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November 1, 2018

Direct Mail Marketing – Alive and Well

MHT Partners  | Business & Information Services Investment Bank

Despite rumors to the contrary, direct mail is not dead yet. In fact, it is alive and well. Direct mail remains an integral tool for increasing brand awareness and driving customer response.

Everyone will acknowledge that we live in a digital world, but the effectiveness of direct mail may surprise you. According to the Data and Marketing Association’s Response Rate Report, direct mail yields a much higher response rate than social media, online display, email marketing, and paid search. In fact, direct mail’s response rate is over 8x the next highest medium when using a house list:

Part of the reason direct mail is able to generate such high response rates is due to the ever increasing ability to target a specific audience and the unique user experience generated by a physical piece of mail. Constantly improving technologies and data sets allow mailers to get their personalized, influential message in front of the right people at the right time, which drives response.

The continued effectiveness of direct mail has resulted in the direct mail industry sustaining itself while other non-digital advertising channels decrease annually. Direct mail remains an extremely large and stable industry. According to IBISWorld, the U.S. direct mail advertising industry generates approximately $10.8 billion in annual revenue and is expected to remain at approximately that level for the foreseeable future. The industry is highly fragmented with nearly 2,300 industry participants, which implies an average revenue per participant of less than $5 million.

Looking forward – who will be the winners?

To standout in this crowded field, a direct mail vendor should incorporate advanced technologies into their offering to reach consumers using a multi-channel approach. Leading direct mail vendors are incorporating technologies such as advanced targeting, personalized URLs, text messaging, ringless voicemail, email and social media to reach consumers wherever they are in order to drive a response. If used properly, direct mail will remain a key element to a robust marketing strategy.

Industry participants with more than $20 million in annual revenue also maintain inherent advantages over smaller industry participants. Large companies tend to have industry expertise in multiple segments, which leads to better performance for their clients, provides diversification and enables more opportunities for growth. Larger businesses also benefit from economies of scale, which frees up cash flow to invest in growth. Scale advantages include lower input costs and the ability to spread overhead costs and capital expenditures over a larger volume of business. Having scale in today’s market environment creates a virtuous circle of better profits driving more investment in growth, which results in the rich getting richer.

What’s the punchline?

The outlook remains bright for those direct mail vendors that incorporate a multi-channel approach to reach their target audience, leverage their industry experience, stay on the forefront of technological innovation, and benefit from scale advantages. These businesses will be able to put themselves on a path to expansion as they gain market share at the expense of smaller, less sophisticated industry participants.

MHT Partners’ Business & Information Services investment banking practice represents founders, owners, and entrepreneurs undergoing M&A transactions. If you would like to learn more about MHT’s marketing services transaction advisory experience, please e-mail Kevin Jolley (kjolley@mhtpartners.com).

www.marketingcharts.com/digital-78422
www.marketingcharts.com/advertising-trends-82242

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