UK mailing issues: Go with the flow (transactional mail)

Mailing houses have formed a radical post-deregulation idea: produce and deliver direct and transactional mail under one roof, creating a single mail stream. If they can pull this off, the scope for marketing via bills and statements will be huge

David Reed

It is only one month since the UK postal services market opened up fully to competition, so it is a little early to predict the eventual impact of liberalisation on the direct marketing industry. But one thing is certain: life will never be the same again for mailing houses.

So long as there was a monopoly service provider, these suppliers were limited in how much value they could add to their services. Postage discounts can only be taken so far when the range of delivery options is restricted. In an open market, however, new opportunities have arisen.

Many of these will flow upstream from the decisions taken by the new postal operators. In developing services and building market share, companies like DHL Global Mail, TNT Mail and UK Mail will need supplier partners to feed their distribution networks.

Already, the business development strategy of these operators could point to one major change. The new players have been targeting high- volume, regular transactional mailers – in other words, issuers of bills and statements. If their new clients also decide to move their direct mail activity away from Royal Mail, it is a bonus.

After winning total corporate mailing accounts, it becomes possible for these disparate postal streams to be consolidated. Historically, the creation, management and production of transactional mail has been handled within an entirely different supply chain from direct mail. But if the delivery of both streams is bought from a single operator, then why not the production, too?

David Robottom, director of D&S Consultants and former director of industry development and postal affairs at the DMA (UK), says the current market focus of new postal operators is just the first phase. "They have picked transactional mail because it is predictable, high- volume and uniform. It is really easy to handle, sort and pass on for downstream delivery," he explains.

Many large transactional mailers have moved their postal accounts simply because they now have a choice. "In the second phase, new operators will be looking at how they can access bulk mailers in direct mail, too," he says. "Big mailers will not be mailing at the standard rate. If they are, they are doing something wrong."

Having proven themselves to transactional mailers, operators will be well placed to pitch for direct mail business as well. But they will need the support of the direct mail supply chain; this is when pressure will start to grow on mailing houses.

Direct mail production operates to a lower standard than transactional mail. The latter requires guaranteed delivery of the right item to every individual on a file. With direct mail, however, there is rarely an audit trail.

Many clients remain unaware that entire postcodes may not receive any items on account of production problems. Similarly, mailing houses have been unaware of what happens to the items they hand to Royal Mail unless the responses come in.

Robottom says the ability to invest in new production technology will be a defining issue for mailing houses, and that it will favour the large production groups. "Small mailing houses will be okay, because they are niche players and have local business and that will carry on. But if you are a medium-sized mailing house, you can carry on as you are and face tough competition, or either downsize or partner up," he says.

Signs of this consolidation of mailing streams and their suppliers are already beginning to emerge. Last year, print management company Formpro merged with Mail Marketing International to become Formpro Mail Marketing (PM May 27), giving an indication of the importance of seamless production processes.

And, last November, Scandinavian transactional systems and services provider Stralfors bought DPS Direct Mail for #8m (PM November 25). The company stated that the move was an opportunity to transfer its technical and operational expertise into the direct marketing market.

"End-users are looking for better communication and efficiency. We are seeing the integration of marketing communications with transactional mailings," says Mike Murphy, managing director of Stralfors UK.

He believes this is the culmination of a trend that began nearly a decade ago, when direct mail targeting started to improve. "Now marketers are looking for even more relevance, for example, by piggy- backing onto bills," he adds.

The different cultures that have existed within these two mailing streams need to be fused together in a mutually beneficial way. A key starting point is for mailing houses to be able to insert or print marketing messages in bills and statements without undermining the mission-critical timing of them.

"That is one of the things Stralfors brings with the acquisition – the technical capacity for 100 per cent [accurately targeted] mailing," says David Laybourne, technical director at DPS Direct Mail.

The mailing house is in the process of adding cameras to the back end of its equipment, which verify that the correct contents have been inserted into each envelope.

The other element that is critical to the merged mailing stream comes from the new postal operators. "An advantage they have over Royal Mail is the ability to log each bag and identify when it was delivered to the downstream inbound mailing centre.

"That way, you can identify whether something has gone missing and whether you should re-run it, go through an investigation process, or do nothing," says Laybourne.

Prior to liberalisation, once bags were picked up from the mailing house or dropped off at one of Royal Mail's outbound mailing centres, the only indicator of successful delivery was whether the mailing generated any response. That is not robust enough for the accountable marketing department – and certainly not for transactional mailings.

Timing is everything in the converged process. "You can't have bills going out even one day late, because that will have an impact on the company's cashflow," says Laybourne. "Convergence ups the ante. It makes us more professional and visible – and that is a good thing."

For mailing houses that lack scale or do not have the right partner, investment in technology and processes will be a struggle. This is likely to be the defining difference between those who survive in the new direct mail market and those who do not.

Fortunately, the necessary technology is more accessible. "Insertion equipment has become increasingly flexible over the past few years, enabling mailing houses to carry out variable insertion and switch between jobs seamlessly," explains David Jefferies, marketing director at Pitney Bowes.

He points out that a number of mailing houses have introduced inserters that allow them to handle both types of mailing. The next step will be print and document composition software that supports transactional services.

Alongside reporting and auditing tools, heightened security and highly- resilient production are essential to transactional material. But this will be a step too far for many operations; their installed base makes it difficult to evolve into a converged mailing stream supplier.

Building from scratch would be a better option, something that Andy Ruddle, managing director of Real Digital International, is well aware of. His company is creating one of the largest digital production facilities from the ground up. From the outset, the business is drawing no distinction between different types of mailpack, but applying the same techniques, technology and standards to all of them.

Ruddle sets down his philosophy: "If you are paying for 100,000 packs, you really should be demanding that 100,000 packs are mailed." Financial departments have certainly always had that expectation of their transactional mailings; if marketers want to get in on that mailing cycle, they will have to use facilities that deliver to the same standard.

"I believe that, as companies spend more on retention than acquisition, we will apply the same process, techniques and production technology for direct mail and billing," he says.

Real Digital is one of the first suppliers to be purpose-built in this way, although it is unlikely to be the last. Much of the consolidation that will take place will happen through acquisition and having joint ownership of both types of production facility, but operating across several sites.

Ruddle warns that there will be casualties along the way: "Don't think that merging the process is as easy as it sounds. There is a reason why conventional direct mail houses and billing centres have been separate until now."

The marketing stream has been less frequent, and more variable in volume and purpose than the transactional stream, which has been consistent and constant. But as marketing focuses more on existing customers, it will need frequency of contact – and statements offer a highly cost-effective way of achieving that. For mailing houses, the issue is whether they will be able to meet the bill.