Marketing mail revenue, which accounts for around a quarter of letters revenue, jumped 5% to £571m in the six months to 28 September. The growth softened a 1% decline in UK revenue in the period, which the business said was due to “pricing pressure in the highly competitive market”.
Royal Mail’s marketing revenue growth was driven by the “impact” of its MarketReach services, which it said helped brands improve return-on-investment (ROI) from “multimedia campaigns” in the period. MarketReach launched two years ago, offering planning, production, data and creative services, to try and lift revenue from brands by selling the appeal of direct marketing to lapsed users.
Since then, the business has published research and made senior hires with the aim of demonstrating direct marketing’s value when used in concert with other media. In May, MarketReach managing director Jonathan Harman hired three senior executives to help make businesses aware of the value of letters.
The subsequent rise in ad spend from advertisers with Royal Mail signals a turnaround in attitudes toward the channel, which has been criticised in the past for its effectiveness.
The discipline has been in decline both in terms of volume and its share of the UK advertising mix. Direct marketing’s slice of total UK ad expenditure dropped 14.1% in 2013, from 14.5% in 2012 and 17.8% in 2009. Elsewhere, the Advertising Association and WARC advertising spend report revealed direct mail sagged 1.2% to 1.8bn in 2013.
High street retailer Next said it was returning to direct marketing after seven years, albeit in a more targeted manner, after seeing sales gains from tests in recent months. Similarly, The Economist recently told Marketing Week it will increase investment in direct marketing after generating strong ROI from it.
Royal Mail’s need to boost its wilting letters business with advertising revenue was brought into sharp focus over the past six months. The business, which was sold off by the Government last year, saw letter revenue in the UK rise 1% over the last six months, while volumes dropped 3%. Its parcel business also saw revenue fall 1% in the period.
Overall, total revenue climbed 2% to £4.53bn in the period, which was inline with analysts forecasts. Letter volumes fell 3% though revenue rose 1%.
Royal Mail attributed the performance to tougher competition from Amazon, which it said would curb growth of its own delivery business. Consequently it has halved the growth forecast of its UK parcels market to between 1% and 2%.
Moya Greene, chief executive of the Royal Mail, says: ““The UK parcels market remains challenging. As the re-eminent UK parcels delivery company, we are targeting a number of new, growing areas, and delivered two per cent volume growth in a competitive market.
“I am pleased with our overall performance. Our tight cost control meant that UK costs were flat on an underlying basis and we are expecting a similar performance for the full year. Looking further ahead, we are targeting a flat or better underlying UKPIL cost performance in 2015-16.”