The going gets tough

Declining ROI from high-volume mailings is forcing many brands to reassess how they buy data. Melanie May finds out what list brokers are doing to stay in the game.

Adapt or die may be an age-old business adage, but it couldn't ring truer today than in the list broking market. Brokers, and some managers, are finding that clients that were once happy to receive data without expecting much more on top, have greater expectations and don't want to pay extra for it.

There are many reasons for this, which are contributing to the changing face of the data provision market. They include a rise in the use of digital channels and demand for email data, the commoditisation of data, which has led to prices being driven down, and last but not least, falling response rates and ROI.

To meet client demands, list brokers are likely to offer services on top of broking, such as planning and analytics. The fact that buyers now want more from their data than a list of names and addresses is a good thing: better targeted mail should mean less 'junk' for the consumer and less waste for the environment.

The decline in response rates and ROI on high-volume mailings has led some brands to rethink their strategy. Some are changing how they buy data, committing to taking a particular volume over a longer period.

Julie Knight is managing director of Marketscan, traditionally a B2B data owner that has moved into the consumer arena. "We're doing deals with clients who are willing to commit to 100,000-200,000 records over 12 months," she says. "They can access our pool of data when they want and still have the volume discount."

Demand for multi-channel and email data are soaring. Cheaper campaigns and fast results make email an attractive prospect.

THE GOOD AND THE BAD

There are good lists and a lot of bad ones. It is part of the broker's role to help clients make the right choices in terms of what to use and when to use it. "Clients are looking for email data, but direct mail is still there," says Jackie Bradford, head of lists at Occam. "They're asking: if we did a direct mail campaign, can we follow it up with email? Can we test email against direct mail?"

Others are moving away from cold list acquisition. News International and Toyota are two examples of brands that have chosen to take a new path.

News International has turned to prospect pools, largely because it was no longer getting the volumes it needed from brokers. "Previously, we used different brokers, but found some suppliers and traditional lifestyle firms were reducing their acquisition activity through lifestyle surveys, says head of data acquisition Chris Mitchell.

"Acquisition costs were rising, so we decided to go down the prospect pool route and integrate prospect pool data with our internal base," he says.

This has worked well for News International, with reduced costs and higher response rates. It isn't an approach, however, favoured by Toyota. Although the motor manufacturer still uses cold lists for some campaigns - it recently ran a six-million cold mailing for its dealers - head of CRM Steve Hanney says the firm prefers to generate its own data from hand raisers. "Cold lists come with a health warning these days - people request a dialogue with your brand and are then surprised to hear from another. If people say 'yes Toyota, I'd like to hear from you', the value is worth far more."

ADDED EXTRAS

Other end users are happy to place an emphasis on cold lists, but with the proviso that this isn't all they get - they want more targeted data and insight from their broker. "Brokers are becoming planners, more focused on the strategic effect of buying data and looking at how to get ROI," says Lisa Neville, operations director at EDM Media. "Clients are more willing to tap into the expertise of brokers, and good ones are becoming an extension of the marketing department."

This is something with which many would agree. Lloyd James Group, for example, is increasingly using predictive analytics with clients, particularly on high-volume campaigns. "On smaller campaigns manual selections and profiling are still key. When it comes to slightly larger mailers across multiple data sources, a broker's job is not just to identify lists that work," says Darrel Linehan, director at Lloyd James Group. "We need to be working with analysts to identify the correct individual, contact strategy, message and creative to ensure clients are getting the best return on their investment, while consumers are not bombarded with clutter."

Others have diversified further. Broker ListLab offers clients more than just lists. In the past 18 months, it has launched print and email broadcast divisions and is launching a creative arm.

"Eighty per cent of our revenue comes from lists, but we plan to provide more of a full service agency offering. If we were to concentrate on lists alone, there is a danger we'd get left behind," says account director Ben Ennis.

While brokers are willingly adapting, one complaint is that their remuneration doesn't reflect their expanded offering. Many brokers still only charge for the data, while working on a commission basis of about 15-20 per cent. With the price of data falling, there is unease in the market as to how brokers can survive if their margins are continually squeezed.

Many feel the price of data has been pushed down far enough. Prices have fallen because the market is saturated with cold data, buyers are pushing for lower prices, and because in a competitive market brokers sometimes reduce the prices themselves to get a deal. Richard Gibson, commercial director at RSA Direct, says: "There is an over-supply in consumer-derived information. The internet has driven down the cost of colleting data, and brokers and managers are up against this."

While a lot of data is available, a traditional mainstay in the acquisition strategy of many organisations - lifestyle survey data - is reportedly on the decline, causing some to rethink their data strategy. The experiences of companies such as News International would certainly indicate that this is the case.

There is life in the old dog yet, however. Following data owner DLG's purchase of lifestyle data specialist Wegener DM last year, DLG will collect two million lifestyle surveys this year across several channels. Yet group communications and compliance officer Richard Webster says that volumes of printed surveys are down. "With the advent of other channels, the volume isn't as high as it was three years ago, but it is still a key part of our acquisition strategy," he says.

These are challenging times for brokers, but the future looks secure for those that can make it worth their while. Brokers are adapting, but if there's less volume, this will be reflected in the fees they can charge. The irony is that with more targeting and less waste, this can only be good for the industry.

THE BIG DEBATE

How would an opt-in to direct mail affect list buying?

