WWW.IBISWORLD.COM Direct in the US February 2017 1

Snail mail: Despite rising overall ad spending, online competition will limit industry growth

This report was provided to Liberty University (2126773239) by IBISWorld on 14 August 2017 in accordance with their license agreement with IBISWorld

IBISWorld Industry Report 54186 Direct Mail Advertising in the US February 2017 Stephen Morea

2 About this Industry 15 International Trade 28 Key Statistics 2 Industry Definition 16 Business Locations 28 Industry Data 2 Main Activities 28 Annual Change 2 Similar Industries 18 Competitive Landscape 28 Key Ratios 2 Additional Resources 18 Market Share Concentration 29 Industry Financial Ratios 18 Key Success Factors 3 Industry at a Glance 18 Cost Structure Benchmarks 30 Jargon & Glossary 20 Basis of Competition 4 Industry Performance 21 Barriers to Entry 4 Executive Summary 21 Industry Globalization 4 Key External Drivers 6 Current Performance 22 Major Companies 8 Industry Outlook 22 Valassis Communications Inc. 10 Industry Life Cycle 25 Operating Conditions 12 Products & Markets 25 Capital Intensity 12 Supply Chain 26 Technology & Systems 12 Products & Services 26 Revenue Volatility 13 Demand Determinants 27 Regulation & Policy 14 Major Markets 27 Industry Assistance www.ibisworld.com | 1-800-330-3772 | [email protected] WWW.IBISWORLD.COM Direct Mail Advertising in the US February 2017 2 About this Industry

Industry Definition Direct mail advertisers distribute methods of direct . Industry advertising materials (e.g. coupons, flyers participants may also prepare advertising and samples) or specialty items (e.g. key materials or specialties for mailing or other chains, magnets and pens with custom direct distribution. They may also compile, printed messages) by mail or other maintain, sell and rent mailing lists.

Main Activities The primary activities of this industry are Advertising material preparation services for mailing or direct distribution Direct mail advertising services Direct mail or direct distribution advertising campaign services

The major products and services in this industry are Full direct mail services Lettershop services Mailing list support services Printing and fulfillment services Other services

Similar Industries 51114 Database & Directory Publishing in the US This industry compiles and sells mailing lists without providing direct mail advertising services.

54181 Advertising Agencies in the US This industry creates advertising campaigns and places advertising in media.

54187 Print Advertising Distribution in the US This industry directly distributes or delivers advertisements and samples.

54189 Promotional Products in the US This industry distributes advertising specialties for clients who wish to use such materials for promotional purposes.

54191 in the US This industry systematically gathers, records, tabulates and presents and public opinion data.

Additional Resources For additional information on this industry www.thedma.org Association www.dmnews.com Direct Marketing News www.usps.com Postal Service

Provided to: Liberty University (2126773239) | 14 August 2017 WWW.IBISWORLD.COM Direct Mail Advertising in the US February 2017 3 Industry at a Glance Direct Mail Advertising in 2017

Key Statistics Revenue Annual Growth 12-17 Annual Growth 17-22 Snapshot $10.2bn -1.5% 0.0% Profit Wages Businesses $736.7m $2.2bn 2,337

Revenue vs. employment growth Total advertising expenditure Market Share Valassis 6 12 Communications 6 Inc.  0 13.8% 0 -6 -6 % change % change -12 -12

-18 -18 Year 09 11 13 15 17 19 21 23 Year 10 12 14 16 18 20 22 Revenue Employment SOURCE: WWW.IBISWORLD.COM p. 22 Products and services segmentation (2017) 3.0% Key External Drivers Mailing list support services Total advertising 12.4% Lettershop services expenditure Demand from postal service Demand from trade 13.7% Corporate profit Other services 51.3% Full direct mail services

19.6% Printing and fulfillment services p. 4

SOURCE:SOURCE: WWW.IBISWORLD.COM WWW.IBISWORLD.COM

Industry Structure Life Cycle Stage Decline Regulation Level Heavy Revenue Volatility Low Technology Change High Capital Intensity Low Barriers to Entry Low Industry Assistance Low Industry Globalization Low Concentration Level Low Competition Level High

FOR ADDITIONAL STATISTICS AND TIME SERIES SEE THE APPENDIX ON PAGE 28

Provided to: Liberty University (2126773239) | 14 August 2017 WWW.IBISWORLD.COM Direct Mail Advertising in the US February 2017 4 Industry Performance Executive Summary | Key External Drivers | Current Performance Industry Outlook | Life Cycle Stage

