Can Direct Mail Package Costs Really be Lower Today Than 2001?
January 24, 2011 by admin
Filed under Production Solutions News Alerts
Advancements in Technology Keep Direct Mail Package Costs Low
Email marketing has been challenging direct mail as a marketing channel for the past decade. The advantage of email marketing is its cost – it’s virtually free. Direct mail’s production and postage costs make it tough to compete with electronic marketing channels. But direct mail is still an important part of an integrated direct marketing campaign and the DM marketplace is responding to cyber-pressure by keeping package costs as low as possible. Part of this response strategy is examining the changes in production and postage costs over the past 10 years as email communication was on the rise. To put things into perspective, we took a direct mail package that was mailed in 2001 and re-priced the package with current industry pricing. We present our findings below and you may be surprised by what you read.
To set our expectations, we reviewed the material costs that impact direct mail package costs. We compared the cost of paper, envelope window patch, ink, labels and, of course, gasoline for shipping. In addition, we compared the cost of postage from 2001 to 2011. In the chart below you will see that costs have increased significantly in the past decade. With the increase in these vital materials, one would think that DM package costs would have increased dramatically as well. The result of our price comparison tells a different story.
Rate of inflation -United States BLS Statistics
Gasoline prices – U.S. Energy Information Administration
Listed below are the package specs for the 2001 mailing that we re-priced with 2011 costs.
Sample Package Specs:
- Carrier Envelope – # 10, 24# White Wove, 2/0, Standard Left Window
- Reply Envelope – # 9, 24# White Wove, 1/0, Closed Face
- Letter – 8 1/2 x 11, 60# White Offset, 2/1
- Reply – 8 1/2 x 7, 60# White Offset, 2/1
- Data Processing – Standard Direct Mail Processing
- Personalization – Simplex Laser Reply and Simplex Laser Letter
- Mail shop – Trim and Fold Letter and Reply; 2-Way Match Insert; Stamp Carrier
The results of our study were surprising – the package costs actually decreased by 17%.
As you can see in the chart below the printing costs increased 13%, data processing, personalization and mail shop cost decreased by 55%, postage cost increased by 4%.The net result was a 17% decrease in total package cost.
It hard to believe, given increase in material costs, that the overall package cost could possibly decrease. What we have found is that technical advances and process efficiencies have significantly reduced the cost of the production process.
In our research we found that cost reductions came mostly from greater efficiencies in data processing, personalization, mail insertion and postal logistics services.
Data Processing – Computer programming costs have dropped tremendously in the past decade as the industry converted from mainframe processing to PC platforms. Increasingly faster, cheaper PCs loaded with competitively priced software greatly expanded the market offering data processing services, which increased competition and lowered industry pricing.
Innovations and Evolutions in Personalization – In 2001, much of the personalization for mailings of this size (as it was in our example mailing) utilized cut sheet laser technology. Over the last several years, this industry has seen more use of continuous fanfold and roll-to-roll technologies that allow for faster, more efficient printing and personalization processes, which have driven prices down dramatically.
Lettershop Package Insertion – Over the last ten years, two major developments with inserting equipment have reduced costs for our sample package. First, newer inserting machines are providing cost savings as jobs are being produced with higher cycle speeds. Second, with a focus on match mailings, there has been an upgrade in quality control with high-tech camera-matching utilizing 2D barcodes, UV barcodes and Optical Character Readers, which removes much of the human QC process that has previously limited throughput.
Paper Stocks – While the typical stock at the beginning of the decade was 24# wove envelopes, rising paper material costs led to the use of lighter stock weights; 20# wove has become the new standard for reply envelopes .
Postal Logistics – In 2001, the majority of mailers could only take advantage of the postal discounts for which their individual mailing qualified, based on the quantity and geographic concentration of the mailing list. The larger the volume and more concentrated the mailing, the lower the postage rate. As the postage rate increased, more mailers began to utilize third party postal logistics services, commingling and co-palletizing their mail with other mailers, saving millions of dollars in postage costs.
Summary findings: The overall package cost (including standard nonprofit postage) for this common package format fell from a range of $275/M – $300/M in 2001 to a range of $225/M – $250/M today.
These findings spark the question for the next decade – in 2021, will the industry see similar percentages in cost changes? What technological innovation or creation will help decrease production costs – the evolution of camera-match inserting, the 22# wove carrier envelope, high-volume digital printing?
Obviously, no one knows for sure, but while costs like gasoline, postage and material will continue to rise, the direct mail industry will be focusing on technological advancements, some creative thinking and a lot of risk-taking to help offset rising costs and try to gain an edge in this competitive market.
For more information about Production Solutions’ Client Service Department at psi-clientservices@psmail.com or call (703) 734-5700
