Looking Ahead
List Industry Leaders set their sights on the segment’s path for future success.
By Lori Levans

Many say the list industry is facing unprecedented challenges in terms of privacy, online influences, and the economic downturn. Where is the list industry today and where is it going? How can direct and interactive marketers improve efficiency and effectiveness? We assembled a group of list leaders to comment. Our panelists, in alphabetical order, are: Linda Huntoon, executive vice president, Direct Media; Chris Paradysz, CEO, ParadyszMatera; Ben Perez, president, Millard Group, Inc.; Brian Rainey, senior vice president/general manager, Abacus; and Roy Schwedelson, CEO, Worldata. In light of the national privacy debate, state and national do-not-call lists, the gradual shift from traditional direct marketing media to the Web, and a languishing economy, what is the state of the list industry?

HUNTOON: The state of the list industry is very fragile right now for these reasons, and them some. The diminishing universe of productive names represents a tremendous danger for our business. With the demise of the sweepstakes mailers and other large mailers, the list universe has become smaller. Many mailers that used to generate new names are no longer around, so there are far fewer new names out there.
The second is a result of mailers prospecting less- partly because of the diminished universe- and mailing their housefiles more. Housefiles are fatigued and not as productive as they are when they are constantly being replenished. The third reason involves the large promotional databases. As more mailers use more names from them, the same names come to the top of each mailer’s model, resulting in over-mailing of the best names.

RAINEY: There is no doubt that the industry as a whole is experiencing tectonic shifts on multiple fronts. Specifically within Abacus, we continue to see growth primarily due to what we believe is a “flight to quality” as marketers tighten the reigns on marginal performing investments. During the past 18 months, we have seen marketers focusing on houseflies and strong performing sources of prospects. We are just now seeing a renewed interest in more aggressive prospecting.
Beyond the macro-economic impacts, the biggest area of change we see is a channel shift being driven by the Web. Most companies have viewed retail, and now the Web, as independent businesses both organizationally and tactically. With Web orders increasing three-fold in the past couple of years for many merchants, there has been a perceived decay in list performance. We have found that lists are still performing- but the problem is understanding the dynamics between offer and order channels as consumer behavior changes and, ultimately, how that affects list decisions.

PARADYSZ: The “shift” you’re describing isn’t to the Web- it’s an acceleration of what happens when the customer drives the communication. Their buying decisions and media choices drive how we, as marketers, determine our marketing and media strategies, be it lists, Web, or other media sources. The pendulum has swung to a position where we are responding to customer behavior. If we capture orders on the Web at a higher rate because the catalog does a better job of getting them there, then we better be smart enough to do the analysis to capture that data. Two years ago, CRM emerged as the buzzword of the moment. Now, it’s multi-channel marketing. To me, it’s the same.

The list industry as we know it has not responded well to this shift. Dollars have moved to other channels because of what I just described. But, the big opportunity is being missed, I think. Clients want our input into their media budget decisions, and when we get closer, we can more clearly see the economics and why the dollars are moving. And, who better to help them find the best ways to spend those dollars, be it in the mail, online, with e-mail, print, alternative media or otherwise. If we’re part of the decisionmaking and adding value as a team player, we’re right in there with our clients. And we’re not just reacting.

PEREZ: Every industry and segments within it need to change and adapt with the times. This is no different with the list industry and the direct marketing industry as a whole. The obvious importance of lists in the direct marketing equation and the information and guidance provided by list companies to their clients will ensure a continued future for the list industry. We will continue to see list industry consolidation, expansion of services to improve revenue streams, and the management of list companies will operate with greater discipline as the industry moves forward.

Are sources of names expanding or contracting? How are the Web and e-mail impacting the business?

SCHWEDELSON: Sources of names are always expanding. Small firms, non-traditional direct marketers, and new sources for capturing names are all generating excellent names for the firms willing to seek them out. However, the methodologies and technologies related to some business models are limiting the sources for traditional direct marketers.
Thinking out of the box may not be simply an understanding of database structure or working within frameworks that limit the sources of names. The concept of a cooperative format or private database may be more the problem than the contraction of direct response name availability. Not all direct marketing is done at the sophisticated level needed to become a partner in either of these venues.

RAINEY: I would say that, in general, economic conditions, channel shift, and reduced prospecting have shrunk rental and exchange universes. If you believe, as I do, that the names of all potential purchasers within a category are currently available from one or more sources, then additional sources do not solve this problem. Our focus has been and continues to be on improving the process of acquiring those names more efficiently by providing larger, responsive universes rather than trying to “invent” new sources.