- Chris Mitchell, head of data acquisition, News International

The issue with direct mail is the way it's perceived - it has had bad press and people don't see the value. We're tarred with the same brush as pizza leaflets, and the good material isn't seen as direct mail. Most people would opt out because it's the easy option.

Many suppliers might see opt-in as a chance to increase price, but for organisations such as ourselves we may need to revise our data strategy to ensure we minimise wastage and avoid the high cost of mass mailing. I don't see it as a driver for increasing prices, but there would be less volume. The key component will be evaluation of response of opt-in data compared with opt-out data.

- Annette Holmes, managing director, Prospect Swetenhams

The suppliers who will prosper under an opt-in system are those who have earned the right to contact the consumer. This will lead to a mixture of data owners and intermediaries. To secure opt-in, products offered must fit in with why the person opted-in to start with. The winners in this scenario are those who invest in understanding the buying motivation and targeting offers based on that. Premium prices will be paid for acquisition strategies that work - based on matching offers to consumer preferences. Volumes will go down, the unit cost of data will go up, but overall cost per acquisition should go down, if the job is done right.

- Sue Dyer, director, Caspian List & Data Management

The mailable universe would reduce and response rates would increase, as we would only be mailing people who want it.

However, we have found that older people who receive mail order catalogues, for example, expect their names to be shared. The danger with opt-in is that we lose this audience. It could damage the sales process in vertical sectors.

People are talking about opting in, but there is a lot of self-regulation - the Mailing Preference Service, the DMA code of conduct and the list warranty regulation scheme. More people need to follow these to the letter and we need to do more positive PR as an industry.

Q&A

THE LIST BROKER'S VIEW

Company: HLB

Director of list broking: Suzanne Lewis

Clients: Autotrader.co.uk, Boden, Charles Tyrwhitt, Loot, Sadler's Wells

- What supply-side changes do you see in the list-buying market?

There are a few who are pushing for change in the industry, split into two camps: those who want to continue the volume route and those who want to reduce waste. However, many list buyers are burying their heads in the sand and continuing to do business as usual.

A hot topic at the moment is the extent to which list managers and owners are incentivising list buyers to test data sets or rollout larger quantities. No one makes money on a test. If a test doesn't work, then the list owner doesn't benefit and the broker's reputation is tarnished.

- How are client demands changing?

Client demands haven't changed much. The cry is 'more responsive data at a reduced rate'. We have seen no real shift in strategy to be more eco-friendly, except in the paper stock used. This will change as the heat is turned up in terms of the environmental lobby. There is however, increased use of data intelligence, with clients holding mailing history to control mailing frequencies or predict performance in and between campaigns.

- How is this affecting your business and how are you responding?

We're strong in consultancy and analysis and this is how we promote ourselves in the market. Some clients see the value in that - they want the added value of analytics. Often the bigger the player, the more they want your feedback. When a company has its own analytics, they don't have the market context. We see lots of clients so can pick up trends quicker. The new business we win wants more of this type of work from us. There is a growing demand in the market because things are getting tough.

GOODBYE TO ALL THAT

Key data buying practices brokers would like to change

1. Net names. This is the system of allowing buyers a discount for the cost of duplicated names. A huge bugbear among brokers, net names work for owners and buyers - providing owners with a fair return from selling their data and a comeback for buyers purchasing large volumes of data. Brokers say the net names system is a nightmare to administer and often a client's first recourse when a campaign fails.

2. Charges for selections and delivery. Suppliers of lists and data can charge for selections and delivery, a practice some brokers feel is outdated. Anna Foster, head of data planning at Response One, says her company finds it "hard to understand how sending data files by email could justify a charge of £35-£60 a time. The sooner suppliers realise it is easier if they worked off base rates and open nets only, the more up to date the sector will become."

3. No payment for value-added services. While brokers are increasingly offering services from consultancy and planning to analytics, they are largely remunerated on a cost per 1,000 records basis. Clients receive far more than a list of names from their brokers without paying extra for these services, but many brokers argue this needs to change.

Q&A

THE LIST MANAGER'S VIEW

Company: Mardev

Managing director: Nick Martin

Clients: New Scientist, Business Week, Asia Food Journal, Building Design & Construction, Professional Builder

- What supply-side changes are you seeing in the list-buying market?

Research and data are blending, to deliver greater insight. Targeting is increasingly informed by profile analysis, and scoring will extend to live prospect interactions with campaign content, online and offline.

- How are client demands changing?

Direct marketers are in the early days of understanding how to combine on and offline, push DM and pull DM such as search engine optimisation and online marketing to generate high-quality and measurable results. I expect this to develop in some markets to the point where clients don't specify which channels they wish to see integrated, but determine campaign objectives and leave the multi-stage campaign design and execution to skilled suppliers or internal campaign experts. People have a good sense of top-line results from campaigns, but not necessarily how and what combination of things helped them get there.

Clients are becoming dependent on email, and there will continue to be a resurgence in telemarketing, particularly in business-to-business (B2B) if you're trying to be relevant and specific. However, if you rely on email marketing to push your B2B message out, you are only likely to reach 10 per cent of your audience.

In sectors, such as technology, online lead generation through areas such as pay-per-click has influenced people's thinking and approach to direct marketing.

- How is this affecting your business and how are you responding?

Business has changed quite a bit over the last couple of years - it has focused us on building a critical mass of properly permissioned and targetable email addresses. We have formed relationships with other service providers, so we can integrate more appropriately. We've also invested in an online software platform so we can analyse what does and doesn't work, fine tune campaigns and build a library of metrics.

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