August 2006 will be D-day for direct mail. From the 21 August, Royal Mail will launch its controversial Pricing in Proportion (PiP) initiative, which means companies will have to pay for the size of their mail as well as the weight. Opinions are sharply divided as to whether PiP signals the death knell for the mail pack as we know it, or a new dawn of creativity.
The only certainty is that direct mail is in a battle with other media for share of marketing spend and the increased cost of packs will make the medium less attractive to some clients, who may switch to cheaper formats.
Some estimates suggest that if a campaign undertaken today were produced under the new rules, prices could rise by as much as 300 per cent. Others, however, believe that the impact of size-based pricing is being over-stated and that a better targeted, more creative direct mail industry will emerge.
Royal Mail claims that 70 per cent of mail will be unaffected by the new changes. "There is a brand new myth that PiP is universally bad news," says Simon Kershaw, creative director at Keevill Barton Kershaw.
"PiP has created a bandwagon that seems to be about making excuses for poor creative work - before PIP has even been introduced."
Others say the pricing will force clients to do more to differentiate their packs in a highly competitive market. "The challenge has been thrown down and I am certain that the creative brains involved will rise to the challenge and amaze us all," says Neil Logan, director of Proximity London's production arm, Proximity Works.
However, this creativity may have to work within a standardised size to keep costs down. It won't signal the end of larger format mailings, but there will be fewer. Royal Mail has advised firms to switch from C4 packs to C5, as the postage costs will be the same.
"C5 is, I suspect, the format that most people will now opt for, especially for what you might call 'mass mailings'. An extra few pence on a mailing of 5,000 makes little difference, but makes a huge difference if you are mailing three million," says Andy Gorton, creative services director at Clark McKay and Walpole.
The only snag with this switch is the knock-on effect on response rates.
Creatives will have to investigate all manner of tricks to make sure that their packs stand out from the crowd.
David Harris, creative partner at LIDA recommends: "Colour, texture, different stocks, metallic materials, fabrics - these are all things that can be employed to help a C5 mail pack stand out from the others that will land at the same time. Illustration, photography and clever lines can all add to the desirability of a pack, but it's the idea behind the communication that will have the stand out. If it is saying something interesting and relevant to its audience, they will open it."
Some of these techniques come at a premium, however. So how will marketers strike a balance between creative formats and the increased cost to clients?
"In terms of creativity, if the idea of a campaign is best expressed in a 'creative format', then the costs have to be carefully managed, but that's nothing new," says Patrick Baglee, creative director at EHS Brann London. "Costing and sensible planning should be central to any campaign, and not only become a focus because of pricing restrictions."
What is likely to happen in the months running up to PiP's introduction is that we will see many test campaigns as agencies dip their toe in the water to find out what does and doesn't work.
"Astute marketers are in the process of objectively testing the impact that size has on responsiveness," says Yolanda Noble, chief executive of mailing services house Corporate Mailing Matters. "We all suspect that offer, quality and targeting are more important to today's savvy consumer than size."
However, Robert Mayes, group communications director at WWAV Rapp Collins, says that testing costs money and raises the scenario of test packs not achieving the same response as original packs. "For example, Royal Mail is quick to tell us to change C4 packs to C5 and thus keep the postage the same, but it can't tell us what that will do to the response rate and that's the key thing."
There are some who fear that agencies are not taking the implications of PiP seriously. "Too few people, especially cataloguers, are testing alternative formats to establish whether it's worth paying the additional postage costs associated with PiP, or whether they can make use of smaller formats in paper envelopes," says David Laybourne, technical director at DPS Direct Mail.
One group that has got to grips with the impact of size-based pricing is DM printers. They predict the emergence of a new DM market, which will see smaller, more targeted campaigns with increased levels of personalisation and colour. In anticipation, DM printers have been upping spend on high-tech presses and sophisticated software that is closer to a fully automated model. They believe that marketers have to match this effort to overcome the PiP hurdle.