Executive Direct mail advertisers distribute steadily improve over the past five years. Summary marketing materials, such as coupons, Nonetheless, the ascending popularity of flyers or samples, primarily through the smartphones, tablets and other digital US Postal Service (USPS) and devices has presented a serious challenge occasionally through other commercial to the industry and fostered rapid growth delivery services. Direct mail has in other affordable advertising historically provided a less expensive alternatives, including daily-deals alternative to traditional advertising websites, email and . As outlets like television, radio and a result, industry revenue has yet to reach magazines. However, for decades, prerecessionary levels. increased competition from digital Despite these drawbacks, the Direct advertising has threatened the industry. Mail Advertising industry is expected to Consequently, the Direct Mail achieve slow growth over the next five Advertising industry is expected to years. Higher expected consumer spending and rising corporate profit margins are anticipated to increase Higher levels of consumer spending and rising advertising expenditures, aiding industry revenue. As a result, over the five years to corporate profit will benefit the industry 2022, industry revenue is expected remain relatively unchanged, rising to decline at an annualized rate of 1.5% to $10.3 billion. Outside competition will $10.2 billion over the five years to 2017; continue to inhibit significant revenue which includes 0.1% projected growth in and profit growth. Direct mail advertisers 2017 alone. are expected to consolidate over the next Increasing disposable incomes, five years, as the USPS will likely consumer spending and corporate profit continue its emerging printing margins have buoyed the industry, which technology and high-density mailing led to a rise in spending on all forms of discounts. This will benefit the industry’s advertising during the past five years. In largest players with the resources to addition, industry operators benefited provide high quality and volume printing from a series of promotional programs and squeeze out smaller operators. implemented by the USPS designed to Additionally, as consumers increasingly encourage commercial mailers. These turn to the internet to find bargains and postal incentives as well as lower labor coupons, a greater number of direct mail costs helped industry profit margins advertisers will offer services online.

Key External Drivers Total advertising expenditure Demand from postal service Growth in the total amount spent on Demand for postal service declined steadily advertising will increase spending on over the past decade, as growth in online industry activities. Therefore, when total services such as e-commerce, expenditure increases, banking and e-mail advertising has strained revenue for the Direct Mail Advertising demand for traditional postage. This, in industry will rise. Total advertising turn, has depressed demand for the Direct expenditure is expected to increase in Mail Advertising industry. Demand from 2017, representing a potential postal services is expected to decline in 2017, opportunity for the industry. posing a potential threat to the industry.

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Industry Performance

Key External Drivers Demand from retail trade Corporate profit continued Retailers and direct mail catalog agencies A rise in corporate profit will increase the are major clients of direct mail services. amount of money that companies allocate Because direct mail advertisers rely on to their marketing and advertising demand from retailers, they have a budgets. When the level of corporate significant influence on industry profit trends upward, demand for direct performance. Demand from retail trade mail advertising will rise. Corporate is expected to increase in 2017. profit is expected to increase in 2017.

Total advertising expenditure Demand from postal service

12 4

6 0

0 -4 -6 % change % change -8 -12

-18 -12 Year 10 12 14 16 18 20 22 Year 09 11 13 15 17 19 21

SOURCE: WWW.IBISWORLD.COM

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Industry Performance

Direct-mail advertising has historically Current provided a less expensive alternative to Industry revenue traditional advertising outlets like Performance 5 television, radio and magazines. Over the past five years, rising employment and 0 consumer spending bolstered corporate profit margins, which freed up company -5 cash and led to higher marketing -10

budgets. This, in turn, caused many % change clients to increase their advertising -15 expenditures, which boosted demand for direct mail services. For example, total -20 US advertising expenditures increased at Year 09 11 13 15 17 19 21 23 an annualized rate of 2.7% over the five years to 2017, which provided the basis SOURCE: WWW.IBISWORLD.COM for industry growth. However, a proliferation of election years. Normally, elections, and computers, smartphones and tablets presidential elections in particular, helped to foster other affordable provide the industry with seasonal and marketing alternatives like email, recurrent streams of revenue outside website and mobile advertising, traditional economic and business cycle, presenting a serious challenge to the as candidates, parties and nonprofits are industry. Due to heightened external willing to spend on election-related competition, Direct Mail Advertising direct mail advertising for campaigns. industry revenue is expected to decrease While, this temporary phenomena slowly at an annualized rate of 1.5% to partially offset competition from other $10.2 billion over the five years to 2017, low-cost advertising alternatives this includes 0.1% projected decline in including digital and mobile advertising, 2017 alone. Moreover, industry revenue industry revenue still modestly declined declined in the past two presidential in 2016.