First and foremost, the Web is another channel for direct marketing. True, brand advertising, banners, links, and search engines are driving some additional purchases on the Web. But at the end of the day, most merchants’ top-line revenues are growing much slower than Web revenues. This says to me that catalogs are a significant contributor to the growth of Web sales for merchants. The impact of the Web has been increased complexity across the board, but specifically, most direct marketers are unable to understand the impact of their direct marketing list decisions on demand across all their channels.
Within our client base, e-mail prospecting is all but dead- the risk [of spam perception] and economics keep it from being viable. On the other hand, customer e-mail has proven to be a cost-effective medium for driving retention and loyalty. When combined with direct mail promotions or when used as a customer communication tool, the return can be quite good.

PEREZ: The source of new names has actually expanded in the last several years through the utilization of alternative media, modeling, and the proliferation of e-mail lists. We have actually seen more sources become available for marketers to target their message and to use either different channels or strategies to target existing markets. What is still a factor is the overall effectiveness of these channels on a broad basis. E-mail marketing, database marketing, and the utilization of alternative media have opened up some interesting opportunities but, on balance, have not been as productive in the acquisition of new customers as the traditional direct mail channel.
We have seen a significant number of e-mail lists brought to the market, but they’ve been priced too high and their performance, for the most part, has been weak. More recently, we have seen higher-quality e-mail lists come to market as both B-to-B and B-to-C marketers have moved to making their e-mail lists available for rental. This has provided the market with more targeted and higher-quality e-mail lists that have opted to receive messages. The improved quality of e-mail files, the lowering of e-mail prices, and the greater level of targeting will combine in developing e-mail marketing as a more effective acquisition tool than it is today.

Have we saturated consumers? And would you say one channel risks consumer backlash more than others?

PARADYSZ: E-mail? You’re not kidding. Telemarketing? Absolutely. Despite the crush of e-mails, though, it is effective media for B-to-B marketers, but much less so for consumer marketers. Five years ago, I predicted that direct mail would come out looking pretty innocent. Now with targeted cable TV, cookies captured on computers, cell phone-tracking technology, and even OnStar in your car, I think my guess was decent. Certainly for e-mail and telemarketing, legislation already is a reality. The DMA has done a good job of defending the list industry, and we should also thank the U.S. Postal Service for its millions in advertising. The percentage of people who hit the DMA’s pander file is still tiny even with all the encouragement we’ve given it over the years.

SCHWEDELSON: Consumers have always responded to offers that interest them. There is never enough information- as long as the information makes sense, has a purpose, and is delivered in a compelling fashion. The issue has always been proper targeting and timing. Will consumers say they enjoy direct mail? Probably not. Will they look forward to a magazine or catalog targeted to their particular interests? Absolutely.
The concept of saturation is becoming relevant due to the newer medium of e-mail. The U.S. Postal Service should have stepped into this arena long ago. The premise of free e-mail turned into no responsibility for sending out anything. That translated into spam. The risk to all marketers and to all direct marketing media is real. Couple the e-mail explosion with some misuse of telemarketing, and the consumer and the FTC have legitimate cause to be aggressive about controls. The traditional list industry has not played a role in the misused, but we have every reason to be concerned about the outcome. Not enough members of our industry are active with The DMA and other associations to ensure a containment of government regulation.

HUNTOON: I don’t think we have saturated the public in general because some people will always buy more. I do think that we hit the same few too many times, and haven’t found an effective way to reach the rest. We need to find the key to marketing to that 98 percent or so who aren’t responding.
As for consumer backlash right now, I’d have to say that telemarketing has caused more of it than any other media. As long as we continue to become better marketers, however, backlash will not hinder our growth. When we try to do the same thing in the same way, we get into trouble.

What are you doing to expand the sale of lists beyond your traditional base? And what do you consider the industry’s greatest profit opportunities?

RAINEY: We are looking at two primary areas to expand our business. First, we have found there are strong direct marketing industries in the European and Asian-Pacific regions, both providing interesting and unique opportunities for traditional niche of consumer offers such as apparel and gifts to work well for business buyers.

Today, I would say that the biggest challenge is also one of the best opportunities. As demand continues to shift from the call center to the Web, and consumers exhibit a greater willingness to purchase across multiple channels, lists will have to incorporate a much broader view of the buyer. Likewise, on the back end, marketers will have to be able to capture cross-channel demand to accurately measure list performance and make better decisions. Solving challenges such as data capture at the point of sale, lack of key codes in retail and the Web, and data integration will be the key to success here.

HUNTOON: I’m a broker, and as such, I don’t view myself as someone who “sells lists.” My job is to find productive names to which my clients can market their products or services. I believe that our industry’s greatest profit opportunities are found in the convergence of many media to sell and service customers. Once we begin to act like merchants with the welfare of the customers in mind, we will prosper as we never have before.

SCHWEDELSON: We have welcomed many new list brokers and agencies to our client base. The Internet revolution opened a door into direct marketing that I feel had been closed for many years. Today, firms that started during the dot-com era are now mainstream members of the list community. Along with the dot-coms came new firms and markets. As an example: ISPs, routers, PDAs, and wireless are all mainstream users of direct marketing and lists- none of them existed a decade ago.
Profit opportunities are also being expanded by the same revolution. E-mail, e-sponsorships, and other banner advertising are all playing roles in the changing of the list industry.

