Taking the Junk Out of Junk Mail

Those businesses are likely to continue marketing by mail. According to an article in Target Marketing magazine, 41 percent of companies surveyed plan to increase their 2007 direct mail marketing budget, while 40 percent plan to spend the same as they did in 2006. A December white paper from the Winterberry Group, a New York City consultant to the direct mail industry, predicts that investment in the direct mail marketing category will slow slightly this year but still outpace growth in other advertising segments.

“We project overall spending on direct mail services will reach $73.6 billion by 2009, reflecting a compound annual growth of 6.8 percent per year for the 2005 to 2009 period,” the white paper states. Direct mail marketing is currently a $60.6 billion, highly fragmented industry. “No one has more than 1 percent of the business,” Andersen says. IWCO Direct’s space—business to consumer—currently makes up more than half of the total direct mail market, at $32.5 billion.

According to the Direct Marketing Association in New York City, the average response rate to a direct mail offer for products or to a fundraising campaign for a nonprofit organization, is 2.18 percent. The overall average response rate for lead-generation campaigns using direct mail is 1.27 percent. These may sound like low response rates, but for a high-volume mailer, it can more than make up for the printing and mailing costs: A 2 percent response to a 5 million–piece mailing is 100,000 new customers. According to IWCO Direct, people buy through direct mail because it’s an unobtrusive channel compared to telemarketing calls or e-mail spam; it typically provides multiple response channels (such as business reply envelopes); it may include product samples; and it arrives through a trusted source— namely, the U.S. Postal Service.

Deeper is Cheaper

“Postal optimization” is what Andersen and Wicka refer to as their “secret sauce.” Mail trucks leave the company’s processing facilities in Minnesota and New York and go straight to the Postal Service’s sectional center facilities (SCFs) or destination delivery units (DDUs) across the country. These postal stations are either the last or second-to-last stop before mail reaches the carrier’s sack.

“When you go to an SCF, you get a $42 discount for every 1,000 mail packages,” Wicka explains. “That allows us to offer marketers a 4.2-cent discount on mail that we can qualify and prepare for SCF delivery.” To qualify for the discount, a mailer needs to have large scale and geographic concentration—each mail tray going to a zip code needs to be stacked full. “To fill the trays, you have to have extremely large scale,” Wicka says. “We are the largest mailer of standard mail in the United States.”

Small mailers are more likely to do what the Postal Service calls “origin entry”—simply presenting the mail at the postal facility near where it is produced. They don’t have the volumes to justify the cost of trucking mail to other postal facilities. Most larger mailers will have drop-shipment programs to move mail around the country, but only to centralized “destination” postal facilities. IWCO Direct’s approach moves more mail closer to its final destination, shortening delivery time and limiting the need for the post office to provide additional transportation and processing.

On May 14, when the latest postal rate increases went into effect, the advantage of IWCO Direct’s postal optimization strategy was brought to the forefront. Wicka calculates that his customers saw an increase in postal rates of 3 percent, while those utilizing his competitors’ services saw a 9 percent increase. “The last four postal increases haven’t changed the volume our clients send out,” Wicka says. “Our clients have said this latest increase won’t change their behavior. But it could be a platform for them to refine their future campaigns” in the event of another increase. That could mean targeting their mailings even more tightly, in hopes of getting a higher response rate.