Is it time for direct marketing to follow the trend and opt out?

Is the glass half empty or half full? This week the Direct Marketing Association published a new survey of the broader economic impacts of direct marketing, painting a picture of a “resilient”, “dynamic” industry exhibiting “steady growth”. There’s little doubt about it, there’s big money in DM. Over 75,000 companies engage in direct mail spending an average of £35,000 a year on the activity. Factoring in knock-on activities it is a £43bn industry with £8.6bn spent directly on direct mail. Overall, the industry accounts for 3.1% of all UK employment. Pretty impressive, all in all.

But now consider some of the clouds on the horizon. The traditional bedrock data source for direct marketing in the UK was the Electoral Roll, which provided relatively up-to-date information about names and addresses. But then, in 2002 citizens were given the opportunity to opt out of allowing this data to be used for commercial purposes. Since then about 37%, or 16 million, of us have done so, making database building that much more of a headache.

Perhaps even more worrying for the industry is the growing number of consumers opting out of “relationships” with suppliers. Marketers often talk grandly about strategies designed to “own” the customer. But many large organisations nowadays are lucky if they have permission to communicate with more than 50% of their customer base – because so many are opting out of being marketed to. Direct Marketing Information Service (DMIS) research shows that 26% of consumers now always tick opt-out boxes as a matter of course. That compares to just 7% of consumers who never do: the balance is leaning towards opt out.

Meanwhile, the Mailing Preference Service, which allows consumers to opt out of receiving direct mail from participating companies, grows steadily with around 600,000 new registrations every year. The latest total is 3.5 million people. On the other hand, those still receiving mail are paying less attention to it. Ten years ago, 83% of all direct mail was opened and 63% of it was read. Latest figures show opening rates at closer to 60%, and read rates of about 40%.

The reason for all this is simple: people don’t like direct mail, and that’s not just the view of carping outsiders. It’s official. As the most recent report from the DMIS comments, “A shift in opinion around direct mail has finally occurred, following many years in which there was a hard core who resisted the medium and a majority who just had a mild dislike. Now, four out of ten consumers say they have a strong dislike of direct mail, while one-quarter have a mild dislike… two-thirds of consumers object to being written to.”

The risk for the industry is a self-feeding cycle where, as opt-outs increase, direct marketers focus ever harder on those not opting out, which means this group gets over-marketed, prompting even more of them to opt out, and so on.

Enter the internet
Now factor in the internet, which provides both marketers and consumers with a new and, arguably, better alternative. Perhaps not surprisingly, Advertising Association figures show direct marketing’s spend falling over the past two years, not just in terms of share but in terms of absolute spend too. The absolute number of items mailed is also down (from 4.2 billion items mailed in 2003 to 3.9 billion in 2006).

It’s possible to put a positive gloss on all this. Relative share is bound to fall as the internet rises, and much direct marketing activity is potentially complementary to the Net rather than competitive. Falling volumes might signal increasingly effective targeting, not disenchantment – a view that gets some support from a small uptick in open and read rates. And still, response rates, around 8%, are surprisingly high, though we need to remember that the word “response” covers prize draws, competitions and coupons as well as requests for further information and sales. Larger mailshots rarely generate responses above 2%.

DM vs TV
But here’s another perspective. For the past few decades, the direct marketing industry has waged an often-bitter war with TV around a familiar set of themes. DM is better than TV, direct marketers argue, because it is targetable and addressable (opening the door to “relationships”), and accountable and measurable. DM can do something no other media can do: targeting.

Trouble is, DM has never fulfilled this promise and never will. Because it can’t.

Modern DM today is driven by propensity modelling, which draws inferences from data attributes such as age, sex, income, previous transactions and behaviours. But that’s all they are: inferences. Guesses, in other words, some slightly more informed than others.

Propensity modelling is flawed for two reasons. First, it can never break free of corporate data silos. In a category like financial services, I might have relationships with five or ten different providers, so all each individual provider ever sees is a fifth or a tenth of my overall activities. Direct marketers may try very hard to fill the resulting data holes, but they are fighting a losing battle. Ultimately, the only entity really capable of building “a single view” of the customer is the customer himself.

Second, you can make as many inferences from data as you like, but these inferences will never tell you what an individuals’ plans and intentions are or how these plans and intentions are changing. Data-based marketing can only work with the data it has – and under the current set-up this is always after-the-event data. Too late, in other words.

Together, these two very simple reasons explain why, on average, response rates and relevance never seem to improve no matter how hard the data crunchers crunch. Propensity model driven-DM is like climbing a tree to reach the moon. It’s true: climbing the tree does get you a little closer. But after a certain point, your progress stops.

The only way progress can continue is by enabling individuals to build their own personal databases, and by helping individuals express their intentions and preferences to the market: “Here I am, and right now, this is what I want”. (Seen from this perspective, Google’s search terms are the launch point of a completely new bottom-up species of “direct”.)

To overcome the flaws in propensity modelling in other words, direct marketers will have to transcend many of their most precious processes, mechanisms, skills, tools, measures, budget silos and marketing theories, all of which revolve around messaging. It won’t be easy. Nevertheless, it’s where the future lies.

Alan Mitchell, www.alanmitchell.biz