Slide1: Direct Mail Marketing Trends: United States and Western Europe Direct Mail Advisory Board 11 October, 2005 Bern, Switzerland Luis Jimenez Senior Vice President and Chief Strategy Officer


Slide2: The paperless office is close Business Week, 1975 By the turn of the century we will live in a paperless society Fortune “10” CEO, 1986 If mail service fails to improve, 60% of mail will be delivered electronically by the year 2000 Wall Street Journal, 1987 Electronic mail … could replace 25% of “snail mail” by 2000 TIME Magazine, 1998 Myth: Paper will Disappear


Slide3: “It’s very difficult to make predictions, especially about the future.” - Niels Bohr, Nobel Prize in Physics, 1922 Ahh … Predictions ….


Slide4: 1. Trends


Slide5: Mail Volume Growth Rates -1.00% 0.00% 1.00% 2.00% 3.00% 4.00% 5.00% 6.00% 7.00% 00-05 95-00 90-95 85-90 80-85 Europe US Source: Pitney Bowes Analysis; 2005 figures estimated Volume growth rates peaked in the 80s; 2000-2005 averaged flat volumes, although many markets now see slight positive growth How is mail volume evolving? US Peak Euro Peak


Slide6: - 500 1,000 1,500 2,000 2,500 1960 1965 1970 1975 1980 1985 1990 1995 2000 2003 2004 Total Pieces per HH per year Group 1 Switzerland US Sweden Source: Mail Database (2005) Rapid growth 1960-2004 CAGR How does mail intensity differ across countries?


Slide7: - 500 1,000 1,500 2,000 2,500 1960 1965 1970 1975 1980 1985 1990 1995 2000 2003 2004 Total Pieces per HH per year Group 1 Group 2 Switzerland US Sweden Netherlands France UK Source: Mail Database (2005) Uneven growth Rapid growth 1960-2004 CAGR How does mail intensity differ across countries?


Slide8: - 500 1,000 1,500 2,000 2,500 1960 1965 1970 1975 1980 1985 1990 1995 2000 2003 2004 Total Pieces per HH per year Group 1 Group 2 Group 3 Switzerland US Sweden Netherlands France UK Germany Spain Italy Mail per household will not reach the same level in all countries Source: Mail Database (2005) Flat growth 1960-2004 CAGR Uneven growth Rapid growth How does mail intensity differ across countries?


Slide9: The low growth for some European Posts can be explained in part by competition Volumes Delivered by Posts (Addressed & Unaddressed) Source: PB Analysis based on published postal reports and FEDMA - 40 80 120 160 ‘ 60 ‘ 65 ‘ 70 ‘ 75 ‘ 80 ‘ 85 ‘ 90 ‘ 95 ‘ 00 ‘ 03 Unaddressed Mail Addressed Mail Market Volume (Billions) What is the effect of competition in Europe?


Slide10: US and EU mail per capita remains steady despite email explosion Total Email Source: Mail Database (2004) and IDC Worldwide Email Usage Email / Mail 33 : 1 Email / Mail 23 : 1 What is the effect of email on mail volume?


Slide11: Mail’s share in each segment is evolving differently depending on the range of available alternatives Source: Pitney Bowes and Arthur D. Little Messages 1992 2000 2002 80% 47% 40% Mail Email Instant Messaging Fax Voice Mail Mail’s Share by Value U.S. Market


Slide12: Mail’s share in each segment is evolving differently depending on the range of available alternatives Source: Pitney Bowes and Arthur D. Little Messages Publications 3.4% 2.5% 2.5% 1992 2000 2002 1992 2000 2002 80% 47% 40% Mail Email Instant Messaging Fax Voice Mail Mail Retail Online Mail’s Share by Value U.S. Market


Slide13: Mail’s share in each segment is evolving differently depending on the range of available alternatives Source: Pitney Bowes and Arthur D. Little Messages Advertising Publications 6.7% 6.4% 6.3% 3.4% 2.5% 2.5% 1992 2000 2002 1992 2000 2002 1992 2000 2002 80% 47% 40% Mail Email Instant Messaging Fax Voice Mail Mail Retail Online Direct Mail TV Radio Print Internet Telemarketing Mail’s Share by Value U.S. Market


Slide14: Mail’s share in each segment is evolving differently depending on the range of available alternatives Source: Pitney Bowes and Arthur D. Little U.S. Market


Slide15: 2. Forecasts


Slide16: Direct mail volumes have traditionally followed economic activity. After the downturn of 2000-2003, volume has resumed its historical trend. USPS Advertising Mail Volume – Actual vs. Forecasts Source: USPS, GAO (1999), Tolley (2001), IFTF 75 80 85 90 95 100 105 110 115 120 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Billions of Pieces Actual USPS to GAO 1 2 1 2 -


