April 14, 2021
This week’s column was written by Britt Vatne, Adstra EVP – president account management.
Amid the entire digital revolution in advertising, direct mail has remained a reliable constant for performance-minded marketers. Direct mail has been around for generations, and now garners much less attention than other channels. But look under the hood at many fast-growing DTC brands, and you’ll find a steady commitment to growing through catalogs and mailers, all of which are, with the help of data, still very much consistent with an outcomes-based approach. As many DTCs hit saturation points in social and search, they have turned to direct mail as a proven way to find, engage, and convert new customers. DTCs are just the most notable recent example; direct mail remains a lifeline for many non-profits and mission-driven organizations in the hunt for donors, subscribers, and members.
The viability of this channel depends on the price of printing, paper, and most of all, postage. And, unbeknownst to many in the industry, the costs of postage are heading toward a steep increase. Its impact on direct mail and the companies that rely on it could be immense.
For decades, the cost of postage has risen in relation to the Consumer Price Index. That has provided the marketing industry with a relatively stable, predictable basis for estimating cost increases and planning accordingly.
Far-reaching consequences for advertisers
But in 2020, the USPS requested the authority to raise postage prices beyond the CPI. Indications are that the USPS is eyeing an “imminent” mid-year 2021 price hike of up to 9%, more than three times the rate of inflation. If implemented, it would be one of the most dramatic price hikes in recent memory and would have far-reaching consequences for advertisers that rely on direct mail.
Why is the USPS pushing for the price hike? The short answer is because it has liabilities to pre-fund benefits for its 644,000 employees – the only government agency to have such a requirement – which puts acute pressure on its near-term finances. Even in a year where the pandemic led to an unprecedented adoption of e-commerce and a near 20% increase in package shipping, the weight of these liabilities and the operational costs of adapting to new processes led to another year of net loss for the USPS. These factors, beyond the control of marketers and even the USPS itself, could result in a sharp hike in postage rates that will change the channel in fundamental ways.
Simply put, marketers that rely on the mail will have to cover the increased costs by shifting budget from somewhere else. For commercial marketers, this means reallocating budgets from other channels or pulling funds from creative or payroll. For many non-profits that rely on mail as a fundraising tool, the added cost of mail will eat up funds that could have otherwise gone to providing critical services to those that need it most.
Fight and adjust for postal increases
Efforts are underway to fight these changes, but that does not change the uncertainty that pervades the channel today. That uncertainty, and the prospect of such aggressive changes, is better seen as the natural consequence of operating in a channel controlled by a regulated monopoly. In that respect, the proposed price increases in direct mail hold important lessons for other channels that are increasingly dominated by a small handful of powerful companies.
Over the past 10 years, marketers have watched large tech platforms (namely Google, Facebook, and Amazon) rise to a position of market dominance, to the point where they are today fittingly referred to as the “Triopoly”. Recent moves have demonstrated the extent of that market power: Google’s decision not to support third-party identifiers, its decision to sunset third-party cookies, Facebook’s numerous algorithm changes, Apple’s changes to mobile identifiers, to name a few. When one of these companies makes a change to its policies, it in effect represents a regulatory shift for the entire industry. It’s no surprise that each of these companies, most notably Google, is facing intensifying regulatory oversight on antitrust grounds.
With critical channels under the constant threat of sudden change, marketers have little recourse but to keep their options open. Their ability to shift spend into other channels, migrating their intelligence and data along the way, affords them the ability to vote with their dollars.
That’s what Adstra has focused on supporting for its clients and partners: making data-driven marketing portable across any kind of media. With more change and volatility on the horizon across all channels, portability between them becomes a strategic necessity.
To learn more, visit adstradata.com