Increased Even as the US economy improved, an in September 2013, the company sold its competition increasingly price-sensitive public has California Shoppers division, which continued to look to coupons for relief. produced weekly advertising inserts and However, these consumers often use the circulars. Large industry operators have internet to find coupons and value, also been the target of cross-industry causing clients to divert resources to mergers and acquisitions. In February . To maintain profit 2014, Harland Clarke Holdings, a margins during and after the recession, marketing and business solutions some companies sold their unprofitable company, acquired industry major player operations. Other struggling companies Valassis. Increased industry left the industry altogether, leading to a consolidation over the five years to 2017 period of consolidation. Even industry caused the number of direct mail heavyweights have been subject to such advertising companies to decline at an cutbacks. For example, major player expected annualized rate of 3.3% to 2,337 Harte-Hanks sold its operations in enterprises. With fewer companies, Florida in December 2012. Shortly after, industry employment and wages

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Industry Performance

Increased significantly declined. As a result, declining operating costs stabilized competition industry employment decreased at an industry profit margins. In 2017, profit continued annualized rate of 3.6% to 42,597 margins are estimated to account for workers over the past five years. 7.2% of revenue, up slightly from five- Nevertheless, industry consolidation and year lows of 6.5% in 2012.

Integrated marketing Direct mail has remained a relevant form of communication despite the More players are increased competition from other promotions, such as e-mail and internet extending their services advertising. Unlike e-mail, the cost of and investing in technology direct mail prohibits mass spamming. to improve targeting Furthermore, direct mail also enables clients to target very specific markets. Marketers can send direct mail to The Direct Mail Advertising industry has locations that meet specific geographic also implemented novel methods of or demographic criteria to reach a target delivering messages across traditional audience; however, online ads remain a and digital media. Following advertising source of competition in the field of interest in the online realm, industry . Using data on operators have integrated technologies like internet activity, marketers are able to quick response (QR) codes onto printed pick particular websites that attract their materials. QR codes, which are essentially target audience. As a result, more major barcodes that can store data and be scanned players are extending their services to by mobile devices, enable users to access the internet and investing in technology more complex advertisements as well as to improve targeting. product or service information online.

A strong ally Fortunately for industry operators, the demographic filters, allowing businesses USPS has provided various to target customers without street incentives for the industry’s largest addresses or names. The USPS also players. In 2012, a deal was struck provides an extensive directory of local between the USPS and one of the printers, marketing serviced companies industry’s largest direct mail advertising and direct mail advertisers that can help providers, Valassis, potentially granting small businesses create and produce large discounts (up to 36.0%) to Valassis, in-mail advertisements. provided it produces 1.0 million pieces of From 2012 onward, the USPS offered within a year. Under this other temporary promotions designed to arrangement, advertising mail would be generate continued interest in direct delivered to various USPS locations and mail, which may benefit the postal service brought to all homes by postal carriers as and Direct Mail Advertising industry. For part of their regular assigned routes. example, in 2017, the USPS offered a The USPS continues to take additional 2.0% discount on all pieces of direct mail steps in promoting direct mail advertising. advertisements that contain QR codes or The postal services’ Every Door Direct are equipped with near field Mail program provides geographic and communication, video in print or QR

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Industry Performance

A strong ally codes. Furthermore, in 2017, the USPS promotions will encourage mailers to continued offered first time mailers a 5.0% discount integrate direct mail with technologies for promotions, which incorporate that allow the recipient to engage in an print-to-mobile technologies. These interactive experience.

Technology will likely play a key role in Industry boosting revenue for the Direct Mail Technology will likely Outlook Advertising industry over the next five play a key role in boosting years. Unfortunately, it will also create channels for greater external revenue for the industry competition. Industry operators will continue to battle digital advertising, digital direct marketing space. As which has eaten into their revenue. companies learn to combine new and Higher corporate profit margins are traditional media in advertising, direct expected to bolster advertising mail operators and direct online expenditures, but industry growth will be marketers will likely merge, causing the constrained over the five years to 2022, industry to contract as companies fight with revenue projected to increase for market share. Over the five years to marginally to $10.3 billion. 2022, the number of companies in the Competition from alternative targeted industry is projected to decrease at an advertising, such as online, mobile and annualized rate of 1.5% to 2,172 email platforms, will intensify over the enterprises. A shrinking number of five-year period. According to a 2016 companies competing in the industry report from ZenithOptimedia, mobile will also lead to an expected 1.9% advertising is the fastest-growing annualized decline in employment to segment in the digital advertising market. 38,764 workers by 2022. According to the report, mobile Largely due to stable revenue and advertising is projected to increase by falling labor costs, profit margins in 128.0% between 2015 and 2018. This traditional direct mail will narrowly shift toward digital and mobile media in expand, with average industry profit, corporate advertising expenditure will measured as earnings before interest and continually pressure the Direct Mail taxes, expected to total 7.8% of revenue Advertising industry. In addition, in 2022. Moreover, low comparative consolidation activity will likely continue, margins will be one of the motivating with mergers occurring between factors for mergers with companies in the traditional direct advertising firms and space. Unlike direct those using new technologies. mail advertising, digital marketing does An increasing number of direct mail not incur purchasing costs related to companies will expand to compete in the postal and paper expenditures.

