Direct Marketing
“It used to be ‘The customer is King’. Well, nowadays the customer is a dictator.” So stated Howard Draft, CEO of Draft, speaking at the National Postal Forum in Washington, D.C. Draft’s agency provides marketing services for many of the nation’s largest users of direct mail, as well as the United States Postal Service itself.

During his comments to this audience of leading mail professionals from throughout the country Draft emphasized that "Consumers have -- and are wielding -- unprecedented control over their relationships with marketers. TiVo and other personal video recorders allow them to skip right over ad messages. Call screening, do-not-call registries, and call blocking keep dinnertime phone calls away. And Internet SPAM laws, pop-up blockers and customized browser pages limit Web marketing." This dramatic shift, with consumers having “gone from switching TV channels to switching all media channels on and off at will” is directly responsible for so many of the nation’s largest advertisers shifting a greater share of their marketing dollars to the direct mail medium.

To further demonstrate why direct mail is in fact generating such a "powerful punch" in today's marketing landscape, Draft described what he believes are three universal truths about this medium::

1. Invitation beats intrusion: Over half of all adults say they prefer to receive advertising and promotional material through the mail, according to the Direct Marketing Association. With mail, consumers decide when they want to take in information, on their schedule. 
   
   
2. The Internet is not direct mail's enemy: Mail and the Web create a powerful bond with the consumer--stronger than either can do separately. Almost 1/3 of people surveyed said they respond to direct mail by going online, according to the DMA. And the USPS reports that almost a quarter of respondents said they visited a website specifically because they received mail from that retailer. Draft in fact proclaimed that "within 5 to 10 years, these two media will dominate the landscape, specifically because of their special relationship to each other and because other media will continue to fade in power." 
   
   
   
3. "Mail moments" are powerful: In today's world, the "mail moment" (that time people take each day to go through their mail) makes a connection like no other. "People are starved for something real," said Draft. "Because of the digital world most of us live in, people are hungry for something permanent. People are open, eager, and waiting to get some tangible form of communication in their hands." At the same time, aided by more advanced database mining and segmentation, direct marketers are becoming even more effective when it comes to choosing who should get their message. 

There are a number of other sources that tend to confirm Draft’s bullish outlook for the industry, including the results of Millward Brown’s Marketing & Media Snapshot 2004. The 300 marketing leaders who took part in its survey rated direct mail as being the most effective medium for reaching a target audience and providing measurable ROI.

However, the outlook is still not completely rosy. The direct mail sector continues to battle against rising postal costs, while telemarketers continue to struggle with the changes necessitated in their business due to both the Federal and state-level “Do not call” registries”, and email anti-spam laws also become more finely tuned.

All of this makes it a particularly interesting time for a new president and ceo to take over at the DMA. John A. Greco, Jr, was named to succeed Robert Wientzen in this role, following Wientzen’s planned retirement. Greco, who was appointed to this position back in July but actually did not take over until the middle of August, brings to the DMA nearly three decades of marketing and technology leadership at some of the nation’s leading companies as well as association management experience. 

Commenting on the appointment of his successor Wientzen observed that “As a former marketer and technologist, John has an excellent understanding of the key issues facing our business, both on the business-to-consumer and business-to-business sides, has had considerable involvement with association and nonprofit management, and will provide the DMA the direction and vision needed to adapt to a rapidly evolving marketplace.”

We had occasion to meet personally with John Greco recently, and we have talked with several other industry leaders, who shared the view that Greco’s experience working in the direct marketing industry with RR Donnelley, as well as his association leadership experience with The Yellow Pages, make him ideally suited for this new role. We are partnering with John on a number of initiatives and invite other to make the time to meet with him early in his tenure (including at the upcoming DMA Annual Conference).

As in the financial services and branding and marketing communications businesses, major direct marketing agencies are also doing some shuffling of their own in the c-level suites. Most moves are likewise aimed at making sure that the skills are on board to not only fully understand but also rapidly respond to the industry changes (including intensifying government scrutiny) now underway. 

For example, Barry Kessel, previously president of Wunderman New York, is now taking on a new role as chief client development officer, working closely with Wunderman’s large U.S. clients in their overseas direct marketing efforts. He is being succeeded in the New York spot (the agency’s largest North American office) by Steve Zammarchi, a 26-year agency veteran and most recently president of Wunderman Chicago. Rich Schreuder, vice president and director of client services at Wunderman Chicago has now been promoted to president of that office. All report to Daniel Morel, Wunderman’s chairman/CEO.

