEY: Our first year and our first mailing of the Coca Cola catalog, our best model was delivering $6 a book prospecting. In the fourth year, our best models were only delivering around $1.10, $1.25. It was clear that as time went on the results trended toward the mean. Early on the models were outstanding, but as we used more names, and more catalogs joined the alliance we were using, the results degraded rather dramatically.

OSTROY: We have to educate people. Superman had kryptonite, I have exchanges. I hate exchanges. I've been on a mission for years to convince people why exchanges are big waste of time and why they're killing this industry. During a management review, I recently had the president of a company say, ‘Wait a second, you mean to tell me we don't look at whether our list is priced more, whether our selections are higher?’ This is how we operate. Nobody is doing the math.

CARNEY: And what about all the fires we have to put out? I have two clients that exchanged for years. Something was said by one circulation director to the other about the inequity of the list pricing. A huge fight broke out, and one cut the other off. I'm sitting in the middle, going ‘Wait a minute, you guys are killing me here. Let's sit down and talk. Why don't you just rent his list, then? Start exchanging money. That would stop the problems.’ So they're doing that now.

OSTROY: There are so many opportunities. There are so many quality lists that are being left on the table. From a creative standpoint, maybe 20 years ago, people would use [certain lists] because they approached the whole process creatively. I have a college-age daughter. I could bring her into a catalog company today and probably within three weeks she'd pick the same lists that someone who'd been there for years would. She'd call around, see where she should test, look at the vertical files and then get those on exchange. That's what happens at every company you work with today. There's just no creativity being put into the circulation process.

DUGGAN-JOSEPHS: I think I agree with you totally. But the other [problem is] that because response rates have been going down so much, it's rare to find a circulation person who will take that step to go and test something not in their vertical market.

MANDEL: You first have to properly match-back and analyze response rates. Catalogers have tons of revenue that they don't even know where it's coming from, and it's probably coming from the list side of the business. They don't really know if response rates are going down, and that's more of a concern to me than exchanges or anything else. You rent the list, and they can't measure the responses to whether orders are going to the Internet instead of [other channels]. That's killing the business. When are they going to figure out that game?

CARNEY: I don't know any company that can tell me with confidence how much their sales are up, and how many of those sales are from direct marketing efforts that drove people online. They can't link it back.

MONTROY: The unfortunate part of match-back services now is they add such expense that people try to avoid them. When you think in terms of the ability to do match-back names, it's not that difficult. But try to get a mail tape from one of the service bureaus. It will cost you your first-born.

MANDEL: I don't think there's any list owner that would stop any company from analyzing their file properly to see that they have a great response and therefore allow them to use their names.

OSTROY: A given is that most of the sales, if not all of them, are coming from the catalogs. They key is to match it back to the list, so List A, which yesterday looked like garbage, jumps off the page as a real winner. Companies need to be able to take those previously perceived marginal files and actually see that they're the real responsive ones.

BISSIG: [We need to] make people understand why their business is growing.

ROVELSTAD: It's the whole multichannel equation.

CARNEY: If we were all to stop right now and go to our clients and pitch RFM like we did years ago, do you think we'd have a lift in list response? If we went back and analyzed when they mail, how customers bought, the source, all the things that we were taught coming into this business that make a list work, do you think we'd see a change?

MANDEL: No. The transactional behavior of most mail order buyers is very different from years ago and that is negatively affecting the response rate of the lists. The creative and the offers in what our clients are selling has changed dramatically. How could you look at the response rate on a sweeps offer when we really don't have any sweeps offers in the mail now? Those types of lists were much more powerful. The offer and creative made consumers buy. Today, the offers are much more vanilla.

MONTROY: Talk about vanilla. On many voucher offers, do you even actually know what subscription you're ordering? Look at voucher offers — they're identical. They all look like invoices. They all look the same. There's absolutely no difference. And even in the catalog arena, if you were to remove the covers of 15 catalogs and put them on other [books] it wouldn't make a difference.