Digital competition The Direct Mail Advertising industry will in consumer spending, resulting in benefit from continued recovery in stronger growth in advertising and economic activity and associated promotional expenditure, including marketing expenditure of clients. The direct mail activities. Total advertising economic revival will lead to an increase expenditure is forecast to increase an

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Industry Performance

Digital competition annualized 2.0% over the five years to favorable economic conditions and continued 2022. Nevertheless, operators will higher corporate profit margins will likely continue to face greater competition. redirect a portion of business advertising Over the next five years, the industry expenditure back to traditional media, will likely continue to derive demand such as television, as marketing budgets from clients seeking more direct forms of increase. However, even after the that are better targeted and recession, cost-conscious marketers will measurable. General advertising and drive demand for lower-priced forms of direct promotions will employ more advertising. Consumers will also advanced technology. Businesses will use maintain an emphasis on savings, and technology particularly in digital TV, over the next five years, these potential mobile media and online services. Digital customers will continue to look for media’s rise will increase competition in valuable coupons. Lastly, the use of low-cost and targeted marketing, which integrated campaigns, in which has traditionally been this industry’s marketers use multiple media formats to strong suit. advertise a product or brand, is expected Advertisers that wish to keep costs to increase during the next five years. down or target niche markets can now Direct mail advertising may still play a use the internet to communicate with vital role as part of a targeted marketing their audiences. Digital media has campaign, but the proliferation of mobile become an additional competitor to media, online media and social networks direct mail at the low-cost end of the will provide staunch competition to the advertising market. Nonetheless, Direct Mail Advertising industry.

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Industry Performance Life Cycle Stage The industry is expected to grow more slowly than the economy during the 10 years to 2022 Competition from other forms of direct advertising is rising The industry is experiencing consolidation, with the number of companies decreasing during the 10 years to 2022

20 Maturity Quality Growth Key Features of a Decline Industry Company High growth in economic consolidation; importance; weaker companies Revenue grows slower than economy level of economic close down; developed Falling company numbers; large fi rms dominate importance stable technology and markets Little technology & process change Declining per capita consumption of good 15 Stable & clearly segmented products & % Growth in share of economy in share % Growth

10

Quantity Growth Many new companies; minor growth in economic importance; substantial 5 technology change

Advertising Agencies Issuing 0 Paper Wholesaling

Direct Mail Advertising Postal Service -5 Decline Database & Directory Publishing Shrinking economic importance

-10 -10 -5 0 5 10 15 20 % Growth in number of establishments

SOURCE: WWW.IBISWORLD.COM

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Industry Performance

Industry Life Cycle The Direct Mail Advertising industry is in direct response marketing, including e-mail the decline phase of its life cycle. and the internet. This trend is expected to Although the recession did not impact continue with the advent of interactive  This industry the industry as severely as other services from digital cable and satellite is Declining  advertising industries, its growth has services. The industry also faces increasing recently slowed due to high client competition from the direct mailbox drops penetration and increasing competition of samples, pamphlets and flyers. from other forms of advertising. Over the The decline in industry revenue and 10 years to 2022, the industry’s value increasing competition from other direct added, which measures the industry’s forms of advertising have led to relatively contribution to GDP, is forecast to low profit margins. Industry operators decline at an annualized rate of 1.5%, have engaged in pricing competition to while annualized GDP growth will reach gain new business and retain existing 2.0% over the period. clients, further suppressing profit growth. Direct mail is still a very cost-effective Consequently, the industry has entered a method of promotion, and operators are consolidation phase; in the 10 years to now able to offer highly targeted mailing 2022, the number of companies has lists. However, the industry is facing decreased at an annualized rate of 2.4% increasing competition from other forms of to 2,172 operators.

