Media Report: A New Day for Direct Response

Once all but ignored by major agencies, the category has become a media hot spot.

Direct marketing is “very labor intensive, has no cachet whatsoever, and people are a little intimidated by its accountability,” says former KSL Media New York president Jamie Korsen, now chief marketing officer at Avrett Free Ginsberg.

But the category that media agencies once preferred to neglect is heating up, with state-of-the-art direct response fast becoming a must-have in a major media agency’s arsenal. “When we get [a media-only review] RFP now, it asks about direct response capabilities,” says Rich Hamilton, CEO of ZenithOptimedia Group, Americas, which offers DR for both its Zenith and Optimedia networks via ZenithOptimedia Direct. “Going back as recently as 2000, that did not exist. There is a really critical priority to be present in this sector.”

In the last two years, the industry’s rush to integrated marketing, born of clients’ desires for one-stop shopping and their endless search for efficiencies, has fueled an aggregation of top shops in the field. This year, agencies such as WPP Group’s Mediaedge:cia and MindShare and Omnicom’s OMD have made aggressive moves, launching DR divisions or bolstering existing offerings.

In June, WPP combined its DR powerhouse, Wunderman, with its Mediaedge:cia network, shifting some $350 million in DR planning and buying from clients such as AT&T, Club Med, Citibank and Campbell Soup, among others. (The two media shops without creative siblings, Carat and Initiative, have had direct components for several years, and with MRM, Interpublic Group’s WorldGroup is a longstanding model of an established DR media department.)

With media efficiencies as an impetus, AT&T served as a beta group for Mediaedge:cia and Wunderman, both of which it had worked with separately for years.

“Every dollar we spend has to work harder these days,” says Karen Milke, media director for Bedminster, N.J.-based AT&T. “Response-oriented media is assuming a more important role.” Certainly, it’s no surprise that in a tough economy, clients want the ability to instantly measure the effectiveness of advertising at the cash register. Accountability has been a natural spur, and newcomers ranging from pharmaceutical companies to retailers such as Sears have been experimenting with the medium for several years.

WPP’s other media brand, MindShare, merged its OgilvyOne, mDigital and mDirect worldwide operations into one entity called mOne Worldwide in April. Led by former OgilvyOne worldwide media director Nasreen Madhany, mOne is typical of the cover-the-bases kind of operation that media agencies are building, incorporating direct marketing, DRTV, interactive TV, e-mail marketing, online advertising and new media such as broadband. It works with IBM, American Express and Unilever, among other clients.

In July, Omnicom’s OMD combined its internal DR unit with sister Rapp Collins’ digital and DR media group in a bid to strengthen its DR offerings. The resulting units, OMD Direct and Digital, have grown from about 40 people to almost 100 total in North America. Last week OMD added the $60 million Dell online media account to its DR duties for the computer maker, which spends an estimated $350 million annually on Web advertising, the most of any marketer, according to TNS Media Intelligence/CMR. Cingular Wireless and Clorox are also on the roster.

“Because the skills are so specialized, many agencies have scrambled to buy or set up separate units,” says DMA rep Christina Duffney. “And some agencies have a holistic approach and have taken the discipline of direct response inside and grown it from within.”

And the category, which the Direct Marketing Association predicts will exceed $200 billion this year, still has a long way to go, say industry experts. “The blending of DR and general-awareness media planning and buying is really in its infancy—there are many examples of advertisers who could potentially use it but haven’t yet,” says 20-year DR veteran Joe Shain, president of ZenithOptimedia Direct, who predicts these marketers will start embracing it in the next five years.

John McNamara, CEO of Starcom MediaVest Group’s almost 2-year-old DR unit, Halogen in New York, says he’s “not being unrealistic” by aiming for a doubling of billings in two years. He says that at $260 million, the Publicis Groupe shop already has double the billings it had two years ago.

Industry insiders generally agree that most of the media shops’ DR-buying operations each handle $250-500 million in billings, with more to come.

