Commentary & Analysis
Why Legacy Marketing Costs US Companies $30 Billion a Month!
By Harvey Hirsch Ever since becoming a VDP practitioner,
By WhatTheyThink Guest Contributor
Published: March 26, 2008
By Harvey Hirsch
Ever since becoming a VDP practitioner, I have had one epiphany after another. It's not enough to just think out of the box (or envelope), you've got to constantly prove yourself to your clients. This incessant verification and accountability process is implemented because in today's business world, the life cycle of the average CMO is a mere 23 months. Nothing seems to be working for them and impatient presidents have installed revolving doors in that particular office. Being a curious fellow, I have a theory that I would like to share, here and now.
Old school rules
Having spent most of my adult life creating new business development direct marketing programs for companies, I operated under the guidelines of mass communications that were formulated in the '60s. Keep your CPM's as low as possible and try to generate the average response rate.
This thinking was built around the products of the offset printing technology and helped create an entire industry. With the advent of digital presses and more robust front end controllers the information age was born and its first offspring, VDP, began toddling around.
The problem for the majority of "want to be" users is that the creative strategists have not grasped the intricacies of data warehousing, data management and most importantly, talking to each prospect as an individual. They are still functioning under the vestigial technologies and the legacy marketing tactics that simply cannot deliver for them anymore, the static, one size fits all pitch.
A 99% failure rate
This legacy strategy thinking process costs US businesses over $30B per month in marketing communications of which close to 99% fails to achieve its planned goals. And, in an age where every marketing dollar must return at least a break even control, it has set off a cascade of negative side-effects. The biggest of which are the failures of many industries to literally stay economically viable.
You can see the immediate results of this side-effect in both, the printing industry and the creative content providers (Advertising Agencies).
The printing industry has been under stress for the past few years with 4,500 print shops going out of business or merging in 2006 alone. Recently some of the largest print providers have posted losses so staggering that they too may not see solvency. Paper mills are closing and consolidation is taking place at a speed never before experienced in this industry.
Is the blame on commoditization of product? Off-shore out-sourcing? Or something more insidious? Has offset simply run its course and now is on the verge of obsolescence? Or is it the thinking and strategies that it has spawned that has run its course and now has turned on its practitioners?
Playing it safe
Before you reach for your sword to kill the messenger, maybe we should look at what has evolved over the past 10 years alone with regards to the emerging technology of VDP and the way the creative strategists, who feed high on the food chain, have virtually ignored it.
After residing in this industry for the better part of 30 years, I have seen, time and time again, the knee-jerk reaction of my contemporaries who, when faced with an assignment, go right to "the brochure in an envelope" solution. This, they can get their arms around. They will be able to sell it easily, make a boat load of money because printers will sell it to them for less than they did 10 years ago, and the client's expectation of results will be small. It's safe, and their current stable of creative support staff can get stock photos and boilerplate copy into this format quickly, so client billing is optimized and sweet profits are assured.
Traditionally, the agency business is based on "The Big Idea" and "Branding" programs and the brochure is the lynchpin. It's left to the direct marketing and sales promotion specialists to ask for the order and generate the sales conversions necessary for the client to actually stay in business. This has been the pecking order of creative agencies over the past 30 years.
Trying some new Kool-Aid
I'll admit that for years, I too followed this mantra. It was the mainstay of my existence and helped my company stay economically viable. But then I sampled the results of some simple data-enhanced programs and became an acolyte of this emerging technology. Here's what got my attention.
On a good day, using all of my marketing and copywriting experience and with the best offer my client would allow me to fabricate, I was able to generate, on an average, a 5%-8% response rate in lots of as few as 15k units. With many average response rates listed as half of 1%, I was always able to generate more than average. Working with what essentially is a static pitch, this type of response allowed me some semblance of fame and reverence from my peers.
One of the reasons I was able to achieve these higher than normal response rates is that I always added a bit of entertainment by employing die-cutting and hand assembly to hook my intended prospect and get them to interact with my mailer. This created a dimensional look that helped the mailer get opened and the message read.
Even today, this medium of direct mail is the mainstay of marketing for thousands of companies seeking to generate a sale. But at what cost?
In my NY Metro marketplace, where the usual mailing piece is composed of a 2-color letter with a full color sell sheet folded and placed into a #10 envelope at a cost of $1.45 each in lots of 10,000, the average response has dropped from the half of 1% to less than 1/1oth of 1%. This translates into a lead generating cost of around $1,500 for each respondent. And this is not a sale --merely the opportunity to talk to a prospect. Yet, at this steadily, response dropping rate, you would think that clients are clamoring for anything that will boost this meager hit rate.
What a waste!
Sadly, the truth is that most companies and creative firms have not even set aside a portion of their current marketing budgets to test the power of this 1:1 technology and only 10% of print providers are even in the game.
If the information I glean from the industry press is accurate, almost 90% of all digitally produced print product is made just in time, using on-demand production requirements, with little or no personalization. This tells me that both clients and "Creatives" are not thinking about personalization and that they look at digital as just a way to trim production times or worse, bailing them out for failing to make deadlines. What a waste.
It almost seems that it's too much trouble to change this antiquated paradigm in favor of putting out a piece that is personalized, versioned and created for the needs of each prospect, yet alone trying to "up" the response rate. Is it poor planning and not enough time has been set aside for projects, or are the marketing people simply expecting to fail and don't want to expend their brainstorming time? I can't figure it out, but it's endemic.
I have sat in on meetings where the client has stated that they have mailed out 30,000 pieces at $1 each and got no response, yet they have not reached that tipping point of frustration whereby they will even consider a versioned 1:1 product, even in a short-run.
Creatives don't get it
With creative people I have found them totally at sea when speaking with them about developing personalized programs for themselves and their clients. They're so picky about the quality not being up to offset that they cling to this as a reason not to even consider using digital. So much for thinking out of the box.
Here's what I know after 8 years of working with 1:1, mutli-channel, 21st Century products and strategies: If you're not starting programs today, if you're not thinking about how your data is going to be needed, if you're not migrating into the VDP arena, I, and marketers like me are going to eat your market, your clients and your lunch!
The campaign testing that I personally have been involved in has shown me that the cost for generating a sales prospect can be 1/10th of what it currently costs using vestigial technology. It also proves that keeping a customer is less than 20% of the cost of generating a new one.
Consider this your wake up call.
In November I was a presenter at the PIA/GATF's VDP Conference, and also this past January, at the IAPHC mid-winter meeting in Las Vegas. In both cases, the big topic discussed by attendees was survival! Survival of their businesses, survival of an industry and the survival of industry associations. People are loathe to change, even when it's forced on them. Better the devil known than the one not known, I guess. Use whatever analogy you want, and whatever excuse you can come up with, the answer is still going to be to change the way you currently do business if you expect the results to change.
If you've reached this part of my rant, you're probably waiting for me to get to my point, and that is this: while you're rearranging the deck chairs, your ship is sinking!
You may still be floating but you will need to get into a digital life raft rather sooner than later.
The nano-second that I, and implementers like me, share our experiences with the industry, your clients are going to flock over, for their survival depends on it, and you will go the way of the dodo. This technological sea-change is creating a small yet expandable ground-swell of demand for better results now, from clients. If even a small percentage of the articles I've read in various industry publications is coming to fruition, 1:1 will become the primary force for new business development programs over the next few years.
So, if you haven't initiated one for your own company now, you're probably at least 9 months away from incorporating a policy and system that works for your own company. If you provide creative content or print, you may find a 12-18 month phase-in. This lead time is normal in the development and implementation process, and the clock is always ticking.
What are you waiting for? Godot?