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Supply Chain KEY BUYING INDUSTRIES 44-45 Retail Trade in the US Retail stores use this industry to promote sales and specials. 52221 Credit Card Issuing in the US Credit card issuers use this industry to promote their products and services to consumers. 54181 Advertising Agencies in the US Advertising agencies use the services of this industry as part of integrated marketing and promotional plan for clients. 54182 Public Relations Firms in the US PR firms use the Direct Mail Advertising industry as part of a detailed promotional or information strategy for clients.

KEY SELLING INDUSTRIES 42411 Paper Wholesaling in the US The industry purchases paper on which to print coupons to be distributed. 49111 Postal Service in the US The Postal Service industry provides mail delivery services to direct mail advertising companies. 51114 Database & Directory Publishing in the US This industry supplies databases of names and addresses for direct mail campaigns. 54151 IT Consulting in the US Major players have recently demanded the services of IT consultants as they increase their presence online.

Products & Services Products and services segmentation (2017) 3.0% Mailing list 12.4% support services Lettershop services

13.7% Other services 51.3% Full direct mail services

19.6% Printing and fulfillment services

Total $10.2bn SOURCE: WWW.IBISWORLD.COM

The industry generates the majority of its market research, photography services, revenue from mail-out services, including commissions and merchandise sales. printing of advertising materials. The remainder is generated from value-added Full direct mail services and associated services such as Many clients use full-service programs, commercial art and graphic design, which include everything from concept

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Products & Markets

Products & Services development and graphic design to aspects of managing mailings for clients. continued lettershop services and printing. Full These services include poly wrapping, direct mail services are estimated to inserts, addressing and labeling. It is account for 51.3% of industry revenue in estimated that direct advertising mail 2017. Increases in business sentiment accounts for nearly 50.0% of all USPS- largely drive this segment; as corporate delivered mail (by volume), which profit increases, more companies are includes special offers, flyers, catalogs willing to spend for the industry’s full- and vouchers. A large proportion of these service offerings. The full-service mailings require lettershop services, segment’s proportion of industry revenue which are expected to account for an has grown slightly over the past five estimated 12.4% of industry revenue in years, as rising corporate profit margins 2017. This segment’s proportion of have enabled businesses to outsource industry revenue declined over the past more of their marketing activities. five years because small businesses have delayed advertising expenditures during Printing and fulfillment services and after the recession and other Industry players offer a variety of other businesses have taken on these labor- products and services for clients. Printing intensive tasks in-house to cut costs. and fulfillment services, which include the actual printing of coupons and flyers to be Other services mailed, represent an estimated 19.6% of Other services include those performed industry revenue. The total number of on an individual basis, such as concept flyers and coupons that are being mailed development, direct marketing and drives demand for this segment. While other advertising services. Operators these services have not fallen as a also provide clients with mailing list proportion of revenue, the industry’s poor support services, which allow performance over the five years to 2017 businesses to build and maintain a list has caused revenue derived from printing of possible customers. Clients can build and fulfillment services to decline. lists based on geography, demographics or type of customer (business or Lettershop services consumer). Combined, these services Lettershop services are specifically are estimated to represent a total of designed to eliminate time-intensive 16.7% of industry revenue.

Demand The primary demand determinant for technological advancements have paved Determinants this industry is the amount of money the way for other cost-effective methods spent on advertising. This factor is to promote a product or service, such as affected by downstream demand related internet advertising, daily-deals to disposable income levels, consumer websites and . This spending and corporate profit. Industry external competition has negatively demand and revenue increase when affected industry revenue over the past total advertising expenditure rises. five years. Direct mail is a low-cost substitute for A variety of other factors can also traditional media advertising like affect industry demand. For example, television commercials. However, political parties and politicians use direct

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Products & Markets

Demand mail services while they are campaigning, from industries that offer seasonal Determinants causing demand to increase during products, such as advertisements for continued election periods. Furthermore, sunscreens and related products during seasonality can have an effect on demand the summer months.