According to the DMA, direct marketing ad expenditures are set to grow 6 percent by 2004 over last year’s numbers, to $255 billion. Already about half of all mail handled by the U.S. Postal Service consists of direct mail entreaties. Online direct response is the next frontier, with Jupiter Media Metrix predicting that spending on e-mail campaigns will grow almost sixfold from $1.4 billion last year to $8.3 billion in 2007.

(Industry execs claim that consumer pushback against the largest direct response category, telemarketing, is not likely to be much of an impediment to DR’s growth or media agencies’ involvement in it, despite the fact that the Federal Trade Commission’s Do Not Call Registry includes well over 48 million names. They say it may actually add to media shops’ business in the category because telemarketing is still largely done by specialized, smaller operations, and the marketing dollars siphoned away from telemarketing are likely to go to other DR outlets such as mail and interactive.)

As much as half of an agency’s revenue from direct marketing is fee-based. While the DMA and TNS Media Intelligence/CMR measure what is also known as “acquisition” media spending, it remains difficult to define exactly how big the category is and who its leaders are because spending is often hidden within larger integrated marketing budgets, and non-media elements such as postage and phone charges are included in the overall costs of campaigns (the only media component of direct mail, for example, is the list itself).

As in the general market, the entry of the biggest predators is edging out the smaller niche shops that specialized in DR buying only. (Independents remain, but most handle both creative and media.)

Because “there’s no nice, neat, pat rate card for DR media,” larger media agencies are pitching their ability to determine appropriate fees, says Lynn Fantom, chairman and CEO of Interpublic Group’s DRTV buying service, ID Media, one of the larger DR operations. Created in January 2002, the unit’s clients now include Verizon, Johnson & Johnson, HBO, Bally’s and the AARP. “Size matters,” Fantom adds. “That’s why we were created—to be a knowledge bank that would allow us to know exactly what clients should pay to get on air.”

TV commercials flashing 800 numbers were once avoided because of the conventional wisdom that direct response cannibalizes retail sales. But clients have discovered that touting an 800 number in their ads can contribute to building brands as well, one factor that’s pushing the medium’s growth and attracting the attention of major media-agency players. Clients began noticing that when they ran DR spots, store traffic increased, an indication that the hard sell has a branding halo. When George Foreman touted his grills through infomercials, for example, “95 percent of the sales were at retail,” Shain points out. Now, he says, “stores are full of stuff sold on DRTV.”

This results in a sort of hybrid advertising, one that marries the classic call to action with an attempt to prompt in-store traffic. Universal McCann has coined the term BRTV, or brand response TV, to label its approach to direct spots.

“If you’re a multimedia client that does brand advertising and direct, it’s just another communications channel,” says Charlie Rutman, president of Aegis Group’s Carat USA, whose Chicago-based DR unit, Carat Direct, was launched five years ago to help service client Ameritech. “We want to look at it as media neutral and come up with the best solutions.”

Adds Mark Stewart, North American chief strategy officer of IPG’s Universal McCann: “To the consumer, it’s all just commercial messaging. … Clients are saying, ‘Let’s activate the strategic-business aspect of media and drive business again.’ Not just getting the customer to buy once but multiple times.”

This, in turn, is changing the way DR is measured. Phone or Web orders alone are not sufficient to evaluate a buy, however cheap, when there is a branding objective being accomplished, albeit secondary. Ratings, suddenly, are a deliverable for DR specialists.

“We won’t buy only stations that are proven DR winners,” says Gerald Bagg, president of 1-year-old independent DRTV shop Quigley-Simpson in Los Angeles, which works with Procter & Gamble, Hoover and Visa, among others. “We will go on stations where we know there are eyeballs, because our media doesn’t just stimulate the call—we also hope to move the needle by stimulating customers to walk into the store.”

Self-described “converted zealot” Tom Benelli, managing director, direct and digital for OMD, worked at Lowe and Geer DuBois before moving over to Wunderman in 1992 and then Rapp Collins in 2000. “People are starting to get that an acquisition message is not bad for your brand,” he contends. “It’s not brand trashing, it’s actually brand enhancing.”