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When Direct gathered six of the industry's top DR agency honchos in one room for our first annual direct marketing agency roundtable, we weren't quite sure what to expect. Would we have a tension-filled scene — or worse, an hour of bland pleasantries?

Happily, we had neither.

Our CEOs and presidents — representing Draft and MRM Partners (both owned by Interpublic), Wunderman and OgilvyOne (both owned by WPP Group) Grey Direct and Brann — put aside their fierce competition for a morning and engaged in a cordial and lively discussion. They touched on numerous subjects, including how DM agencies fit into the general ad world, branding vs. response advertising and the pressure clients feel to increase their top-line growth.

All in all, our participants were upbeat about the future of direct marketing. “It's a great business if we in this room don't screw it up,” joked Howard Draft.

DIRECT: What are clients spending their money on these days?

MOREL: Data. It's almost a given part of any pitch. [Clients] are trying to mail less and hit only the most profitable segment of their universe. They took advantage of that slack period, that window of peace over the past two or three years to get down to basics and rebuild their databases. Suddenly what we've been telling them for the past 10 years is taking root.

LARRICK: The other thing we're seeing is use of analytics, helping clients figure out where they should be investing. Really being able to understand what the triggers are, and where you can get the greatest return. I think that's a shift globally at the highest level. There's such pressure on margins and returns, and to have results happen more quickly.

MOREL: Are you able to make money on those analytics? I'm unable to because sometimes those projects are so small. I've never seen an analytic project being north of three-quarters of a million dollars. It's a price that I pay to get in, but it's never big money.

DRAFT: We just got a project from an existing account worth three-quarters of a million dollars, and it's a major study [on] not only determining how to manage the brand but how to market more effectively, down to where they should locate their stores. It [hasn't been] a big money-maker in the beginning, but [we'll] present it to the chairman of the company. It's a Fortune 10 company, and we'll be presenting this study to all his presidents. That's the relationship we want. It used to be owned by the general agency, and now it's the high ground we want to own.

KIMMEL: Look, there's greater emphasis in every client organization in driving profitability now. The guys who are smartest about deciding who to mail to or communicate to, and when, are those who will win. And data drives all those decisions.

DRAFT: Take a look at how data has been used over the last several years. You can go into segments of the marketplace and drive some efficiency for the client. But the clients we work with, they're not looking for 50,000 new customers, they're looking for 2 million new customers. Because of that, you've got to be able to use mass media [to drive] that volume.

DIRECT: In general, which media are your clients using?

KIMMEL: Mail is a burgeoning channel. After anthrax, a lot of people weren't mailing and now you can get read and opened again. We've seen huge growth in direct response television. General advertisers recognize you can get huge GRPs in direct response.

DIRECT: But isn't it hard buying TV time these days?

DRAFT: This year was easy, next year won't be as easy. Next year you have elections, and you've got the Olympics. The home run's going to be in the first quarter, but when we come out of the first quarter there's going to be a tightening up on the local market level. Not as much on the national cable level — that's still going to be wide open.

DIRECT: What are you going to do then?

DRAFT: We're going to have to deal with our clients about paying a little bit more at times. We may go into the marketplace and say, ‘We were generating $14 cost per lead in broadcast. Now we can deliver an $18 cost per lead, but once we get past the election and the Olympics, we'll be back at $14 a lead.’

DIRECT: Where do your agencies fit in with your general agency parents? Do you still feel like you're a stepchild?

FINKEL: I think it's evolved a bit, but I don't think it's there yet.

KIMMEL: The future of advertising is communications optimization: Which channel can provide the optimal return on cost, be it general advertising, direct, online, PR or promotions. Enlightened agencies understand that. Our discipline has gotten greater respect because we've got the metrics to determine the profitability of global communications techniques.

HENDRA: [Direct] has always been a very critical part of Ogilvy's 360-degree brand-stewardship business strategy. I think we've always felt very connected to our general agency. We share a high percentage of clients. What I'm hoping to see is total optimization. We need to see our clients begin to embrace some of the alternative channels. I don't think the 30-second TV spot will go away anytime soon, but it will become a piece of a puzzle, as opposed to the main event.

KIMMEL: I don't think there's a commercial that has anywhere near the power it used to. If you roll back 40 years, you could go on Ed Sullivan and do a commercial for a packaged goods advertiser and the next day get rich, because you were communicating to 80% of the American population instantaneously. You can't do that now. You have to work through a full complement of communications in order to succeed.