The moves at Wunderman are also a good illustration of how companies are really assessing the talent within them. Often what’s needed is not necessarily to reach outside of the agency, but to re-assign executives to maximize their talents – and also to provide rewards that keep them from jumping ship. Succession plans, and reorganizations geared to provide two to three year transitional periods for the next President or CEO to be identified and groomed, are typical corporate practices which agencies would do better to follow. 

Of course the situation is somewhat different when the agency is your own – and at that point sometimes the best course of action seems to be to just walk away, or that, at least, seems to be part of the thinking behind the decision of Bob Lieber, formerly chairman and CEO of Omnicom Group’s LLKFB, the direct marketing agency he helped found. Leiber is leaving the agency to start his own business, he revealed to the media, but as of yet has not provided any additional details. Lieber leaves Loreen Babcock, president, and Harry Koenig, COO, with whom he founded LLKFB, now assuming his duties as well.

EC also works with a number of smaller, entrepreneurial direct marketing strategy consulting and marketing services firms, including organizations like Goodman & Company (where we recently placed two Associate Partners), Quaero Corporation (where we work with the CEO), and Horah Group (where we work with the CEO). As the direct marketing category has been rebounding, many CEOs in this category are also reporting robust new business success and most are operating at full capacity and beginning to hire additional staff at all levels.

There’s an excellent chance that these executives, and many other industry leaders, are present at the DMA’s Annual Conference taking place this month in New Orleans. Executive Connections is represented with both Jeff (Gundersen) and Lorraine White (Chief Coaching Officer) in attendance.

Among the many informational sessions to be offered, attendees have the opportunity to be the first to hear detailed insights into direct marketing best practices delivered as the result of a ground-breaking direct marketing channel effectiveness study spearheaded by Gundersen (in his role as Chairman of the DMA’s Financial Services Council) and conducted by Rosetta Marketing Strategies Group and First Manhattan Consulting Group. Participants include five banking institutions (Bank of Hawaii, Key Bank, National City, Sun Trust, and Wells Fargo) and four leading insurance companies (Colonial Penn, Gerber Life, Mutual of Omaha, and Prudential). 

The results of this study will let DMA attendees learn where they stand versus their peers in such critical measurements of success as cost per acquisition (CPA), direct marketing channel effectiveness and revenue mix of customers acquired. The goal is to help companies spend their 2005 direct marketing dollars to build profitable share through efficient and effective campaigns.  (Copies of the study will also be available after the Convention; for more information please email jeff@executiveconnects.com)

In addition to very active involvement with the DMA, EC’s other recent activities in the direct marketing sector have included a significant number of executive search and executive coaching assignments within the non-profit category. Our work with clients includes AARP, The American Management Association, and Newport Creative Communications (at Newport we recently placed Kelly Mahoney as the new president). We are working with c-level executives and, in some instances, their Board of Directors, to improve and build upon brand-building opportunities for these organizations. We are also providing “performance coaching” to assist the senior leadership teams to become more accountable and to make quicker and better decisions. In some instances, executive coaching is being combined with 360 feedback surveys, and employee opinion research, to provide a detailed factual basis for personal improvement planning.

Looking ahead, the expectation is that hiring will continue at least at moderate levels, and with a particularly noticeable upturn occurring in the nonprofit sector where organizations are finally being able to finance often long-postponed marketing and more initiatives.

Financial Services
The third quarter turned out to be relatively quiet one for the financial services industry as companies, and their customers, continued to deal with the aftershocks of the wave of mergers and acquisitions that have reshaped the industry

Certainly these moves have created a huge shift in power among both the banks themselves, and the investment firms they work with. Indeed, according to data recently compiled by Bloomberg, JPMorgan Chase & Co. not only was a key participant in one the biggest deals of the year (its purchase of BankOne Corp.) but it actually leapfrogged over six other Wall Street firms to become the fee-income leader for 2004 in providing merger advice to other banks. Bloomberg projected that JPMorgan will earn as much as $131.5 million this year from providing advice to 28 banks; of that amount, it paid itself $40 million on the BankOne deal.

