Despite some soft spots in the U.S. economy, direct marketing is expected to grow next year in spending, sales, return on investment and even employment. That's the conclusion of the Direct Marketing Association's "The Power of Direct Marketing" report, which looks at the current state of direct marketing and what lies ahead.
Direct ad expenditures will reach $173.2 billion this year, a modest 4.4% increase compared with 2006. In 2008, the DMA forecasts, ad spending will rise 5.7% to $183.1 billion. In 2008, above-average spending growth is expected in commercial email, online marketing, direct response TV and direct mail, including catalogs.
"Commercial email and Internet marketing are clearly outstripping the other media channels, and part of it is the postal rate increase this year had a significant effect on the ROI in direct mail," said Peter A. Johnson, VP-research strategy and platforms at the DMA and author of the report.
Reuben Hendell, CEO of direct agency MRM Worldwide, part of McCann Worldgroup, said the increase in the use of digital channels is a clear factor. "My assumption is that most of the growth in 2008 will be driven by online and email, as opposed to offline," he said. The impact is coming from the increased usage of digital channels. Direct marketing as a category is increasing in popularity and is expanding because it's directly measurable."
Spending has reached a tipping point, said DMA President-CEO John Greco.
"As marketers search for the right mix of channels in their media plans, we have reached our tipping point," Greco said in his opening remarks at the association's annual conference and exhibition in Chicago last month.
"Over 50% of advertising expenditures now go into direct marketing," Greco said.
The reason for this allocation, according to the DMA report, is the higher ROI of direct marketing relative to other forms of advertising.
The DMA estimates the ROI for direct marketing, $11.69 in incremental revenue for every dollar spent, outperforms ROI for nondirect advertising, estimated at $5.24 in incremental revenue.
But that comparison might be apples to oranges, since the goals of each discipline differ.
"Return is much better defined in direct marketing. What is the metric for `awareness' in this ROI calculation?" Hendell asked. "Advertising is not always looking for a dollar return. It's looking for awareness returns, reach returns and brand equity returns. There are more brand-related things we're doing in advertising beyond an immediate dollar return, whereas in direct you're always looking for the dollar return. The goals are often different."
Another agency executive echoed this sentiment. "Calculating ROIs includes a range of assumptions which may or may not be incorporated into the models which derive the output figures," said Brian Wieser, senior VP- director, industry analysis at media buying giant Magna Global, part of Interpublic Group of Cos.
"These assumptions are more important for non-direct response media because, with direct response, everything you're spending is intended to be directly tracked, and the metric for `return' is pure sales," he said. "Whereas with non-DR, brand-based advertising, you're trying to influence a purchase in a more indirect way, and `return' may be something like net promoter score or national brand awareness, which wouldn't necessarily be factored into the models cited in this calculation of ROI."
B2b faring well
According to the DMA, b2b direct marketing is faring well in terms of spending growth, with a higher rate this year than consumer direct marketing spending. B2b accounted for $83.4 billion, a 5.0% increase compared with last year. Consumer spending totaled $89.8 billion, a 3.8% increase.
And direct marketers can also expect good sales tidings next year. The DMA report predicts solid growth of 6.6% in direct marketing sales next year to $2.158 trillion. This year, total U.S. direct marketing sales are projected to total $2.025 trillion, a 5.2% increase over 2006. That more muted number is due to the general economic slowdown, which continued into the middle of this year.
Again, b2b outperformed the consumer sector in terms of year-over-year growth. B2b accounted for $867.5 billion in direct marketing sales, a 6.2% increase compared with 2006, while consumer sales went up 4.4%, to $1.158 trillion.
Johnson said that while economic growth is now accelerating, there are problem areas in the national economy that could preclude faster direct marketing growth—namely, the decrease in home sales and mortgage woes, coupled with high energy costs.
Direct marketing might provide a softer landing in the face of that economic slowdown.
"Direct marketing will likely provide a significant cushion to the U.S. economy in 2008, as businesses use direct marketing more aggressively to boost total sales," Johnson said.
The overall picture for direct marketing employment is also good. This year, direct marketing will directly support 10.6 million jobs, and that employment figure is expected to grow 2.2% next year.
The "Power of Direct Marketing" report was prepared by the DMA in August using the economic model of U.S. direct marketing activity updated annually for DMA by Global Insight, a research company. It incorporates the most recent data available on developments in all sectors of the U.S. economy.