SIC 7331 Direct Mail Advertising Services

 
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SIC 7331

This category includes establishments primarily engaged in creating, producing, and mailing direct mail promotional pieces for clients. This industry also encompasses establishments primarily employed in compiling and selling mailing lists. Establishments primarily engaged in reproducing direct mail copy on order but performing none of the other direct mail advertising services are classified in manufacturing, industry group 275 if they print the copy and in SIC 7334: Photocopying and Duplicating Services if they duplicate the copy by photocopying or similar reproduction methods.

NAICS CODE(S)

541860

Direct Mail Advertising

INDUSTRY SNAPSHOT

Despite the fact that a majority of consumers claim they receive too much unwanted, unsolicited mail, commonly known as "junk mail," the direct mail advertising industry continues to grow. According to the Direct Marketing Association (DMA), in 2003 marketers spent approximately $48.6 billion on direct mail, which generated sales of $689.3 billion, compared to $634.4 billion in 2002. These figures represent a decade-long period of sustained growth. Direct mail-generated sales were an estimated $260.2 billion in 1992, $390 billion in 1997, and $421.2 billion in 1999.

Direct mail's expenditures are expected to grow at 6 percent per year through 2008, the same rate projected for total advertising. Advertisers are seeking to replace mass media marketing with more focused and targeted marketing activities, which serve to increase response rates and reduce unproductive mail. As a result, new opportunities are opening up for database marketers, companies that gather and manage purchase history and personal information.

Concerns about privacy, however, are affecting the industry. More consumers are choosing to remove their names from mailing lists, and new laws regulate the companies' use of personal information. The Internet is also exerting an influence over the industry. Although web research complements direct mail efforts by providing new ways to gather information, it also competes with traditional print media for limited advertising dollars. E-commerce is relatively cheap compared to direct mail packages. As with direct mail packages, unsolicited commercial e-mail, a practice known as "spamming," has come under fire with consumer advocates, prompting new legislation.

ORGANIZATION AND STRUCTURE

Direct mail, like other forms of advertising, plays an important role in the U.S. economy by informing consumers about products and services. By expanding information and distribution channels, advertising is thought to benefit both businesses and customers with a more efficient market. Direct mail is part of the larger direct marketing industry, which also includes specific types of ads that are found in newspapers and magazines, on television and radio, and in telephone marketing.

Like other forms of direct marketing, direct mail ads differ from more traditional general advertising in several ways. The most important distinction, though, is that direct mail advertising typically solicits a direct response from the consumer. General advertising, by contrast, usually seeks to promote a company or product image, inform consumers, or sway public opinion. While direct mail may also attempt some or all of these goals, its primary purpose is to elicit a tangible, measurable reaction.

Besides prompting consumers to take a specific action at a certain time, direct mail also differs from general promotional mail in that each advertisement is usually targeted at specific individuals at their addresses. For this reason, direct mail is often referred to as a form of target marketing. It is also unique because customers respond directly to the company that placed the ad, so the marketer maintains control of the offer throughout its delivery. In contrast, companies that use general advertisements lose control of their message—at the moment an ad enters a distribution channel, consumers are left to decide when, where, and how they will react to the promotion. Direct mail ads are also more likely to stress benefits and features of a product or service. Furthermore, direct mail commonly contains repetitive messages within each ad, whereas general advertisements rely on repetition over time.

Although some advertising firms were engaged solely in providing direct mail services, most companies in the industry were active in all aspects of direct marketing. Moreover, many of the largest companies that offered direct marketing also provided general advertising services. In addition to actually printing, assembling, and mailing promotional pieces, most direct mail firms provided services related to strategic planning, research and development, results tracking and reporting, and database management.

Types of Ads

Direct mail promotions can be categorized as lead generation, mail order, traffic building, subscription marketing, and fundraising. According to a 1996 Gallup survey, about 89 percent of direct mail advertisers employ lead generation mailers. These ads simply ask recipients to exhibit an interest in the company's offer. For instance, consumers may indicate a desire for more information by returning a response card requesting that the company call or write them with more data. Lead generation ads are often used to build a list of prospects on which the company can focus its future marketing efforts.

Direct mail advertisers also vary the contents of their packages. The traditional format includes an outer envelope, cover letter, product brochure, order form, and sometimes a separate reply envelope. The 1999 study conducted by the Graphic Arts Marketing Information Service (GAMIS) stated that direct marketers were using co-op packs, card decks, ride-alongs, statement stuffers, and self-mailers. In the mid-2000s, models tend to be simpler in design and therefore cheaper to produce. Direct mail advertisers also use more four-color printing and specialty papers to attract potential customers.

Almost all direct mail campaigns fall into one of three market categories: charitable contributions, business ads, or consumer promotions. According to the 1996 Gallup survey, companies used many different forms of direct mail to generate leads and sales. The survey reported 86 percent used brochures; 80 percent, direct mail letters; 77 percent, flyers; 69 percent, newsletters; 55 percent, postcards; 35 percent, catalogs; 25 percent, invoice inserts; and 22 percent used package inserts. Average mid-sized and large companies' direct mail production was 672,100 pieces each year.

Benefits and Disadvantages

Organizations seek services from direct mail companies for selectivity and personalization. By carefully selecting the group of consumers that will receive an ad and carefully tailoring the message to that group, a direct mail company can maximize the efficiency of a client's marketing dollars. For this reason, direct mail advertising is the most cost-effective means of advertising for many types of products. In addition to savings related to marketing expenditures, direct mail allows many manufacturers to completely bypass costly retail centers and distribution facilities by delivering products through the mail.

Direct marketing companies also offer the benefit of being able to measure and test the effectiveness of a company's advertising efforts. In fact, direct marketing firms commonly test multiple offers and formats before distributing an ad on a broad scale. This important feature allows an organization to exercise more control over its promotion than is allowed by almost any other type of media. A related advantage is that direct advertising campaigns are more difficult for competitors to monitor and track in comparison to other forms of advertising.

A major disadvantage of direct mail is that it can be very expensive. Direct mail firms typically charged at least 40 cents per piece to print, assemble, and mail even a relatively simple promotion. In addition, clients often pay for creative services, tracking, and strategic planning. In comparison, a full-page advertisement in a trade magazine that reaches 50,000 readers may cost as little as $2,000 to $3,000. Another disadvantage of direct mail is mailbox competition. In The New York Times, Stuart Elliot reported that direct mail climbed to 44 percent of all pieces of mail handled by the post office in 1998, up from 41 percent a decade earlier and 32 percent in 1978.

Consumer perception is another pitfall. Most consumers commonly refer to direct mail as "junk mail," and hold in low regard the more cost-efficient mail-merge packages that combine pieces from a number of different advertisers in one envelope. More than 50 percent of direct mail envelopes end up in the garbage. Moreover, the DMA reported more than 3 million consumers exercised their right to have their names removed from mailing lists. Fewer consumers take the time to clip and redeem coupons the way they once did, making it difficult to track the effectiveness of direct mail campaigns. Despite a general rise in coupon face values, the overall coupon redemption rate fell throughout the decade—6 percent in 1993, 9 percent in 1994, 6.5 percent in 1995, and 8.6 percent in 1996.

Mailing Lists

Mailing lists are the backbone of the direct mail advertising industry. Regardless of how competent and alluring an offer may be, the success...

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