Mail-merge misgivings – industry commment on Consignia acquisition of MMI

Before the dust had settled on the row over the Postal Preference
Service, Consignia was already signing on the dotted line for an even
more contentious foray into the direct marketing business. The company formerly known as the Post Office says July's £2m purchase
of a minority stake in Bristol mailing house Mail Marketing
International (MMI) is part of a long-term strategy to "grow and
consolidate the mail medium's future alongside other communications
media". The move has provoked fears that as the delivery of mail is deregulated
and overseas operators start to encroach on Royal Mail's market,
Consignia will spread its own tentacles further round the direct
marketing industry, using its monopoly power to leverage and even cross-
subsidise its position. And it is not just the direct marketing
industry that should beware of Consignia's expansionist intentions –
the company is looking to link with other marketing services, from
media buying to advertising creativity, in a bid to produce a seamless
communications process. Consignia is playing down fears that it will use its dominance in
postal delivery to bulldoze its way over the direct mail process. It
says it has no intention of becoming a major player in direct mail.
Rather, it will take minority stakes in related companies and seek
strategic partners in the industry to "support direct mail's enhanced
position in the media mix". Royal Mail managing director for media markets Adam Novak suggests
Consignia has bought into MMI not so much to investigate new revenue
streams, but more as a way of lending a hand to the whole direct mail
industry. "Market demand is increasing for more targetable, responsive,
flexible and value-for-money media. We want to help meet that demand
and ensure the mail medium becomes more complementary with other
advertising media," he says. Royal Mail is looking to work with businesses across the entire
marketing industry. "We recognise that we can achieve our shared
industry objectives more quickly and easily by pooling resources and
working together," he says. But some in the industry believe these statements defy logic. Why
bother spending £2m on buying into MMI if all Consignia is looking for
is better ways to work with the industry? Postwatch chairman Peter Carr
told PM on July 6: "There are so many trade associations in this
industry that Consignia could have contacted. Why does it have to spend
£2m of taxpayers' money to buy into one company? Why not talk to the
DMA (UK), rather than spend what it hasn't got?" Others fear the giant postal operator will use its market power to
cross subsidise its direct mail offer, using delivery as a loss leader
to create lower prices for production and pose a threat to the
industry's cost structure. This has been ruled out by Consignia, and it
points to comments by regulators, as well as former Trade & Industry
Secretary Stephen Byers, that if Consignia attempted any such cross-
subsidies, it would be considered illegal. However, WWAV Rapp Collins chairman and group chief executive Chris
Gordon is threatening to drag the Government into an anti-competitive
fight over the deal (PM last week). He wants assurances from Postcomm
that the regulator has probed the deal. Cramm Francis Woolf managing director Paul Woolf says if Consignia were
unregulated, its move into the world of mailing houses would be
equivalent to BT entering the telemarketing industry. He is concerned
by the level at which Consignia will be allowed to compete. If it is
acquiring mailing houses as a corporate body – "an arm's-length
organisation" – he would not be so concerned, as long as it didn't give
Consignia any benefit over competitors. But he wonders whether
Consignia will be interested if this is the case. Presumably Consignia would be interested in the production end of the
process, such as fulfilment, database bureaux, data in-putting and
mailing houses. "The whole industry could suffer if it became
monopolistic. Consignia's argument is that, because the sector is being
opened up, other operators will come in to their market, so it should
be allowed to compete in other markets. But Consignia has a huge
advantage, and it's unlikely anyone would take significant share away
from it," he says. One of Woolf's concerns is that UK postal delivery is "one of the best
systems in the world, on a par or better than the US and more pro-
active". At the moment, he says direct marketing agencies can buy
competitively – if their customers want four or five mailing houses,
they can offer it. But he wonders how transparent the operations of any
subsidies would be if Royal Mail were involved. "If a piece of direct mail costs 18p to deliver and 12p to pack, the
total is 30p. After printing to order, it may only cost 28p, and that
is a benefit. But if clients were buying through a competitor, would
they be able to get such a good deal? Consignia has been given a
monopoly for many years, so it can't move to competition without
constraints," he says. Geoff Lambert, financial and commercial director of Royal Mail media
markets, says buying the MMI stake should not frighten anyone as it has
only taken a minority stake and not made a complete purchase. But the
key, he says, lies in bringing together postal delivery and direct mail
production to create an easy-to-use process. Clients will be able to
cost out the process more efficiently and it strips out a layer of
bureaucracy, as it removes the need to find a production house separate
from a delivery service, he argues. "The real benefit is the ability to get the process together quickly.