PEREZ: We still see growth in our traditional base. Even though the industry is not growing at the same rate as in the past, there is still opportunity within the traditional base of business, and this will continue to be a focus of ours. An example of this is alternative media. This has been part of our core business for over 20 years. But over the last several years we have seen significant growth in this area as more marketers have opened alternative media programs either in their packages, catalogs, ride-alongs, or co-op mailings. There has also been an increased number of marketers utilizing these sources as a lower-cost option in acquiring new customers.

To expand our revenue stream and to differentiate ourselves from our competitors, we also launched a marketing services division which provides market research, market analysis, and consulting services to direct marketers. We have been much more aggressive in supporting our clients’ database needs, both in the development of their databases for their own use and for list rental purposes. We have also significantly expanded our involvement with modeling, to either support our clients’ marketing efforts or their list rental programs. E-mail lists are becoming a factor in our revenue stream, and we believe that area will continue to grow.

Where is the list industry headed? What are its greatest opportunities and challenges? Are there new technologies that show particular promise?

RAINEY: The greatest opportunity for the list industry is not necessarily to sell more names or to find new sources of names; rather it lies in the opportunity to make the industry more efficient. If one looks at all the complexity and inefficiencies that exist from circulation planning, to list purchasing, to merge/purge, to reconciliation and invoicing, there is a lot of time, expense, and waste. And it is only getting more complicated with multi-channel marketing, the need for complete views of customers, and an evolution from circulation management to cross-channel campaign management.
It’s a classic supply chain management problem ripe for re-engineering. The good news is that advanced technologies and new methodologies that can help solve this problem are becoming affordable for more and more in the industry. At the end of the day, the list industry needs to evolve to meet the changing needs of the direct marketers they serve. As we all know, without them there is no list industry.

SCHWEDELSON: List professionals are becoming information professionals. E-mail transmission, data over-lays, database administration, and new electronic tools have enabled list professionals to emerge as the leading group of direct marketers.
Along with these developments, especially e-mail, have come some serious issues. Privacy, spam, and threatened government regulation all can stall our growth. As an industry working within organizations like The DMA, list professionals must arm themselves with the education and burden of responsibility to the consumer. Without the clear vision that is what is good for the marketplace (the consumer) is good for us, our industry can stumble.

PARADYSZ: There’s a multipart answer to where the list industry is headed: It has a broken compensation structure. Commissions don’t work and are counterproductive to developing our clients’ long-term success. How do you negotiate with yourself when you have a brokerage and management division? In addition, we must clean up the back-end mess of how we pay for names and data. The DMA’s List Leaders group is addressing this and will shortly present their recommendations to dramatically improve the process.

Most important, today’s talent needs to be nurtured and trained. Doing business tomorrow will be very different than how it’s done today, and the past has very little bearing on what clients will need in the future.
What remains the same, however, are the numbers. Results are the only thing that matters, ultimately. I had some great teachers, and they beat me over the head with the math of direct marketing. The leverage and the opportunity for our industry is all in the numbers.

PEREZ: I expect that we will see continued consolidation of list companies, the offering of more services not specific to lists, taking on a greater advisory role either on a fee basis or as a part of the retention strategy, more involvement in database development and database marketing, and greater participation with marketing opportunities derived from the Web.
The two biggest challenges I see are, first, the overall health of the Postal Service and its future impact on mailing costs, and second, the ability for list companies to operate profitably under existing tight margins when you consider the continued pressure of commission rates and the demand for more support and services by clients.

HUNTOON: The list industry is headed toward its peak. Our greatest opportunities lie in finding the means to service our clients better and more effectively, and convincing them that we can be an important part of their marketing arm. The challenges that we face are many, and they include our inability to find what I like to call “think” time. We are all so busy trying to do the work that we struggle to find time to think about the big picture.
Another challenge is finding a solution to the compensation question. Brokers and managers alike do more and more work for less and less money. We need to find a way to get paid for what we contribute to our client’s success.
We also need to get beyond the “entrepreneurial” mind-set that tells us to develop our own system, keep it to ourselves, and refuse to use anyone else’s. We’re trying to move in that direction, but it’s very difficult for us. Each service bureau still produces tapes in their own format, and every tape needs to be reformatted. Is that silly? Each list house has its own order processing system, for the most part, and each order has to be re-entered when it’s received.
One major solution lies in technology, but we have to be smart enough to embrace it. Certainly the Internet is dragging us in that direction. At Direct Media, and at many of the list houses, datacard and order information is available on the Web, thus saving many phone calls. But we’re just beginning. More and more files are being “shipped” via the Web, but even that is not working well at some of the most sophisticated service bureaus.

Ours is still a fabulous business, full of wonderful opportunity. We just have to open our eyes and our minds to make it work better!