Slide17: Direct mail volumes have traditionally followed economic activity. After the downturn of 2000-2003, volume has resumed its historical trend. USPS Advertising Mail Volume – Actual vs. Forecasts Source: USPS, GAO (1999), Tolley (2001), IFTF


Slide18: 3. Drivers


Slide19: 1. Economic and Demographic Recession and expansion Personal consumption Advertising spending Customer acquisition spending Demographic shifts 2. Consumer Preferences Paper vs electronics Saturation with promotions Need for credit and refinancing New shopping habits Demographic and generational differences 3. Electronic Alternatives Surge in inexpensive e-mail marketing Remote commerce Variable digital printing Many factors, not just technology, impact the advertising mail volumes What factors impact mail volumes?


Slide20: 1. Economic and Demographic Recession and expansion Personal consumption Advertising spending Customer acquisition spending Demographic shifts 2. Consumer Preferences Paper vs electronics Saturation with promotions Need for credit and refinancing New shopping habits Demographic and generational differences 3. Electronic Alternatives Surge in inexpensive e-mail marketing Remote commerce Variable digital printing Many factors, not just technology, impact the advertising mail volumes 4. Competition Private Postal Operators Growth of unaddressed mail Posts setting up operations in each others’ countries 5. Postal Products Price level Price changes Quality Differentiation Ease of Access Life cycle 6. Mailer Rationalization Total Cost of Mailing Frequency Customer Targeting Customer relationship management What factors impact mail volumes?


Slide21: Ad spending and mail volumes per capita are directly related to GDP per capita in many countries.  Source: Mail Database (2004) based on Postal, Census, DMA and Advertising Association Data $40 $30 $20 $10 $0 Advertising Spending per Capita GDP per Capita ($000s) Japan US UK Netherlands Brazil Chile Mexico Argentina Spain Canada Sweden Italy France Germany $0 $100 $200 $300 $400 Is economic activity still relevant for direct mail forecasting?


Slide22: Source: Mail Database (2004) based on Postal, Census, DMA and Advertising Association Data $40 $30 $20 $10 $0 Advertising Spending per Capita GDP per Capita ($000s) Japan US UK Netherlands Brazil Chile Mexico Argentina Spain Canada Sweden Italy France Germany $0 $100 $200 $300 $400 $0 Advertising Mail Volume per Capita ( addressed and unaddressed) GDP per Capita ($000s) Ad spending and mail volumes per capita are directly related to GDP per capita in many countries.  Is economic activity still relevant for direct mail forecasting?


Slide23: 0 50000 100000 150000 200000 250000 1946 1949 1952 1955 1958 1961 1964 1967 1970 1973 1976 1979 1982 1985 1988 1991 1994 1997 2000 2003 Total Advertising ($ Millions) 0 2000 4000 6000 8000 10000 12000 Total Advertising GDP in billions of current dollars Sources: Veronis Suhler Stevenson and U.S. BEA Advertising Expenditures vs. GDP in the U.S. 1946-2003 In the United States advertising spending is positively correlated with GDP $ Billions Is economic activity still relevant for direct mail forecasting?


Slide24: 0 50000 100000 150000 200000 250000 1946 1949 1952 1955 1958 1961 1964 1967 1970 1973 1976 1979 1982 1985 1988 1991 1994 1997 2000 2003 Total Advertising ($ Millions) 0 2000 4000 6000 8000 10000 12000 Total Advertising GDP in billions of current dollars Sources: Veronis Suhler Stevenson and U.S. BEA Advertising Expenditures vs. GDP in the U.S. 1946-2003 Recent Years $ Billions Is economic activity still relevant for direct mail forecasting? In the United States advertising spending is positively correlated with GDP


Slide25: US : Direct Mail Expenditure as Percent of Total Advertising Spending Source: Veronis Suhler Stevenson U.S. Direct Mail expenditures as percent of Total Ad Spending have been stable over the last 20 years. Is direct mail getting its share of the advertising pie?


Slide26: Direct Mail Expenditure as Percent of GDP Source: FEDMA Direct Mail expenditure as percent of GDP has also been stable in Europe Is direct mail getting its share as percent of GDP in Europe?


Slide27: Changing Shares of Various Media in U.S. Source: Pitney Bowes analysis using Veronis Suhler Stevenson data The introduction of new media such as TV and Internet has followed a complementary, not a substitutive pattern What is the effect of new media?


