Direct Mail: Finance proves a strong draw

The financial services industry has long been accused of
'carpet-bombing' households with hundreds of millions of unwanted
credit-card and loan offers, yet the study found that consumers are more
likely to open those mailings than letters sent by mail-order companies
and charities - the second- and third-biggest users of direct mail after
financial services companies.

The research - commissioned by Marketing and based on results from NMR's
panel of 10,000 consumers, who log each piece of direct mail they
receive and what they do with it - provides unique insight into the
scale of direct mail wastage. Marketers have traditionally measured the
success of their direct mail campaigns by response rate, which averages
between 1% and 3%, but that method offers no measure of other campaign
objectives, such as raising awareness or shaping a brand image.

On average, 22% of all direct mail sent in the year to June 2006 was
never opened. While some in the industry may be jubilant at the thought
of consumers opening nearly 80% of direct mail, the unopen rates for
mail-order firms and charities are higher still, at 30%. In the case of
mail order, this translates into 222m pieces of direct mail remaining
unopened, costing £148m; for charities, it is the equivalent of
150m mailings at a cost of £64m.

Financial services, meanwhile, achieved a better-than-average unopen
rate of 15% - a result that surprised all the industry veterans
Marketing contacted. But because the financial services industry is the
biggest volume user of the channel, accounting for 37% of all direct
mail, the sector still accounts for 32% of all unopened mail.

The significant variations in unopen rates could be explained by a
number of factors. A mail pack sent from a company to a consumer who is
already its customer is more likely to gain their attention than a cold
mailing from a company engaged in a major customer-acquisition
drive.

The type of product or service on offer is another important factor. An
envelope sporting an image of a new car or a boat on a crystal clear
lagoon is more enticing than a plain appeals letter from a charity.
There is also some correlation between high-volume mailings and high
unopen rates, and it is widely held that letters with name or address
errors are most likely to be binned at once.

Indeed, the most fundamental error made by companies from all sectors is
simply getting the targeted individuals' names and addresses wrong.
According to NMR's study, on average 4% of all direct mailings had name
errors and an additional 1% had a mistake in the address. These problems
can easily be avoided: data-cleansing tools are available that can
significantly reduce the likelihood of both types of error.

'There is a definite correlation between data quality and open rates,'
says Tim Pottinger, database solutions manager at EuroDirect. 'If the
name and address on the envelope are inaccurate, it will not be opened
by the individual who receives it.'

Mark Roy, chief executive of The REaD Group, which sells suppression
files containing detail changes such as information on people who have
died or moved, adds: 'As a financial services organisation, if you can't
get the name right, what hope have you got of winning the customer?'

Pottinger agrees that such simple errors could have a dramatic effect on
the bottom line. 'A big financial services organisation could lose
hundreds of thousands of pounds through errors, not including the brand
ramifications of sending out inaccurate information,' he says.

Indeed, for big organisations, a 4% error rate in names could make the
difference between profit and loss for a campaign, according to Roy.

In a recent survey of 1500 UK consumers by Experian, owner of
address-management firm QAS, 47% of prospective customers said they
would be 'put off' responding to offers that interested them if the
companies failed to use their correct name or address. Almost a quarter
claimed to receive duplicate 'prospecting' mailshots from the same
company at least once a week.

A successful mailing needs more than just the correct name and address,
though. It is vital that the data used to decide which consumers to
target is accurate. Marketers can buy in or collect data on a consumer's
income, age, gender, family size, purchasing behaviour, interests and
attitudes. That data must then be properly analysed to ensure that a
relevant offer is sent to the right demographic at an appropriate
time.

The days of clients renting lists and sending out mailings using simple
criteria are long gone, according to Peter Thompson, commercial director
of Experian Prospect Targeting. 'As data owners, if we are to be
successful, we have to offer marketers far more analytical services,
providing analysis and consultancy around our data,' he says.

An intelligent use of data combined with emotive creative execution is
crucial, says Arjan Dijk, senior marketing director at financial
services company Capital One, which is the UK's third-biggest user of
direct mail, sending out nearly 68m items in the year to June. Despite
the high volumes involved, Dijk says its mail is carefully targeted. 'We
send to less than 15% of the mailable population in the UK,' he
says.

The company has developed a model of targeting the type of consumer most
likely to respond to a direct approach, then sending a relevant offer
and creative tailored to the individual's circumstances. It has hired
data specialist Acxiom to build a bespoke database that pulls together
every available data source in the UK to enrich the targeting. 'We make
use of our data through hard work and smart work,' says Dijk.

Capital One's creative agency, WWAV Rapp Collins, creates about 20
different mailings a month. 'On a yearly basis, across all our channels,
we send out 2000 different tests,' says Dijk. 'I'm not sure all
industries are this rigorous.'

Paul Dunn, head of Media Insights at Nielsen Media Research, agrees that
some financial mailings have comparatively high open rates because the
sector's marketers use databases more effectively than those in other
industries. 'Companies such as Lloyds TSB make good use of cross-selling
and upselling to their customer base,' he says.

Thierry Saada, director of sector marketing at Royal Mail, says that
targeting and relevance are key to achieving high open rates. 'The
financial services industry put a lot of investment and time into
targeting. It has also invested a lot in terms of mailing to its
customer base,' he says. 'It gets an improved return on investment from
better targeting and constructing a better product offering for its
existing customer base.'

Among the big three direct mail sectors, charities send out the smallest
proportion of mailings - 27% - to existing contacts. They also had the
highest rate of unopened mail sent to potential supporters, at 76%.