JPMorgan has also been in the news for its rapid fire move reversing a decision it made less than two years ago to outsource many aspects of its IT infrastructure to IBM Global Services. As soon as the BankOne deal was concluded, it announced that those same IT functions would be moving back in house, also entailing the rehiring of as many as 4,000 ex-employees who had been employed instead by IBM as part of this arrangement.

This kind of decisive thinking is key to making these mergers actually work, integrating and strengthening all aspects of core operations and also taking the actions necessary – although some may be unpleasant -- to achieve the economies of scale needed to achieve maximum returns from all of this wheeling and dealing.

Meanwhile, other sectors of the financial services industry are being more reluctant to enter the M&A fray. Specifically, UBS analysts noted recently that mergers and acquisitions in the insurance industry are on the wane because firms today want to avoid mistakes made during the consolidation spree of the late 1990’s. In a note to clients it said that the American International Group (AIG), Axa (the French giant) and Manulife Financial (Canada) might be the only remaining firms with the size, resources and inclination to try large acquisitions. Too, they believe that potential acquirers may be put off by rising competition in the U.S., new accounting regulations and capital requirements.

No matter what sector of the industry companies are operating in, they are starting to recognize that growth can’t come simply from making the next deal, but also must come through improved execution of their core business strategy – and reaching out in more effective ways to new target markets.

Signs of where some of this new market opportunity lies came through ING’s recent Retirement Readiness & Middle America Survey. This was an independent study that tracks the attitudes of Middle Americans about how they expect to fund their retirement. Results are based on the responses from 800 individuals over age 30, employed or retired, with an additional sample of 200 individuals between the ages of 50 and 70.

Sixty-five percent of those surveyed did not have a plan for “paying themselves’ during retirement and do not know what their monthly budget should be once retired. The study also found that Middle Americans are still reluctant to give themselves below average grades in planning their retirement paycheck. Although only one-third (of the employed respondents ages 30 and over), reported that they are building their nest egg and planning ahead for retirement, half of this group still gave themselves an above average grade in retirement planning. 

“Saving is good, but having a plan for saving for retirement is not enough – and this overarching optimism could be masking a serious planning deficit,” said Kathleen Murphy, president of ING US Institutional Financial Services.
She added that, “Our study does show a promising sign as 56% of retirees said they planned ahead for how to convert their nest egg into a retirement paycheck – nearly double the 32% in our study two years ago who said they had done so.”

Other study findings included the following:

• One-fifth of respondents say they haven’t even begun their retirement planning
  
  
• Respondents who are 50 years or older believe payments from Social Security will comprise about one-third of their retirement income
  
  
• Younger respondents (between the ages of 30-49) believe Social Security will make up only one-fifth of their retirement income
  
  
• Three in five respondents between the ages of 30 to 40 years old have a 401(k) or similar plan – compared to only two in five respondents aged 50 or more
  
  
• On average, respondents believe their 401(k) or similar plan makes up about 36% of their total investable assets 
  

Branding & Marketing Communications
There’s little doubt that the biggest news story in this sector over the last quarter focused on the bidding war for Grey Global. It wasn’t until this past month that, as has been widely reported, London-based WPP Group emerged the victor. It agreed to a purchase price of $1.31 billion, equally divided in shares and cash, a bid high enough to beat out rivals France’s Havas and a joint bid from venture capital groups Kohlberg Kravis Roberts & Co.

With this move WPP is propelled to the top of the heap among global advertising players, now rivaling long-dominant Omnicom for the top spot. Havas, in turn, probably lost its last chance to be among the very top tier of global advertising firms with Grey having been the last of the independent mega advertising agencies up for grabs. (Yet, shares of Havas actually surged after the announcements of WPP’s win, with investors expressing relief that the expensive, and potentially highly disruptive, acquisition did not go forward.)

Meanwhile, back at WPP and Grey not surprisingly there is a great deal of speculation, and gossip, about what happens next. One of the areas being talked about most is the relationship that now has to somehow be forged between WPP’s strong-willed chairman, Martin Sorrell, and equally strong-willed Grey Global’s Ed Meyer who, at 77 has spent nearly 50 years at Grey and who owned a controlling stake in the behemoth.