Slide28: Forecasts of Internet advertising were grossly exaggerated during the dotcom boom 0 5 10 15 20 25 30 35 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Billions of $ Internet actual 99/00 Forecast 99/00 Forecast Forrester 99/00 Forecast IDC Hype Forecasts Veronis Suhler Actual Source: Veronis Suhler Stevenson (1999, 2000), Forrester (1999, 2000), IDC 1999, 2000) How is Internet advertising evolving?


Slide29: 0 5 10 15 20 25 30 35 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Billions of $ Internet actual 2003Forecast Veronis Suhler 99/00 Forecast 99/00 Forecast Forrester 99/00 Forecast IDC Hype Forecasts Recent Forecast Veronis Suhler Actual Forecasts of Internet advertising are no longer in the “hype” stage in the U.S. Source: Veronis Suhler Stevenson (2003), Forrester (1999, 2000), IDC 1999, 2000) How is Internet advertising evolving?


Slide30: Initial Growth Rates for the Internet and TV Advertising Revenues in the U.S. Sources: Pitney Bowes analysis using Veronis Suhler Stevenson data After the introduction of new media, the initially high growth rate gradually decreases and the medium ultimately settles into the marketing mix How is Internet advertising evolving?


Slide31: Annual Advertising Revenue by Year after Introduction: Internet (1995- 2002) and Broadcast TV (1949-1956) Real 2002 dollars Internet ad revenues today are smaller than broadcast TV revenues were, when we compare both media 8 years after their introduction. Source: PricewaterhouseCoopers LLP (2003) How is Internet advertising evolving?


Slide32: Changes in Market Shares for Internet (1995- 2002) and Broadcast TV (1949-1956) TV gained market share in total advertising expenditure much faster than the Internet Source: Pitney Bowes analysis using Veronis Suhler Stevenson data How is Internet advertising evolving?


Slide33: Online, Direct Mail, and Direct Marketing Expenditures in Europe Expenditures in direct mail are still being added at a faster rate than expenditures in online advertising Source: FEDMA While online advertising has gained some traction as 6% of direct marketing expenditure, in Europe 81% of this advertising is concentrated in just two countries: the UK and Germany. How is Internet advertising evolving?


Slide34: Composition of Online Advertising Revenue by Vehicle 2000-2002 ( in MM of $) Source: eMarketer Increased gains found for only a few formats: keyword search, rich media, and barely e-mail The diverse uses of online advertising have not reached a stable mix What’s in Internet advertising?


Slide35: Source: Jimenez, Diakova and Szeto (2005) The predicted ”generational effect” has not materialized; all generations step up their mail use as they age. 70% 23% 7% Increase in mail use as cohort moves from one age group to the next older one -1% Ratio of mail for each age group relative to total mail Will younger generations want direct mail?


Slide36: Household income is still the strongest predictor of mail volume Source: US Household Diary 2003 Why do marketers still want to reach us with direct mail?


Slide37: Internet users in the US and UK receive more mail than those without Internet access Sources: USPS Household Diary 2003, Wright H. (2004) Royal Mail Do Internet users get more or less mail?


Slide38: 4. Value of Direct Mail


Slide39: Consumer preferences “Mail Moment” Stable response rate and ROI index Multi-channel marketing Direct Mail has competitive advantages in a multi-channel marketing environment


Slide40: Source: “The Future of Paper”, InfoTrends/CAP Ventures (2003) US consumers perceive paper to be an effective medium for many applications Will paper and mail persist?


Slide41: 66% 62% 2001 2003 All Types of Documents 73% 75% 2001 2003 New Product Announcements 86% 93% 2001 2003 Financial Documents Source: ICR 1999, 2001 & 2003 Mail Preference Surveys US consumers consistently prefer mail and paper for a wide range of documents 1999 93% 77% 69% 1999 1999 Will paper and mail persist?


Slide42: Preferred Channels for Direct Marketing in Finland Source: Paper or Electronic? Desired and undesired reception channels for Direct Marketing,” K. Elkela, Direct Mail is one of the most preferred channels for direct marketing in Finland. Will paper and mail persist?


Slide43: Consumers are pulled to the mailbox by the promise and expectation of finding useful commercial and financial content Mail connects the consumer with the market by keeping the consumer informed about what’s going on in the market Bringing in the mail is a detour that allows consumers to relax, unwind, and come back a little more refreshed The person who manages the household’s mail is also the principal shopper for the household Mail provides essential “hardcopy anchors” that help consumers “get their bearings” The mail “smoothes out” life: its interactional properties mediate social relationships Source: USPS Mail Moment, Richard Harper Will paper and mail persist?