Mail-order companies also rely heavily on mailings to new prospects,
with only 36% of direct mail being sent to existing customers. The
industry encompasses operations as diverse as traditional big catalogues
such as Littlewoods, wine and book specialists, collectibles companies
and fashion brands such as Boden and Fat Face.

'It surprises me that the share of prospect activity (carried out by
mail-order firms) is double that targeting existing customers. Direct
mail is the perfect medium for mail order, yet these companies do not
appear to make (good enough) use of existing databases,' says Dunn.

Andrew Wilson, founder of the Catalogue Consultancy, says traditional
catalogue companies built big businesses by offering customers credit to
buy from their catalogues, but they are now suffering because their
offer is less relevant in an age when most consumers can obtain credit
easily.

Ashley Bolser, whose eponymous direct-response agency has worked for
Grattan and Littlewoods, believes the traditional mail-order companies
failed to embrace the internet quickly enough. In contrast, newer,
smaller companies such as Boden, Joe Browns and The White Company have
successfully used their catalogues to drive customers to their
websites.

Many charities have similarly failed to innovate. Clive Mollett, founder
of charity consultancy 121 Fundraising, says such organisations often
share donor lists, which can result in copycat marketing. 'A lot of
stuff similar in style and content is going to a fairly small group of
individuals,' he says.

Scott Logie, managing director of Occam, a database company whose
services include a list-swapping service used by 120 charities, says one
reason unopen rates are high in that sector is that some charities feel
compelled to mail everyone listed on their database. He says it can be a
struggle to persuade charities that it is not cost-effective to mail
their least responsive donors.

'Although charities aren't going to get many donations from, say, the
bottom 20%, they still feel a need to tell people about their work,'
says Logie. 'If 30% of the recipients are not opening the envelopes,
that approach is clearly not working.'

With direct mail accounting for more than 70% of charities' and
mail-order companies' total marketing budgets, it is clear that unopen
rates will continue to cause a serious headache for marketers, until
their causes are corrected.

DATA FILE - UNOPENED MAIL



Sector % of all % of % of

unopened sector mail acquisitive

mail unopened mail unopened

1 Mail order 32.13 29.76 68.00

2 Finance 24.21 15.47 74.00

3 Charities 23.23 30.00 76.00

4 Entertainment and media 5.95 24.07 86.00

5 Travel and transport 2.64 12.06 85.00

6 Pharmaceutical 2.08 17.75 73.00

7 Retail 2.00 13.38 61.00

8 Household equipment 1.61 21.53 87.00

9 Telecoms 1.41 14.15 85.00

10 Utilities 0.75 12.56 72.00

11 Motors 0.68 8.40 88.00

12 Drink 0.62 30.00 53.00

13 Computers 0.41 25.93 18.00

14 Leisure equipment 0.41 22.24 89.00

15 Food 0.38 16.03 57.00

16 Gardening and agriculture 0.32 30.39 91.00

17 Social and political

organisations 0.30 13.00 35.00

18 Cosmetics and toiletries 0.29 14.04 62.00

19 Household stores 0.18 12.35 66.00

20 Online retail 0.18 14.66 94.00

21 Clothing and accessories 0.09 9.56 52.00

22 Property 0.04 7.14 100.00

23 Government 0.03 9.00 67.00

24 Household appliances 0.02 4.09 57.00

25 Miscellaneous 0.02 7.89 100.00



Source: Nielsen Media Research

Note: figures are for 12 months to June 2006







DATA FILE - ADDRESS ERRORS



Sector % of all % of mail

address with

errors errors

1 Finance 39.07 1.13

2 Mail order 22.47 0.94

3 Charities 16.65 0.96

4 Entertainment/media 4.79 0.87

5 Pharmaceutical 4.25 1.63

6 Retail 2.70 0.81

7 Telecoms 2.24 1.02

8 Travel and transport 1.70 0.35

9 Household equipment 1.24 0.75

10 Leisure equipment 0.77 1.87

11 Utilities 0.77 0.58

12 Social and political orgs. 0.57 1.13

13 Cosmetics and toiletries 0.54 1.20

14 Household stores 0.54 1.69

15 Motors 0.54 0.30

16 Gardening and agric. 0.46 1.96

17 Food 0.31 0.58

18 Clothing/accessories 0.15 0.74

19 Online retail 0.15 0.57

20 Computers 0.08 0.22

21 Government 0.00 0.00



Source: Nielsen Media Research

Note: figures are for 12 months to June 2006







DATA FILE - NAME ERRORS



Sector % of all % of mail

name errors with errors

1 Finance 37.23 4.20

2 Mail order 21.28 3.48

3 Charities 20.21 5.00

4 Entertainment and media 4.93 3.52

5 Pharmaceutical 2.60 3.92

6 Retail 2.50 2.95

7 Travel and transport 2.39 1.92

8 Telecoms 1.97 3.50

9 Household equipment 1.48 3.49

10 Utilities 1.26 3.72

11 Motors 0.99 2.14

12 Gardening and agriculture 0.39 6.54

13 Leisure equipment 0.37 3.55

14 Drink 0.32 2.71

15 Cosmetics and toiletries 0.30 2.57

16 Social and political orgs. 0.28 2.00

17 Food 0.28 2.04

18 Clothing and accessories 0.26 4.78

19 Computers 0.24 2.61

20 Household stores 0.22 2.66

21 Household appliances 0.16 4.68

22 Property 0.14 4.55

23 Online retail 0.12 1.72

24 Miscellaneous 0.06 3.95

25 Office equipment and supply 0.04 40.00

26 Government 0.00 0.00



Source: Nielsen Media Research

Note: figures are for 12 months to June 2006