OSTROY: That's a whole other issue — merchandising, creative. That's part of the problem today. We work with some companies that are doing very well — they have a strong brand, real lifestyle appeal and they may not be discounting very much.

BISSIG: This whole catalog business was built on people who had much higher than average incomes, much higher than average education. They had certain taste levels. That's what catalogs were in the 1970s, 1980s. I think sometimes we've brought it down to the lowest common denominator that people are just out for price and they really don't care what it's all about. And we're worried about those people, but they were never really catalog buyers. The low- and mid-ticket catalogers that were big, they had a certain niche they provided for people who didn't want to go [shop at retail]. We could still do that now if [companies] decided they wanted to be unique. It's tough but its doable.

OSTROY: The problem with the catalog industry today is that everything has become so one-dimensional. Everyone is mailing to the same customers the same way — it's no wonder sales are down, responses are down.

BISSIG: Look at the databases. If segment one and segment two works, well, [people think] that works for every catalog. So those 200,000 people are getting everybody's catalog. What about the rest of the people out there? What happens to the millions and millions who don't hit the top two deciles? How do we go out and work with them? How do we mail to them successfully?

CASTLE: It seems to me that part of this discussion has been at cross purposes. Rosemarie made a telling point when she said creativity is being lost, because it's being swallowed by the everyday dynamic of the list broker and list manager's business. So what I hear is brokerage and management businesses are trying to struggle with maintaining their customer bases and expanding on them, without creating programs that are extremely complex. Is that true?

OSTROY: I wholeheartedly disagree. We've made great strides in putting resources in place and have been actively talking with and working with companies to look at their businesses holistically and transcend traditional list management and brokerage. If you don't do that in five years, I hesitate to say where people will be.

MANDEL: I'm not saying that we don't do it, but 90% of what we do is the list business. That's what we work on day in, day out.

DUGGAN-JOSEPHS: That passion goes beyond the list. It's how that fits into the overall picture. [Today, when] we sit down to do a circulation plan with clients, we sit with their creative, merchandise and marketing departments. It's a major meeting now. In the past, I don't know if those people even spoke to each other. I just think you've got to have total involvement with your mailers these days.

BATROUNEY: If we don't participate fully in the creative process with clients, we may go out of business.

CARNEY: I've literally sat with my clients and gone through our recommendations and sat there and had them turn around and go back to the database environment to get some models, get net-net. I've told them if you do that you're going to kill these lists. I say, ‘I'll negotiate this for you, but I guarantee you're going to take the lifeblood out of these lists.’ So when they don't respond, I don't want them to call me back and say they're resigning the account and going somewhere else because my list didn't perform. I'm putting a waiver on this recommendation right now. If they take all these hotlines and run them against their models and run them up against the database and they dilute these things, [the hotlines] aren't going to perform the way they should. And I've had clients come back to me and say it was a disaster. No kidding. Stop — we need to keep the individual lists individual for a while to see if they perform. If I have a list and it doesn't work, then talk to me about database environments. But don't talk to me about a new test and throw it into a database environment. It drives me nuts. They want to run a test through the models. Stop! Do that when its marginal. But it's the first step they take.

OSTROY: Or better yet, [think about] when you have a good list and it is working, but then it gets into the databases and it looks like it isn't working. ‘Wait a minute,’ we say. ‘It does work. We've proved it. Give us a shot.’

• Bob Castle, marketing consultant (moderator)

• Geoff Batrouney, executive vice president, Estee Marketing Group

• Dennis Bissig, president, Mokrynski & Associates

• Peter Carney, president, Carney Direct

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

• John Knoebel, president, Triangle Marketing Services

• Lon Mandel, marketing services officer, ClientLogic Specialists Marketing Services

• Rosemarie Montroy, chief marketing officer, Direct Media

• Andy Ostroy, chairman/CEO, ALC of New York

• Lynn Rovelstad, president, AccuData America