Slide44: Revenue per Contact = Total Revenue / Promotion Qty Promotion Cost per Contact = Promotion Cost/ Promotion Qty ROI =Revenue per Contact / Cost per Contact Direct Order Revenue and Cost by Media Media Revenue per Contact ($) Promo Cost per Contact ($) Response Rate % ROI Index Direct Mail 3.95 0.55 1.61 7.20 Dimensional Mail 8.99 1.61 3.46 5.60 Catalog 2.88 0.63 2.32 4.60 E-mail 1.28 0.09 0.99 14.20 Inserts 1.31 0.18 1.46 7.30 Coupons 1.32 0.43 2.78 3.10 Telephone 6.17 1.45 5.73 4.20 Newspaper 0.75 0.35 0.14 2.10 Magazine 0.10 0.22 0.13 0.50 FSIs 0.03 0.06 0.09 0.60 DRTV 1.35 0.16 0.27 8.40 Radio 3.77 0.74 0.38 5.10 Compared to other direct marketing media, Direct Mail has a favorable ROI Index Source: DMA Does Direct Mail represent good value?


Slide45: Value of Cross Channel Customers $69 $90 $43 $99 $124 $127 $243 $0 $50 $100 $150 $200 $250 $300 Catalog Only Website Only Retail Only Catalog/ Website Catalog/ Retail Retail/ Website Catalog/ Website/ Retail Total Spend Source: Double Click Customers who interact with companies over multiple channels are more loyal and profitable than single-channel customers How is multi-channel marketing evolving?


Slide46: Catalogs Drive Online Sales: Catalog usage results in increased buyer conversion 15% 13% 8% Catalog Flyer No Catalog Source: USPS How is multi-channel marketing evolving?


Slide47: Dollars per Buyer $260 $194 $224 Catalog Flyer No Catalog Transactions per Buyer 1.5 1.4 1.3 Catalog Flyer No Catalog Source: USPS Catalogs Drive Online Sales: Catalog recipients spent more time online and purchased more How is multi-channel marketing evolving?


Slide48: The whole “pie” of advertising dollars has been increasing, since spending on advertising is highly correlated with Gap In a multi-channel marketing environment Direct Mail tends to benefit from technology and complement other media Direct mail expenditure will likely remain stable or even grow:


Slide49:   Electronic Alternatives and Direct Mail Marketing   Elena Diakova (Pitney Bowes)     Background Paper No. 6, July 5, 2005         This is one of several background papers that are being prepared as part of the Pitney Bowes research project entitled, “Electronic Substitution for Mail: Models and Results; Myth and Reality.” 


Slide50: Can we grow mail volumes? Recent Pitney Bowes work with a UK Consultancy (WhatNext4U) has identified some 70 unique examples of how posts are developing products to grow mail volumes Pitney Bowes shared some of these examples on October 3, 2005 at the keynote speech in PostExpo, Paris by Mike Critelli, our Chairman and CEO (see in PostInsight.pb.com) A full report will be published in the coming months Following are a handful of the case examples


Promoting the Mailstream: Promoting the Mailstream Posteitaliane Partnership to teach small and medium sized businesses the benefits of direct mail Campaign includes: Direct mail piece Guide to direct mail on CD Seminar


The Mailstream Enhances Media Mix: The Mailstream Enhances Media Mix Yorkshire Electricity Media mix not producing growth as fast as expected Analysis of target market Refined media mix -- TV, telemarketing and postcards Attribute mailstream mix with enhanced customer responsiveness and lower costs


Focus on Customer Communication: Focus on Customer Communication Kenko Kazoku Farm-grown organic products Growth strategy around the use of direct mail Regularly include samples Attribute 40% growth in annual revenue to mailstream


Focus on Customer Communication: Focus on Customer Communication Domino’s Pizza 40 million pizzas sold in Australia and New Zealand Customer purchasing profiles Customized direct mail offers tied to profile Attribute mailstream with customer loyalty and business growth


Focus on Customer Communication: Focus on Customer Communication France Telecom Generic Mailer Personalized Mailer


Growth in Remote Commerce: Growth in Remote Commerce Netflix Mail order subscription service for movie rentals Customers receive the movies they want at home 4.7 million will subscribe to mail-order services in 2005 Mailstream revolutionized the business model for the industry


Growth in Remote Commerce: Growth in Remote Commerce Media incoming Media outgoing Data Printing Website Central members database Data Response card Phone/voice response Scanning Mail Central database and result CendrisVote/TPG Post


Date Certain Delivery: Date Certain Delivery Swiss Post – OnTime Mail Day specific mass mailings Three service levels Day specific Within 2 day range Saturday delivery Opens up new uses for mail