Major Markets Major (2017) 12.1% Business-to-business market

16.1% 35.0% Finance, banking Retail stores and insurance institutions

16.8% Restaurants and travel companies 20.0% Other

Total $10.2bn SOURCE: WWW.IBISWORLD.COM

Most direct mail advertising is home improvement stores. Retail clients targeted at consumers; the major are expected to account for about 35.0% of markets for these services include industry revenue in 2017. Revenue from industries that provide consumer this segment has steadily expanded from products and services. Businesses in 2013 onward, driven by rising disposable the retail, travel, banking, finance and incomes and consumer spending. insurance industries are the most prominent users of direct mail. To a Finance, banking and lesser extent, manufacturers of insurance institutions consumer goods use direct mail to try Banks and financial institutions primarily to develop customer loyalty. promote new products through letters of Manufacturers of big-ticket items offer to new and existing clients. Finance, primarily use these tactics to remain at banking and insurance direct mail the top of customers’ minds and retain advertising accounts for an expected contact between infrequent purchases. 16.8% of industry revenue in 2017. Industry revenue finally returned to Retail stores growth in 2015, after declining every year IBISWorld estimates that retail stores since 2008. Declining revenue during the make up the largest market for the period is attributable to the lingering industry. Retail stores use industry effect that the subprime mortgage crisis services to communicate with consumers had on the banking sector. Consequently, about sales and specials. The segment this segment’s proportion of total includes a variety of retail outlets, such as industry revenue marginally declined department stores, supermarkets and over the past five years.

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Products & Markets

Major Markets Restaurants and travel companies established relationship does not continued Similarly, the industry also serves clients in already exist, mail is often preferred the accommodations sector of the because it appears more official. The economy, including restaurants and travel. segment, which is expected to represent The segment, which represents an 12.1% of industry revenue, has seen its estimated 16.1% of industry revenue, share of industry revenue slightly performed well over the past five years due decline over the past five years as more to gradually rise in consumer disposable business is conducted online. This income and spending. Moreover, this trend is expected to continue during the segments’ share of revenue is expected to five years to 2022 as business-to- increase over the next five years due to a business clientele will look to advertise projected increase in advertising their services digitally. expenditures during this period. Other markets Business-to-business The other markets category accounts for While consumer-focused clients make an estimated 20.0% of industry revenue. up the majority of the market for direct This market segment is dominated by mail advertising services, the business- nonprofit organizations, political parties to-business segment is also important. and information groups. Providers of The alternative use of email has hit the consumer and professional services other segment. However, for mass business- than those specifically listed are also to-business advertising where an included in this segment.

International Trade The industry solely services the domestic direct mail market, since there are a number of complexities and costs involved in organizing an international mail campaign.

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Products & Markets

Business Locations 2017

West AK 0.1 New England

ME Mid- 0.3 Great Atlantic 1 2 Lakes NY 3 WA ND 7.1 4 MT 0.2 5 1.7 0.1 MN 2.9 WI Rocky 1.4 MI PA 6 SDPlains 2.0 4.2 OR 0.0 7 1.3 Mountains ID IA OH 9 8 0.3 WY 0.9 3.7 0.1 IN VA NE IL 1.4 WV 0.7 6.6 0.1 4.1 KY West NV 1.2 0.9 NC UT MO 2.5 1.3 CO KS 2.3 2.4 1.2 TN 0.9 SC CA 0.9 12.4 OK AR Southeast 0.8 0.2 GA AL 2.9 AZ MS 0.8 1.6 NM 0.2 0.1 Southwest LA TX 0.6 FL 6.2 8.4

West HI 0.3 Additional States (as marked on map) Establishments (%) 1 VT 2 NH 3 MA 4 RI Less than 3% 0.2 0.6 2.3 0.2 3% to less than 10% 10% to less than 20% 5 CT 6 NJ 7 DE 8 MD 9 DC 1.7 4.5 0.4 2.6 0.3 20% or more

SOURCE: WWW.IBISWORLD.COM

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Products & Markets

Companies in the Direct Mail Advertising Business Locations Distribution of establishments vs. population industry are heavily concentrated in the Southeast, Mid-Atlantic and West. 30 Together, these provinces account for roughly 58.5% of all industry

establishments. The distribution of 20 industry companies largely follows the

geographic distribution of the population. % The Southeast also represents a large 10 portion of establishments and revenue because the region accounts for more than a quarter of the national population. 0 The industry is also densely West concentrated in the Mid-Atlantic and Plains Southeast West regions because they are home to a Southwest Great Lakes Mid-Atlantic large number of major advertising New England

agencies and PR companies. Many direct Establishments Rocky Mountains mail firms choose to be located near these Population companies because they tend to drive SOURCE: WWW.IBISWORLD.COM overall marketing and promotional programs for clients. This factor allows networking between operators across for more effective interaction and these industries.

Provided to: Liberty University (2126773239) | 14 August 2017 WWW.IBISWORLD.COM Direct Mail Advertising in the US February 2017 18 Competitive Landscape Market Share Concentration | Key Success Factors | Cost Structure Benchmarks Basis of Competition | Barriers to Entry | Industry Globalization

Market Share IBISWorld estimates that in 2017, the Direct mail services are often provided Concentration industry’s three largest players will have as an adjunct to larger companies, a combined market share of roughly particularly advertising agencies, which 20.0%, indicating that the industry has a offer integrated marketing, promotion Level low level of concentration. The industry and communication services. There Concentration in is composed of a large number of are few single activity operators; many this industry is Low  relatively small businesses operating in that are not part of a wider advertising the industry, and few large companies. agency offering other services like More than half of all players have fewer printing, print media distribution, data than five employees and more than 75.0% analysis and processing in addition to have fewer than 20. direct mail.