DIRECT: And you guys are better positioned to deliver that?

LARRICK: More and more, people are shopping and buying using multichannels. And that's something we understand the power of. There's also a whole group of people who are more comfortable going online immediately to get information.

KIMMEL: Here's the cold, hard truth — people don't want advertising. You need permission to e-mail me, the do-not-call list has 35 million people signed up, if you've got TiVo there's a 72% chance I'm skipping through the commercials. Open rates for e-mail are half what they were a year ago.

FINKEL: It used to be that advertising defined the brand. Now the sum of customer experience in all channels defines the brand.

MOREL: I get so upset when I have advertisers talk about descending on the consumers and telling them in 30 seconds how they should feel about the brand. The brand is built one customer at a time, through experience — on the phone, the way they receive a mailing, they way they talk to a rep. That's when you construct the brand, not through advertising imagery.

DIRECT: But what about the many ads that feature URLs or toll-free numbers but have little copy? Do you consider these brand advertising, direct response or a hybrid?

HENDRA: There's plenty of general ads that have a URL or phone number, but that doesn't make them direct response ads. That wasn't the intent of those ads. Today, the Internet is pretty ubiquitous, so you'll see a URL on most ads. If consumers want to connect to the brand right away, they have that option.

DRAFT: In my humble opinion, there were two great legends in our business: Bob Stone and Lester Wunderman. The rest of us studied at their feet. Those guys showed us how to build offers and how to build brands at the same time. A direct response ad is one that has an offer. Those ads [you're talking about] don't have offers — they're image ads. Anybody who thinks they're direct response ads is crazy.

MOREL: We're talking about how you manage the process of getting the answer and getting back to the person and enhancing the dialogue — the whole continuum. That's what makes us dialogue-marketing people. In direct response, the response is the important part, not the direct.

DRAFT: Take a look at basic car advertising that's out there today. It's 80% offer and 20% on the car, because no one is buying a car today without the $4,000 off the hood. Car advertising has become direct marketing and they lost the brand.

DIRECT: So what is it really all about?

KIMMEL: There's only one objective of business, and it's to drive profitability. Direct marketers are better at that than anybody else. And ultimately the next big thing is about being better at understanding not only the consumer insights involving the brand but being profitable.

DRAFT: We have a great line that counters that: Are we going to shrink ourselves to greatness? There isn't a client out there who isn't going to say, “Gimme more bottom-line profitability and not grow my business.”

KIMMEL: One is not exclusive of the other. You have to evaluate lifetime value contribution. It's not just profits.

DRAFT: What I'm saying is you have to grow the top line and be cost-efficient at the same time, because [in] every quarterly report from every Fortune 500 client they're looking at revenue growth. They've giving up on profit for revenue growth for the last three years on a quarterly basis.

MOREL: If you look at the number of CEOs who get fired today, they don't get fired because they lack vision, which is growth of the top line. They get fired because they cannot deliver on the sales bit, which is profitability.

DRAFT: Most of the clients are saying, ‘Drive my cost efficiency.’ No big deal. Its driving top-line and efficiency at the same time.

DIRECT: Do you guys see the economy rebounding anytime soon?

KIMMEL: Our business has never been better. We continue to expand operations and hire. We've only seen two clients cut back dramatically on their marketing, and one of those two just came back to us and said, ‘We're looking for some short-term revenue growth.’

HENDRA: We're seeing the same thing at OgilvyOne — an increase this year in the last four to six months. But I do think there's a difference between now and the growth we had a few years ago because it's more difficult to make a deal. It's a serious issue, just making a fair margin. We know the budgets are lower compared with a few years ago. There is spending, but it's not at the freewheeling rate.

DRAFT: North America has been incredibly great for the last 12 months. We have over 100 job openings in the United States right now, with 26 filled last month. Europe is still very tough. We're not seeing any turnaround in Europe at this point. When you have 10% unemployment in France and 10% unemployment in Germany, you're just not going to see marketing turning around there for a while.

MOREL: We're seeing the same thing in Europe. France and Germany are the weakest markets, but the rest of Europe is doing well — Southern Europe, Scandinavia and the United Kingdom, as well as the United States and Canada. When you put all of Europe together and the North American continent, it's high-single-digit growth over the last 12 months, but really quite good vs. what we had seen two years ago.

DIRECT: Given all that, you all must be competing hard for clients, and for every dollar.