Jo Lloyd, commercial director at Lloyd James, says: "After August, the price of creativity, in the form of large increases in postage costs, will mean that companies that want to continue mailing boxes and tubing will have no choice but to make their mailers work harder for them. The list quality, data cleansing, targeting methodology and design must all be right to maximise personalisation and response."
Lucy Edwards, marketing director at Howard Hunt Group, believes the direct mail sector will have to raise its game to survive. "The key is analysing and understanding what your consumers are telling you through their transactional history and the attitudinal data you can build up. Once you have established this, you can make your campaigns more focused and relevant."
More collaboration is also expected as printers become part of the project design team. "To help our clients in the creation of the most effective mail pack, we get involved with the creative at the start of the direct mail process and work closely with our clients and agencies to ensure the mail pack created uses the most cost effective method for production and mailing costs," says Phil Teer, direct mail general manager at Adare Halcyon.
PiP could, ultimately, prove to be the catalyst for the emergence of a leaner, meaner DM industry, but only for those that recognise and seize the opportunity to change.
Roger Lipscombe, head of art at TDA, is confident that the industry will respond to the challenge. "Creativity in direct marketing won't just survive the changes that will be imposed by PiP, it will become even stronger. The best agencies are already implementing test-and-learn strategies to ensure that once the legislation comes into force they will be ahead of the game. Undoubtedly, there's going to be a shake up and there may be casualties along the way, but overall I believe that PiP could be the wake-up call the industry needs," he says.
NEED TO KNOW
A guide to Pricing in Proportion (PiP)
What is Pricing in Proportion (PiP)?
PiP is a new pricing system that takes into account the weight and size of the item you are posting. Royal Mail is introducing the measure because size is a key factor in the cost of handling and delivering mail.
How will it work?
Smaller envelopes will cost less to post than larger ones. To simplify the process, Royal Mail has introduced three mail sizes: 'letter' - most small and medium envelopes up to A5; 'large letter' - most larger envelopes up to just over A4 size (353mm x 250mm); and 'packet'.
The good news is that 70 per cent of business mail will remain unaffected by PiP, and of the remaining 30 per cent, about half of the prices will actually be reduced. The new letter category has a more generous weight allowance than traditional Mailsort 3 1400. For example, in the smallest category letter, the maximum weight has risen from 60g to 100g.
When will it take effect?
From 21 August. Shortly before the introduction of PiP, Royal Mail will launch a major communications programme to educate everyone about the changes. Paper template guides will be delivered to every UK household.
Business customers will be able to request a cardboard version of the template guide. For details visit: www. pricinginproportion.co.uk.
THE BIG ISSUE
Will PiP result in a different direct mail production business?
The good news is that printers are already kitted out to respond to the new challenges facing direct mail. In fact, the way DM packs are produced was already changing due to recent advances in print technology.
As digital print becomes the norm and not the exception, the price-per-unit has reduced. This is also the case with eye-catching printing techniques, such as lenticular or 3D printing, which have become affordable options for those wishing to produce stand-out items.
Advances in management information software have also seen a push towards complete integration and automation, allowing DM firms to order and proof print jobs online. New software packages have also simplified the practice of variable data printing and allowed for greater levels of personalisation.
But what of the future? The use of personalisation and colour is not restricted by size and it's expected that they will become more commonplace in the quest for more effective campaigns, as will lenticular images and cleverly shaped mailings. Mass mailings will not be bigger than C5 and it's anticipated that there will be a rise in one-piece mailings because they are easier to differentiate with material, finish and colour.
Charity pens in packs may become obsolete, or people may investigate switching to using flat pens, and catalogue companies that rely on DM to gain exposure for their products will probably switch from A4 to A5.
The form a campaign takes will still be decided by budget and not by the new pricing system. "Campaigns for high-value sales, such as automobiles, financial services and luxury goods, are likely to ignore the PiP issue and continue with whatever gets the best results," says Yolanda Noble, chief executive of Corporate Mailing Matters.
"This is because a drop in responsiveness would cost far more in lost business than some extra postage. On the other hand, those who will be thinking seriously about the extra cost of larger mailings under PiP are those promoting lower-value goods or those with slim margins."