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A FEARLESS PREDICTION: 2007 IS GOING TO BE A banner year for direct marketers.

And 2006 will be a good one for vendors. That's because DMers intend to invest heavily in both technology and media next year, according to Direct's annual forecast survey.

Consumer firms are looking to spend more aggressively than their B-to-B counterparts.

The bad news is that fewer companies anticipate a rise in margins in 2006. And that may be due to a heightened interest in prospecting.

Meanwhile, they're spreading their dollars around multiple channels. They have increased spending on Web advertising, direct mail, e-mail and search, while turning away from DRTV and radio. Also on the downslide are space advertising and telemarketing.

“Consumers are paying more attention to things that are tailored to their likes and dislikes, hence the decline in newspaper advertising and broadcast TV,” said Don McKenzie, CEO of DM-focused investment banking firm Petsky Prunier LLC.

A FEARLESS PREDICTION: 2007 is going to be a banner year for direct marketers.

This forecast is based on a survey of Direct readers about their projected 2006 activities. Many will be spending more on DM, but significantly fewer anticipate corresponding hikes in their margins.

So why will 2007 be a better year? Because DMers will reap the rewards of increased targeting, analytics and customer knowledge.

The planned spending reflects the continued move from mass to targeted marketing, according to Don McKenzie, CEO of DM-focused investment banking firm Petsky Prunier LLC.

Chief marketing officers increasingly are being held responsible for showing returns on their marketing dollars, McKenzie says. Additionally, expenses are going up, especially for postage and the fuel costs passed on to direct mailers by drop shippers. “You now have a double whammy,” he adds.

McKenzie's faith in the move toward targeted marketing is backed up by the channel shifts reported by Direct's readers. More are investing in catalogs and Web site advertising. They also have upped their spending on direct mail and e-mail to customers and prospects, search engine marketing and optimization, and Web site maintenance and development.

On the other hand, respondents are turning away from direct response TV and radio. Space advertising, outbound fax and telemarketing also are slipping.

“Consumers are paying more attention to things that are tailored to their likes and dislikes, hence the decline in newspaper advertising and broadcast TV,” McKenzie says. “I'm not seeing a lot of targeted fax broadcasting.”

Don't take McKenzie's, or even Direct's, word for it: Veronis Suhler Stevenson pegs direct marketing's compound annual growth between 2005 and 2009 at 6% a year, compared with 4.3% for broadcast television, 4.9% for consumer promotion, 5.7% for business-to-business promotion, 2.8% for newspaper publishing, and 5.5% for out-of-home advertising.

And those declining margins? This may reflect heightened attention on prospecting, which is more expensive and less initially rewarding than retention activity. But it is absolutely necessary after several years of wagon circling.

That, too, is supported by Direct's research. As recently as our 2002 survey, respondents spent more on retention, with prospecting allotted just 46% of their budgets. Today, acquisition accounts for 58%.

“There had been a trend recently for a lot of organizations to make sure they were stabilizing their client base,” McKenzie says. Part of that is the industry's continued efforts to responsibly integrate online marketing into prospecting efforts. “Today they have a very strong platform [of customers], and they are focused on online growth and new client acquisition,” McKenzie continues.

In fact, Direct readers placed Web site and search-based online marketing near the top of their investment plans. This makes sense, says McKenzie.

“There is a market for both national and local/regional. I think you are going to see more smaller firms learning how to leverage online advertising to help them attract local customers,” he notes.

He adds: “E-mail is becoming more effective. E-mails that are getting through are more relevant to my lifestyle and purchase history. Marketers are learning how to more effectively work in an integrated fashion. E-mail might drive land mail or Web activity. Marketers are getting a lot more sophisticated in general channel management, but we're still in the learning stage as opposed to the expert stage. We're past the crawl, but not in the run.”

Direct's survey also found:

• 2005 was especially good for consumer-focused marketers. More of them reported increases in revenue and margin than B-to-B companies.

• A higher percentage of consumer than B-to-B firms indicated their DM spending would accelerate in 2006.

• B-to-Bers are dedicating 63% of their DM budgets to prospecting, compared with 49% for consumer marketers.

• Consumer firms are nearly twice as likely to belong to the Direct Marketing Association as B-to-B marketers.

• Telemarketing continues to fall from favor. Sixty-two percent of all firms said they don't use it, compared with 54% that indicated they didn't in last year's survey.

• Respondents' participation in do-not-call lists has leveled off at 64%.

This survey was conducted for Direct by Primedia Business Market Research, an in-house research firm. It was e-mailed to 6,099 Direct subscribers. Participants were chosen on an nth-name basis (a representative sample of all subscribers).

An initial copy of the survey, offering a chance to win one of four $50 Amazon.com gift certificates, was sent Sept. 28. Two follow-up e-mails, along with the sweepstakes offer, went to non-respondents.

Results are based on surveys returned by 205 qualified participants.

Respondents were corporate or general managers (37%); sales, marketing or telemarketing executives (35%); advertising or promotion managers (8%); and circulation, list or media managers (6%). The remaining 14% were fulfillment, operations or production managers, development directors or direct marketing managers.

The average annual revenue specified was $119 million. Participants reported current-year revenue as follows: under $1 million (38%); $1 million to $2.5 million (9%); $2.5 million to $5 million (9%); $5 million to $10 million (7%); $10 million to $25 million (7%); $25 million to $100 million (14%); $100 million to $500 million (5%); $500 million to $1 billion (3%); and more than $1 billion (7%). Numbers may not total 100% due to rounding.

Anticipated Changes in 2006 Spending*

	Increase	Decrease	No Change
Advertising on other Web sites	45%	—	55%
Blow-ins or bind-ins	18	9	73
Card packs	14	10	76
Catalogs	45	8	48
Co-op mailings	29	9	67
Direct mail to customers	48	5	47
Direct mail to prospects	59	4	37
Direct response promotions	49	5	46
DR radio advertising	29	13	58
DR space advertising	27	14	60
DRTV advertising	32	15	53
E-mail to customers	64	2	34
E-mail to prospects	67	4	30
Fax marketing (outbound)	17	21	62
Freestanding inserts	42	4	53
Package inserts	27	6	67
Point of purchase	39	6	55
Search engine marketing	56	4	41
Search engine optimization	63	3	35
Space advertising	33	8	59
Statement stuffers	23	7	71
Telemarketing (inbound, including 800 #s)	36	4	60
Telemarketing (outbound)	33	13	55
Web site development/maintenance	56	4	40
*Based on respondents using each method. Percentages may not total 100% due to rounding.