Direct Mail: Not Dead Yet

January 1, 2014

This article was originally published by PODi on May 21st 2013.

Direct Mail: Rumors of my Demise are Greatly Exaggerated.

“I’m not supposed to tell you this,” warns the CEO of a fast-growing NYC startup pitching my firm.  “I was coached that Venture Capital won’t like this answer.  But since you asked, our best performing channel is direct mail.”

Conventional wisdom really has it in for direct mail.  The channel is shrinking.  The post office is scrapping Saturday delivery.  The cost of a stamp is rising.  My personal favorite: Do people even check their mail anymore?

Sample Size of One

One of our CEOs – a brilliant direct marketer – seemed uncharacteristically resistant to test direct mail.  This is a fellow who put himself through college with his direct marketing business and prides himself on test-and-learn.  Our conversation went something like this:

Caribou: Search engine marketing works for you.  Email works for you.  Maybe next you should do a $30k test of direct mail.

CEO: Direct mail?  Why would I want to do that?  It won’t work.

Caribou: I don’t know for certain that it will work.  I’ve seen it bomb, and I’ve seen it perform brilliantly.  Why are you so confident it will fail?

CEO: I never check my mailbox.  No one opens their mail anymore, so how could it work?

Caribou: What about bills?  What about letters from the IRS?

CEO: I just wait until I see an alert on my iPhone, telling me that I’ve been charged a late payment.  Then I know to go online and pay.

Caribou: You win.  

$40 Billion Can’t Be Wrong

I have a passion for channel strategy.  (I don’t know why.  I don’t know why anyone would have a passion for channel strategy, but I do.)  Every market channel has its strengths and weaknesses.

Let me sing the praises of mail.

  • Response.  Sending out a piece of mail may cost $0.50, but response rates can run well north of 1%.  If a customer is worth $100 or more, the ROI isexcellent.
  • Accountability.  Direct mail doesn’t pretend to build brand.  Either it pays for itself, or it doesn’t.  It’s a channel that both the CMO and the CFO can love.
  • Big Data.  Much as the terminology bothers me, direct mail used big data before big data was cool.  There’s a robust ecosystem of targeting data available, many with no equivalent online.
  • Scalability.  I counsel our CEO’s to focus their efforts on marketing channels, which – if the unit economics work – can scale massively.  Cracking the code on a niche channel won’t deliver VC-level returns.  When a company cracks the code on direct mail, it can fuel years of hypergrowth.

To reiterate on scalability: direct mail is not a niche channel.  According to Winterberry Group, U.S. marketers spent over $45 billion on direct mail in 2012.  That’s bigger than search, online video, online rich media, online banner ads, and traditional magazine advertising…combined!

But Isn’t Mail on the Decline?

Direct mail has natural buffers to remain an effective advertising channel.  As total volume of mail declines, marketers who stick with it gain “share of mailbox” and higher response rates as a result.  In most media the CPM’s plummet as impressions (or ratings points, or circulation numbers) drop, but the value of a direct mail piece actually rises as total volume goes down.

Meanwhile, the technology supporting direct mail has marched forward.  The data infrastructure is ever more robust.  And innovations like full-color variable inkjet printing today enable a degree of dynamic creative that digital marketers can only envy.

 What’s Next for Mail

The world of direct mail is evolving faster than you might expect.  As an investor in ad-tech with a soft spot for direct mail, I see three trends:

  1. Offline data comes online.  Emerging companies such as AudiencePartners can deliver online media targeted to a marketer’s offline mailing list.  This approach holds great promise to extend existing direct mail strategies into digital, multi-channel campaigns.
  2. Web technology reinvents the workflow.  Next generation workflow companies are enabling greater collaboration and more complex targeting – and promise less effort and error.  Once a marketer uses a web-based platform to manage their direct mail content and targeting in this way, it becomes easy to then scale and extend to other channels.
  3. Still no respect.  Alas, direct mail will remain the Rodney Dangerfield of marketing.  But those companies who break with conventional wisdom and rediscover direct mail will have the last laugh.

About the Author
Caribou Honig is a founding partner of QED Investors. His investments span an array of marketing and ad technology companies, particularly in the commerce, online display, and social sectors. He serves on the board of 33Across, Spruce Media, Optoro, and West Cary Group.

Caribou has a passion for data-driven marketing that grew over a decade as he led key marketing initiatives at Capital One. Responsibilities included a $50 mm marketing budget, oversight of a 200 person underwriting operation, and “cracking the code” for digital credit card originations.

Caribou holds a bachelor’s degree in Physics and Philosophy from Harvard University, an MBA from the Darden School of Business, and a JD from the University of Virginia School of Law. He and his wife have two children, an annoying dog, and one evil cat.