Key Success Factors Ability to pass on cost increases Use of high volume/low margin strategy It is beneficial for firms to be able to pass Operators must be able to on increases in postal and paper costs, effectively manage a high volume IBISWorld identifies the two major cost areas for operators. output operation but with a low net 250 Key Success income margin. Factors for a Prompt delivery to market business. The most Prompt delivery of mailed material to the Having contracts that are important for this required recipients within a predetermined favorable to the purchaser time frame is critical. Controlling costs is contingent upon industry are: obtaining and effectively managing Proximity to key suppliers contracts for key inputs like paper. Proximity to key suppliers, including mailing list compilers, renters, lessors Proximity to key markets and mail centers, is important to Proximity to key businesses and clients is industry operators. important in servicing their needs.

Cost Structure The largest cost items for industry Profit Benchmarks operators include wages, paper and The industry has faced increasing postage. Therefore, movements in the competition with alternative forms of costs and prices of these inputs can affect below-the-line promotions, such as the price of providing direct mail e-mail, internet and the Print Advertising services. While some of these costs are Distribution industry (IBISWorld report easily passed on to clients, fluctuations 54187). Furthermore, the recession has often flow through to profit margins. increased price competition among Factoring out rebates and incentives, industry operators, who are extending standard postal rates have increased discounts to maintain existing clients and marginally from 2012 through 2017. gain new ones. However, profit margins While many players have been able to (measured by earnings before interest mitigate profit declines by reducing head and taxes) have gradually increased from count and consolidating their facilities, 6.5% in 2012 to an estimated 7.2% for an increase in competition has caused 2017. During this period lower operating profit to decrease. costs, helped drive industry margins.

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Competitive Landscape

Cost Structure Purchases represent a little less than 20.0% of Benchmarks Paper, printing machinery and mailing industry revenue. continued supplies represent the second largest cost to players. These costs are estimated to Wages account for a combined 32.9% of industry In 2017, wages are estimated to represent revenue. Volatility in the price of paper 21.4% of industry revenue. Wages, as a can have a material effect on operators. portion of industry revenue, have Many hold long-term contracts with declined significantly, largely the result of clients, yet they keep relatively small layoffs and cutbacks direct mail inventories of paper. Therefore, a sudden advertisers implemented during the increase in paper prices cannot always be recession. Over the five years to 2017, passed on to the client. industry employment dropped by an Industry players also have to pay for estimated annualized rate of 3.6%. postage to deliver direct mail to However, this industry remains labor- consumers. Under the Postal Account intensive, relying on a specialized and Enhancement Act of 2006, postage workforce for sales, analytical and rates increase once every year. Increases graphic design services. in postage costs particularly affect operators that are not able to pass on the Other full cost increases under their existing Industry operators incur marketing or contracts or until the end of a defined advertising costs, which are expected to contract period. In 2017, IBISWorld account for 5.5% of total industry expects that postage charges will revenue in 2017. In addition, rent and

Sector vs. Industry Costs

Average Costs of all Industries in Industry Costs sector (2017) (2017) 100 7.2 n P r o fi t 12.5 n Wages n Purchases 80 21.4 n Depreciation n Marketing n Rent & Utilities 42.8 n Other 60 32.9

40 11.8 1.2 Percentage of revenue Percentage 1.3 5.5 4.4 1.5 5.2 20 25.0 26.6

0 SOURCE: WWW.IBISWORLD.COM

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Competitive Landscape

Cost Structure utility for the average industry operator is advertising costs and real estate prices Benchmarks expected to comprise 5.2% of industry rebounded following the recession. Direct continued revenue. Last, depreciation, which mail advertising companies also incur includes the purchase of relevant other expenses associated with the machinery and equipment as well as day-to-day operations of running a distribution locations is expected to business, such as telecommunications account for 1.2% of industry revenue in costs and outsourced legal and accounting 2017. These costs have increased fees. In 2017, these costs are expected to moderately over the past five years, as comprise 26.6% of industry revenue.