You can do it faster if you have an integrated service with other
media. You can make a television commercial very quickly and then do
radio and press. You could integrate above the line and below the line –
the real value in the future would be to pull all the media together.
We would be interested in finding people to provide that kind of
service, but not to provide it on our own. We'd need investment from
other people," he says. This would be a brave experiment, and is in keeping with some recent
developments in the marketing services field. The largest agency
networks have used this argument to justify some of the massive
takeovers and consolidations of the past five years. But such an
integrated approach has yet to prove its mettle. It can work out more
cost effective to adopt a "best of breed" approach to marketing
services, and get providers to compete against each other every step of
the way, making them fight to the death for each piece of business. So why is Consignia interested in expanding its business in these
areas? Lambert says: "What's in it for us is we build the market when
there's deregulation, and we are able to sustain our position. The
industry considers us to be a player -when it comes to delivering to
consumers they can only use us. We see the market being deregulated,
and we want to be an important player. "I don't think we would become a major player in laser printing and
production, but we are working with the players to make direct mail
speedier, though our involvement in producing direct mail will remain
small. "MMI is expert in producing mail, we are not. We will just drive the
services better than they are now and make it available to the wider
industry," adds Lambert. The purchase of the MMI stake comes just weeks after Consignia was
cleared of complaints made against its involvement in the Postal
Preference Service, in particular the use of Royal Mail branding on PPS
survey material. But not everyone in the direct marketing industry has taken such a
contrary position to the further involvement of Consignia in their
business. One source says: "Our industry has made a fool of itself over PPS by
being seen as protectionist. I hope we are more sensible about
Consignia and production houses than we were on PPS. I am not saying it
is right or wrong for Consignia to get involved, but our industry looks
parochial in the way we have attacked it." He believes the attacks on PPS have made the industry look vulnerable.
"It has encouraged Consignia to be more confident. Now it has won the
PPS battle, it will continue." Consignia's move into production houses has left many unconcerned,
though they put a lot of faith in the abilities of regulators to
restrict it from abusing its market dominance. As another observer says: "Printers have got into the business, other
people are getting into our market, and now just about every printing
company in the UK is purporting to produce mail, so one more isn't
going to make much difference to us. We are doing this for a living –
others are doing it because they think they ought to." But the issue of regulation is a tough one, as it has appeared in
recent years to have been very political, and many regulators have
appeared toothless in the face of strong lobbying by the industries
concerned. The National Lottery regulator vacillated over the
reappointment of Camelot, and has been exposed as incapable of
regulating the lottery in accordance with the law. The
telecommunications regulator has been attacked over what BT's rivals
say is its weak stance on opening the telephone system to competition
for fast Internet access. Mark Hollander, director of Carlson Marketing Group, says he doesn't
feel threatened by Consignia, though any threat depends on the control
it has over the companies it is purchasing. "When clients come to us, we go to three external suppliers to get a
competitive price and ensure they are appropriate to that job. There
are factors of reputation and flexibility – some people can do it in
half the time, it is better that they shop around than have a one stop
shop. "The shape of the way people use agencies is changing in the UK anyway.
What we can offer is to go out to find the right project at the right
price. Agencies have a reputation for flexibility – there's an inherent
expertise in project management as brand guardians the clients respect
that knowledge." It will be some time before the industry knows whether Consignia really
represents the threat that many have predicted. A small stake in MMI is
little more than a toe in the water, but Consignia has not ruled out
making further acquisitions. The fear this prospect has provoked seems
out of kilter with what Consignia realistically can achieve – Consignia
is just one more irritant for direct marketers to worry about. Copyright: Centaur Communications Ltd. and licensors Page :