FINKEL: I think the last couple of years have been very difficult, and it's made us stronger. All of our organizations are considerably leaner than they used to be.

HENDRA: It's better for all of us if we all do well. It's not good for the industry if one of us isn't doing well.

KIMMEL: I think we all have to work together to advocate our discipline. In many ways we're partners in enlightening clients as to the ways of direct marketing.

DRAFT: Then let's make sure we don't low-bid our bills to our clients.

HENDRA: Let's kill those online auctions for pricing, because that's not a good trend.

DRAFT: I've seen some accounts given out for hourly rate fees.

HENDRA: It all comes back to value, and I do think there has been this process: We've seen where a couple of compensation consultants have gone in and convinced clients you can buy agency services the same way you buy widgets, and if that's what we've become as an industry we're not value-added partners at all. We're just a commodity.

MOREL: I think we're going to have to unbundle. We're going to have to admit there are three grades of services we're providing. There's a production thing, and it's just a value-preservation defense type of thing. And then there's the humdrum business, and that has a cost. And then there's the value creation. Some of the agencies are selling ideas right now.

FINKEL: The agencies have to get compensated for the value they provide, not what label we observe. It's incumbent upon us to get the data clearly demonstrating the return on investment so we can charge clients appropriately. We've gotten to a commoditized situation where they think it's an hourly comparison.

MOREL: You commoditize everything. I sell data on a per-record basis, I sell production on metrics. I sell ideas on a flat fee. You have to come up with several models of compensation.

HENDRA: Every RFP that comes in the door has [something] about incentive-compensation approaches. Maybe in my whole history, I've had two or three cases where we've agreed to an incentive deal because we got the right amount of control over the key factors. If there's a client who wants to pay us on incentive but doesn't want to let us influence the mailing list selection, sorry, I don't want to do that, because that's a pretty big driver. Have you made any incentive deals that really worked out?

DRAFT: With a few very large clients. We're talking accounts that pay us over $25 million, $35 million per year in fees. Those are the type of accounts that work because it's qualitative and quantitative on the surface on an annual basis.

LARRICK: I think the way to do it is it has to be qualitative and quantitative.

DRAFT: We just got a seven-figure check from one of our largest accounts last month that was purely a bonus based on qualitative and quantitative.

DIRECT: What's the next big client segment?

MOREL: Packaged goods is interesting, because we all have the traditional bank, car, credit card, technology and telephone clients. These are the proverbial low-hanging fruit. When are we going to convince Procter and Gamble and all the traditional packaged goods companies that are spending on ‘Friends’ and ‘Monday Night Football’ to take 15% of their budget and bring it to us and see what we can do with it?

HENDRA: It's happening very slowly with the big packaged goods marketers.

MOREL: Very slowly. But this is where the money is.

DRAFT: Some of our top 10 accounts are packaged goods.

LARRICK: I think it's starting to accelerate. I think they're looking at it differently than they've looked at it before. It's not by one brand, it's an aggregate brand against the household. I think that will grow fast.

DIRECT: Any predictions for what will happen over the next year or two?

KIMMEL: Direct marketing is the future of advertising. It's being able to advise clients with total clarity as to which communications disciplines will provide the maximum return on investment with the minimum cost. There isn't a CEO or CFO on the planet who doesn't want a greater understanding of how much money they're making from their advertising. The agencies that can better articulate, and on a statistically reliable basis tell you how much money you're making, are the ones that will be winning in the future.

FINKEL: I think the biggest analytical discovery that we see is that there aren't mass brands anymore. Tide is not a mass brand. Eighteen percent of all households make up 75% of Tide's business, but only 40% of households use Tide. Tide has 7% of households driving 75% of its business. Direct marketers need to be in the driver's seat in terms of leveraging those principles.

MOREL: I would say it's less and less about the brand and more and more about the consumers. Forget the global brand — it's global customers. No new brands are being introduced they way they were in the past 40 years. But new customers are entering the market every day. We have to cater to those customers.

LARRICK: The big thing is driving demand. So many companies have gone through having to pull back, having to watch their profits and losses through this economic situation. It's all about creating their top-line growth.

HENDRA: It isn't just data, its customer intimacy. I think the big thing is customer experience, and what that means and how we define it and how we use our knowledge of customers. I wouldn't say that brand isn't important because I think that's how consumers define their relationship with a product. But the new ways that we're going to have to deliver brand experiences is going to fuel our business big time.