MEDIA ANALYSIS: Can DM save Royal Mail’s bottom line?

Royal Mail’s aim of boosting revenue through direct marketing (DM) has set the postal delivery operator on a course that has often brought it into conflict with the rest of the industry.

Undeterred, Royal Mail aims to spread its tentacles even further. Last week it launched a marketing tool that allows advertisers to create and execute DM campaigns online, without the aid of an agency (MW last week).

Devised by Marketing Drive Worldwide London, DM Online is the latest in a line of Royal Mail innovations and investments to promote the use of DM to advertisers, which began with the establishment of its Media Markets division in 1999.

Royal Mail’s increased emphasis on DM services has evolved as the company recognises that it must find new revenue streams in the face of competition in the postal market. And as deregulation sets in, it is hoped that DM will help loss-making parent Consignia balance the books.

The launch of the tool, which is aimed at small to medium-sized businesses, has already created some concern among DM agencies. Dave Bulman, chief technology officer for Europe, the Middle East and Africa at Wunderman, says: “I don’t think it will bother the large agencies, but it could hurt the smaller independents.”

But Royal Mail head of information Andy Kershaw claims the tool is likely to be used by advertisers that cannot afford agency fees, or are new to DM as a medium.

Royal Mail Media Markets managing director Adam Novak says his aim is to “develop new business models and share them with the industry in a way that adds value”. But he admits: “We wouldn’t be doing it unless it had an effect on the bottom line.”

Novak says he will talk to anyone who has an interesting proposition within the DM arena. He adds that there are no plans at present to move into any other form of direct response media, but adds: “We are deep rooted in the use of mail media. But if over time that extends us into other areas then, why wouldn’t we?”

Some people in the industry think that all this talk of expansion misses the point. Wunderman’s Bulman believes such diverse activity diffuses Royal Mail’s focus. “It should be dealing with its core competencies and concentrating on getting letters delivered correctly and on time,” he says.

Yet most of the industry seems supportive of Royal Mail’s general aims, although there are mixed feelings about how far it should extend its offering into other business areas.

WWAV Rapp Collins chairman and group chief executive Chris Gordon wants regulation of the monopoly service stepped up: “If it is to expand into related areas, Royal Mail could abuse its dominant position and behave in an anti-competitive manner.”

He is disappointed with the response of regulator Postcomm. “They said to us ‘if you get any problems make a complaint’, but that is not the way regulation is supposed to work. It is difficult for us to find out how Royal Mail is behaving – the onus should be on the regulator.”

But Dave Poole, chairman of DM agency DP&A, says:”There’s plenty of space for lots of players in the market.” He claims that if you compare the US to the UK, proportionately the DM industry is three-times bigger across the Atlantic. Poole adds that too much regulation could also force Royal Mail to operate with “one arm tied behind its back”.

Royal Mail is again restructuring its business and Media Markets is set to be absorbed into a new Letters division. Should Novak land one of the top jobs within the division, Royal Mail’s excursions into the DM industry are likely to gain added momentum.

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