Basis of Competition IBISWorld estimates that competition paper prices increases. Recently, in this industry is high and increasing competition among industry players in due to the large number of operators, the online arena has risen. As more Level & Trend price-based competition and low consumers look to the internet for Competition in profit margins. coupons, industry operators have this industry is increased their online presence. High and the trend Internal competition Operators that build a client base for is Increasing  Internal industry competition occurs their websites now will have a based on a variety of factors. Clients may competitive advantage in the future. opt for one operator over another based on price, quality or availability of External competition complementary services. Operators can The industry operates in a highly gain a competitive advantage by meeting competitive promotional segment. A client’s timing and budget constraints number of competitors to direct mail, and directly measuring the success and such as email, have emerged, increasing outcome of campaigns. Industry players external industry competition. also compete based on the quality of Relative cost considerations by clients mailing databases. Mailing lists need to are also factors against electronic and be reliable in terms of being up to date digital alternatives. Businesses are and allowing clients to target different comparing the cost and results of direct markets and regions as needed. In order mail with other main media and newer to provide the best prices, industry forms of digital promotion. The operators need to have strong availability of other direct response relationships with their suppliers. methods is also affecting demand. This Competitors can sell their products at a area includes telemarketing by call reduced rate when they are able to buy centers and the services provided by the paper at a discounted price. Print Advertising Distribution industry Furthermore, relationships with paper (NAICS 54187), which distributes flyers companies help mitigate losses when and pamphlets door to door.

Provided to: Liberty University (2126773239) | 14 August 2017 WWW.IBISWORLD.COM Direct Mail Advertising in the US February 2017 21

Competitive Landscape

Barriers to Entry The industry’s barriers to entry are low and steady. While there is no licensing of Barriers to Entry checklist Level & Trend operators, there are government Competition High regulations associated with privacy, theft Barriers to Entry Concentration Low or misuse of databases and with in this industry are Life Cycle Stage Decline consumer protection. However, none of Capital Intensity Low Low and Steady  these regulations provide a significant Technology Change High barrier to entry. Regulation & Policy Heavy The Direct Mail Advertising Industry Industry Assistance Low

has a low level of concentration, with the top three players estimated to account for SOURCE: WWW.IBISWORLD.COM less than 20.0% of total industry revenue. This percentage indicates that key players labor input being the key ingredient. in the industry have a relatively low level While the purchase of paper and postage of . While large players may is quite expensive, many of these costs have access to less costly inputs as a may be charged downstream to the result of existing relationships with customer. Furthermore, most of the suppliers, there are no significant inputs required for a direct mail operation barriers to entry related to market can be obtained on a relatively inexpensive dominance by major players. basis. Operators can rent or lease mail The degree of industry capital intensity lists and subcontract certain services, such is low across most industry activities, with as printing, labeling and mailing.

Industry Most operators in this industry are with locations outside the United States in Globalization US-owned and earn most of their sales countries like the United Kingdom, France domestically. Therefore, the industry has a and Canada. However, the overwhelming Level & Trend low level of globalization. Major players majority of their direct mail advertising like Harte-Hanks have global linkages revenue is generated in the United States. Globalization in this industry is Low and the trend is Steady 

Provided to: Liberty University (2126773239) | 14 August 2017 WWW.IBISWORLD.COM Direct Mail Advertising in the US February 2017 22 Major Companies Valassis Communications Inc. | Other Companies

Major players (Market share) 86.2% Other

Valassis Communications Inc. 13.8% SOURCE: WWW.IBISWORLD.COM

Player Performance Michigan-headquartered Valassis is a service stores and home improvement leading distributor of shared mail centers. The shared mail service segment advertising, shipping shared mail to accounts for more than 60.0% of total Valassis roughly 100.0 million US households, company revenue. The company also Communications primarily through the United States provides ancillary services related to this Inc. Postal Service (USPS). The company shared mail and operates a consumer Market share: 13.8% employs 7,000 people and operates in website, RedPlum.com, which enables more than eight countries. Valassis retailers to electronically target became the industry’s largest player after promotions to customers. Responding to its 2007 acquisition of ADVO Inc. a shift toward digital advertising, Valassis Currently, the US market was estimated also unveiled its Intelligent Media to account for more than 95.0% of the Delivery service in 2013, which allow company’s activity. clients to engage consumers through Much of Valassis’s revenue is related to print, mail, in-store, mobile and social providing shared mail services. The core media advertising. of the shared mail program is published In February 2014, Harland Clarke under the brand name RedPlum, which is Holdings (Harland Clarke), a provider of a four-page booklet of print integrated payment solutions and advertisements for various clients. These marketing services, acquired Valassis clients include national and local grocers, Communications. Headquartered in San quick-service restaurants, drug stores, