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DIRECT MARKETING is cyclical. In boom times DMers attempt to change their fortunes through prospecting; in slower periods they focus on nurturing existing relationships.

As Direct's annual readership survey shows, in 2006 DMers continued to expand their client base. Understandably, fewer anticipate more sales or higher margins; new customers are harder sells and tend to be less profitable.

They also foresee a slight slowdown in spending, which at first glance might not seem to go hand in hand with the boost in prospecting. After all, shouldn't that mean spending will be up?

Not necessarily. “The decreased effectiveness of television [as an advertising medium] due to ad-skipping systems like TiVo means there's an increased supply of dollars,” says Eric Schmitt, executive vice president and senior principal for professional services at The Allant Group, Naperville, IL. “But because of the many places to put it, there's a lot more confusion among marketers.”

Where's the money going? Respondents are cutting back on direct mail, both to customers and prospects. And fewer are using catalogs, opting instead for lower cost electronic channels like e-mail, Web advertising and search. But much was spent on activities that support these channels, such as Web site development and search engine optimization.

“[Unlike 1998-99], this time around spending isn't speculative,” Schmitt says. “It's rooted in sound business plans. Anything being spent has clear financial benefits.

“Dollars also are flowing to customer analysis and optimization,” he adds. “But there's a difference between building a response model and setting up an infrastructure that allows you to understand your customers. The money is [being used to build] customer insight.”

Dig a little deeper into the numbers and one finds that more business-to-business marketers expect spending cuts in 2007 than their consumer counterparts. That's because B-to-Bers can trim budgets while stepping up prospecting — unsolicited B-to-B e-mail doesn't cause the same rancor as unsolicited consumer messages. And consumer and mixed-focus firms (those that serve both consumers and businesses) plan to spend more in 2007 than B-to-B marketers.

Channel-use figures bear this out. B-to-Bers are outstripping consumer DMers in funds slated for e-efforts next year. They're also moving money into outbound telemarketing — an avenue substantially weakened for consumer marketers thanks to the federal do-not-call list. More than half of the B-to-B respondents say they use telemarketing, compared with less a third of those from the consumer sector.

“Electronic media are catching up [on the industry's move to finer targeting],” says John Harrison, partner and executive director at Keystone Equities, Oaks, PA. “Non-traditional DM users, and the user population as a whole, are recognizing its value.”

If there's good news in the traditional mail segment, it's for vendors such as printers and letter-shops. Some DMers are mailing more to their house files, especially those that target both businesses and consumers. But for prospecting, the number of B-to-B and consumer firms saying they'll boost mail volume has dropped. Barely a third claim volume was up, compared with nearly 50% of B-to-B and almost 60% of consumer mailers last year.

Printing companies' financials back this finding. Shortly before it was acquired by R.R. Donnelley, Banta Corp. noted that its catalog unit's third quarter revenue dropped 20%, primarily due to cuts in catalog size and print-run quantities. Banta also said its direct marketing division's revenue was comparable with last year's but overall volume was up, meaning marketers were turning to lower cost printing options.

In early November, Quebecor World Inc. announced it was closing two U.S. catalog printing plants and shifting that work to other facilities. Quebecor is now sharpening its focus on ancillary services, such as mail list optimization and co-mailing. As with Banta, Quebecor said catalog volume was up but related revenue flat, perhaps signaling a move to less expensive offerings. Quebecor did report direct mail revenue rose nearly 5% for the first nine months of 2006, but didn't indicate what portion was attributable to new services.

Not all is dire for direct mail.

“Money is [being allocated for] print and production when it's driven by database marketing,” says Harrison. “Especially print on demand. Mail is the single most targetable medium. And it always will have a place. Bank credit card issuers find they're still able to do it profitably. But it will be better targeted and more personalized.”

Interestingly, while marketers in general probably will spend less on direct, in 2006 both B-to-B and consumer practitioners raised the DM share of their advertising budgets.

Part of the austerity move includes gathering creative design functions under one roof. In 2006 more DMers relied on in-house agencies or staffs to handle these chores, shying away from freelancers and agencies.

This survey was conducted for Direct by Prism Business Media Marketing Research, an in-house firm. It was e-mailed to 8,597 Direct subscribers. Participants were chosen on an nth-name basis (a representative sample of all subs).

An initial copy of the survey, offering a chance to win one of four $50 Amazon.com gift certificates, was sent out Sept. 29. Two follow-up e-mails, along with the sweepstakes offer, were sent to non-respondents.

Results are based on surveys returned by 161 qualified participants: corporate or general managers (37%); sales, marketing or telemarketing executives (37%); advertising or promotion managers (10%); and circulation, list or media managers (8%). The remaining 8% were fulfillment, operations or production managers, CIOs and consultants.

The median annual revenue of respondents' companies was $152.9 million. Current-year revenue was reported as follows: under $1 million (28%); $1 million to $2.5 million (8%); $2.5 million to $5 million (7%); $5 million to $10 million (13%); $10 million to $25 million (10%); $25 million to $100 million (14%); $100 million to $500 million (7%); $500 million to $1 billion (1%); and more than $1 billion (11%). Numbers may not total 100% due to rounding.

Anticipated Changes in 2007 Spending*

		Increase	Decrease	No Change
Advertising on other Web sites	49%	5%	46%
Blow-ins or bind-ins	23	8	69
Card packs	18	24	59
Catalogs	36	8	57
Co-op mailings	34	10	55
Direct mail to customers	44	4	52
Direct mail to prospects	51	3	46
Direct response promotions	45	5	50
DR radio advertising	48	5	48
DR space advertising	36	12	52
DRTV advertising	62	—	38
E-mail to customers	61	2	37
E-mail to prospects	61	2	37
Fax marketing (outbound)	27	7	67
Freestanding inserts	35	5	60
Package inserts	27	3	70
Point of purchase	30	3	67
Search engine marketing	69	1	30
Search engine optimization	37	15	48
Space advertising	34	8	58
Statement stuffers	33	6	61
Telemarketing (inbound, including 800 #s)	20	4	76
Telemarketing (outbound)	25	—	75
Web site development/ maintenance	61	4	34
*Based on respondents using each method. Percentages may not total 100% due to rounding.