Meyer’s continuing involvement is key since he oversees Grey’s decades-long relationship with Procter & Gamble, the world’s largest advertiser and Grey’s biggest client. Skillful handling of this relationship is especially critical at this juncture since WPP already had some of arch rival’s Unilever’s business on its client roster. However, Sorrell has pledged that Grey will continue to operate autonomously and that the lines of demarcation between Ogilvy & Mather, Young & Rubicam, Cordiant and now Grey will remain in tact.

Grey’s Meyer, and the strong account team that continues to work on these global brands, is also obviously responsible for much of this success. While he has given up the independence with which he has long run Grey, in return his bank balances have certainly been fattened (reportedly to the tune of $330 million, plus his new salary). Too, the terms of this deal call for him to remain Grey’s CEO to the end of 2006, and also to eventually join WPP’s board.

The ongoing relationship with P&G is especially important not only because of the fact it reportedly contributes 10% or more of Grey’s annual revenues, but also because this year it is further outpacing its consumer packaged goods rivals. While Unilever, and Colgate, are both faltering financially, P&G is surging ahead, scoring a 44% gain in earnings in its most recent financial quarter. This is a sharply different picture from back in 2000 when it, too, was faltering. That’s when Alan Lafley took over as CEO – showing once again what a difference having the right executive, and team leader, in the right spot can make. (Lafley took over at that time following the resignation of Durk Jager who left after his own P&G restructuring program failed.) 

With Lafley having formerly been head of P&G’s beauty care business, it’s no wonder that this area is leading its growth, along with the continuing expansion of its brands outside the U.S., and the co-marketing of more long-time leader brands (“Tide with a touch of Downy” being just one example),

Of course, while dominating the scene, the WPP Group/Grey maneuvering wasn’t the only agency where change has been occurring. For example, Publicis’ Saatchi & Saatchi unit recently announced the reorganization of its flagship New York office with Mary Baglivo now leading the team as CEO; she was most recently president of Havas’ Arnold Worldwide unit. At Saatchi & Saatchi she succeeded two co-CEOs, Mike Burns and Scott Gilbert.

Meanwhile, at Interpublic Tony Wright was named CEO and president of Lowe & Partners Worldwide. He was most recently chief strategy officer at WPP Group's Ogilvy & Mather. In his new position He succeeds Jerry Judge, who will continue as CEO of The Partnership, an Interpublic division that encompasses several agency brands, including ID Media. 

With the game of musical chairs in the agency executive suites expected to pick up steam this fall as the industry continues to awaken from it’s rather long slump, even some of the most prominent members of advertising’s old guard, including Phil Dusenberry, a former chairman of BBDO North America and Ed Ney, chairman emeritus of Young & Rubicam, agree that a new age is indeed dawning in the advertising industry itself. 

The consensus of these former and other current agency bigwigs, speaking at a seminar held during the first Advertising Week held in New York City, was that the holding company model offers more ways today for agencies to service large, global marketers who themselves have also been growing and consolidating.

As Keith Reinhard, currently chairman and president of DDB Worldwide said, “The important thing is that we always keep creativity at the center, but you can’t just say ‘big is bad’”.

The speakers as a group also agreed that clients are looking for agencies to supply more ideas about how to reach consumers than they offered up in the past, including finding more strategic ways to incorporate brands into programming. As Dusenberry noted, “Product placement is in an embryonic stage…agencies have to take more control over shows.”

Looking ahead to the industry outlook for 2005, the results of Millward Brown’s “Marketing & Media Snapshot 2004” (Millward-Brown is itself another WPP unit), 56% of the top marketers surveyed report that their total marketing and media budgets increased in 2004 over 2003, and with 60% expecting an increase in 2005. 

Investments in online marketing are expected to increase at a higher rate than for other major media (but certainly off of a much lower base). 

As for how the industry will have fared for 2004 in total, recently Carat, one of the world’s largest media buying groups, actually boosted its forecast for both U.S. and worldwide advertising expenditures. Specifically, it raised its forecast for 2004 global advertising growth to 5.7%, and with Douglas Flynn, CEO of Carat’s parent company U.K.-based Aegis Group plc, noting that “This growth is being led by the U.S. and European markets.” Similarly, Carat raised its forecast for 2005 and expects to see ad spend growth globally climb by another 5%.

These forecasts were revised upwards, with previous projections calling for 5.3% growth for 2004 and 4.4% for 2005.

Yet, as the highlights included here already indicate, to make these numbers will require more than continuing to do business as usual. First off, marketers of organizations both large and small are under intensifying pressure to justify their marketing expenditures with very measurable, and easily understood, ROI metrics. While CPM, CPI and other such numbers have been long utilized in making media decisions, the challenge here is that companies want to know even more, at the same time that marketers, especially on the agency side, are being asked to come up with new ideas that go well beyond traditional advertising channels. Witness, for example the growth of such a phenomenon as pop-up retailing with leading brands creating transitory retailing environments that are open to the public for only a short time, but that create plenty of buzz and seem to resonate with today’s increasingly jaded consumers.

Here at EC, clients are recognizing that they must meet this dual challenge. Flexibility is in high demand, as are proven success in the basic disciplines of marketing, creativity coupled with the ability to execute, and the ability to move quickly in a new position to affect positive change. 

Executive Coaching Update
Along with executive search and EC’s proprietary blend of search and transition coaching, executive coaching continues to be a major area of growth. Both individuals and organizations are recognizing the positive impact of coaching on the success of their business – a fact confirmed recently by the results of a study conducted by Philadelphia-based Right Management. Right Management is one of the world’s largest career transition and organizational consulting firms, offering services through a global network of more than 300 locations.

The 100 senior executives surveyed, all of whom who have participated in coaching programs (most from Fortune 1000 companies), claim that executive coaching delivers a Return on Investment (ROI) of nearly six times the initial cost of coaching. In fact, 70% of the executives who participated in the survey valued the ROI on their coaching at $100,000 or more, while nearly 30% put the ROI between $500,000 and $1 million.

The survey also measured tangible and intangible business results of coaching. Here the executives who participated reported the following as being the major tangible business results of their coaching experience: improved productivity (53%); better relationships with their direct reports (77%); better relationships with their supervisors (71%); improved teamwork (67%); better relationships with peers (63%); and greater job satisfaction (61%). 

Of the executives who participated, half held positions of vice president or higher, one third earned $200,000 or more a year, and 57% of the respondents were ages 40 to 49.

Manchester Consulting, acquired by Right last January, conducted the survey.

We at EC echo the results of this survey. The feedback we receive from the majority of our c-level executive coaching clients indicates a long-term coaching partnership has produced significant measurable results for them. Over the past year, our clients have reported the following types of accomplishments: (1) completed the sale of their company for a 20%+ higher premium than was expected or thought possible; (2) restructured their entire organization for growth and obtained Board approval and funding for 10+ new positions; and (3) turned around an unprofitable business, cut back costs by over 35%, and returned operations to the black on a YTD basis in 2004.

The success of executive coaching, like management consulting, is dependent upon both the coach and the client (at the outset of the relationship) selecting a big enough objective to make the investment in coaching worthwhile to the organization.

So What’s Ahead
Certainly the biggest question overriding the business scene as we head into the final quarter of this year is what impact the November election, and its results, will have on the economy – and particularly on the outlook for employment gains. 

While we have certainly seen a strengthening in hiring in the c-level ranks, overall unemployment remains high, squeezing out some managerial talent who otherwise would be building the skills to themselves ascend to the executive suite as their careers progressed. Businesses need to make room for the next generation of executive leadership to cull the skills necessary to lead these organizations into the next decades.

How big a factor concerns about employment growth will play in the election outcome remains to be seen, but should be plenty of food for discussion come the next EC Quarterly Report. In the meantime, for this first full year operating as Executive Connections our business remains well ahead of plan, and we thank our clients, present and past, for their continuing support.

On balance, we remain bullish about the growth prospects for the economy through the full year 2005. We expect executive hiring to continue to expand, and we expect the economy to grow by at least 3-4% as economists have previously forecast.

Accordingly, the theme of our DMA Financial Services Council Annual Conference set for early 2005 is “Building on Economic Recovery – Direct Strategies for Growth & Success.” We hope to see you there and we wish you continued success in your business.

Jeff

Jeff Gundersen
Executive Connections, LLC
Executive Search, Consulting & Coaching
917-834-9717 (mobile)
860-435-0555 (office)
jeff@executiveconnects.com