A power shift DM report MMHK March

It's an exciting, perhaps even scary, time to be a marketer. Advertising and media budgets are getting squeezed from all sides like never before and marketers face an uphill battle to make their shrinking ad budgets work harder, more efficiently and often at a lower cost. Direct marketing, this is where you take your cue!

Direct marketing, at its core, is simple a term to define any form of advertising that puts the customer in direct contact with the company. But today, the often overwhelming choice of media channels has somewhat blurred this once simple art of sending out a piece of mail in the post.

Today, direct marketing takes on many forms and can include a raft of activity ranging from the simple to the some of the most complex forms of consumer science.

The emergence of digital and more recently social media tools like Facebook, LinkedIn, Twitter, SMS and email marketing has reshaped how DM, in all its many forms, is used and measured.

With the industry facing fragmenting audiences, rising media costs and a cooling economy, marketers of all persuasion should be considering DM as a credible and alternative option to the mass marketing channels. But still, many claim that most forms of direct marketing, including direct mail, email and telemarketing are either underused or misused.

"We missed the DM revolution in Asia," Nick Handel, regional director of digital at Arc, says.

"Data mining, understanding response rates and using data to improve targeting is not really known in this market.

"The rush to digital in a sense has resulted in a lack of robustness, questions about accountability haven't been solved and the real principals of DM haven't been communicated. This is a shame."

So who's to blame? Well, according to King Leung, managing director of the 26-year old direct marketing services group Datatrade, there are a number of contributing factors.

Leung argues that the small size of many markets across Asia, combined with a lack of serious investment from the big DM players and a largely uneducated industry are among the main causes.

"A lot of people overlook infrastructure. For starters the simple changing of address, which in the markets like the UK and the US is taken for granted, but in Asia there is no such thing, which is very, very painful," he says.

"In Asia, data collection and data capturing is a very serious problem. There is no standard. On top of that a lot of the profile innovation that we see in the UK for instance is doing very well."

This, while being a big problem, is also an opportunity for smaller, more local players to gain greater inroads into the DM sector.

"Because the markets of Hong Kong and Singapore are so small, the big boys are not willing to make the investment needed, with the exception of Japan or China. So a lot of these small markets are, in a way, up for grabs by the local players."

But despite this somewhat heavy criticism of the industry, there are countless examples of where direct forms of marketing work. Take email marketing for example.

As recent study by ROI Research and Epsilon showed investing in email marketing can have a big impact on purchasing behavior and customer loyalty, both online and in the offline world. 

Across all industries, the findings showed that 57% of consumers feel more positive about companies who send them email, with 40% saying emails increases the likelihood of future purchases and direct consumer action.

In the troubled financial services sector however, the research, conducted in early March, shows brand awareness and loyalty improved due to email marketing campaigns by financial services companies.

"In these tumultuous times in the financial arena, reaching out directly to consumers with key messages is crucial," Kevin Mabley, senior vice president at Epsilon Strategic Services, says.

"Email marketing is a proven means to develop one-on-one communications and provide valuable and relevant content. Our latest research shows the effectiveness of these programs which drive online and offline behavior, from applying for credit cards to opening new accounts and selecting investment products."

The research is also particularly positive for another sector hit hard by the financial crisis travel, which showed 63% of recipients of permission-based email from travel companies said they were more likely to buy from the sending companies.

But the key word throughout the survey was "permission-based email" marketing.

"In the travel industry where so much activity has moved to the online arena, it's crucial that companies communicate effectively and efficiently with their customers and cater to their personal needs," Mabley added.

"Those benefits start with direct online airline ticket and hotel reservation transactions and extend to brand loyalty in multiple channels."

Industry outlook

In 2008 the Direct Marketing Association of America predicted that the DM sector would enjoy solid growth of 6.6%, taking total industry expenditure to more than US$2.1 trillion.

While local data on the DM sector is thin, new research from The Nielsen Company shows that advertisers in Hong Kong will increase their ad spending on direct mail by 4% in 2009, up from 2.9% in 2008. The research shows that the financial, investment and banking sectors will lead DM spending, taking a 25% share of overall spend. Retail, followed by the government sectors will follow with a 19% and 18% share respectively.

Jennifer Ma, director of Admango, says demand for industry data is strong and that Admango will soon launch a monitoring service.

"In view of the market demand and potential of DM, Admango is planning to introduce a full scale DM monitoring service in Hong Kong," she says.

"The DM monitoring is deemed to become a compass for marketers who are increasingly looking into DM as part of their marketing mix."

Chris Reitermann, president of Ogilvy & Mather Group Shanghai and president of OgilvyOne China, says with the economy cooling down, direct marketing, or generally taking care of customers will become more of a priority for a lot of companies.

"The problem in most markets around Asia for the last 10 to 15 years is everything has been growing so fast, direct marketing wasn't necessarily a key strategic priority for a lot of companies. But we definitely see a lot of money shifting towards relationship marketing, direct marketing or what ever you want to call it," he says.

"What is happening now is a very natural. Now that growth is slowing down the market is becoming more competitive, I think targeted communication becomes more of a priority."

In China's emerging DM sector, Reitermann says digital forms of DM have from the beginning have become standard practice.

He adds that in the past five years 80% of the agency's output has been is digital.

"What we once considered direct marketing and direct mail is probably not a huge sector as of now in China and the rest of Asia.

"In the past few years the sector has developed and things have gotten better but we don't have the 40 or 50 years of history of the tradition direct type of mail.

"With all the advances in technology most companies have skipped that step and moved directly to doing it digitally and there are many reasons for that."

One of those key reasons has been consumers rapid migration into the online space which has led to consumers now holding the power in terms of direct marketing.

David Thorp, the director of research and professional development at the Chartered Institute of Marketing, says technology has unquestionably shifted away from organisations and into the hands of the consumer.

"Power has unquestionably shifted away from organisations to customers - courtesy of the fantastic technological developments we have seen over the last few decades," he told a marketing conference in early March.

"More than ever marketers need to engage and enter a dialogue with customers, particularly in today's troubled times."

A creative conundrum

With digital communications taking grip on the industry, what is the role of creativity in DM and indeed is it as important as the big creative agency's say it is?

King Leung argues that while creativity is important, there are other elements to a DM piece that should take the lead.

"Would you be so enticed to open the DM because of the design or because of the offer? Our argument is that creativity is probably number two on the priority list and the number one factor is the offer.

"DM is in some ways more of a science than art, it takes a lot of methodical and planning work and then the discipline to track the work, it's almost like a factory."

But Reitermann argues that creativity in DM is a key element.

"Absolutely, or we wouldn't have any business," he says.

"Direct marketing is always a bit of science and a bit of emotional stuff mixed in together, but definitely creativity is important. We vary creative and the offer and sometimes run up to 20 executions before we know what will give us the highest response rate.

Challenges ahead

Despite this somewhat gloomy analysis of the DM sector, many argue that the industry is turning for the good. But there are some challenges ahead.

While both Leung and Nick Handel agree that there is still along way to go in educating the market, the industry is starting to make good traction.

"At the end of the day, we really need to live and breathe analysis and be able to be able to get a feel for why customer behaves they way they do and how they spend their money," Leung says.

"The market is definitely changing in our favour for the simple fact that database marketing when compared to above-the-line is starting to be seen as an asset and the nice thing is that you can reuse it. Brand building is very important but if you don't do it in a very structured way and truly add value to the brand, it is an expense item and an expense item compared to an asset is more attractive, especially in this tough market."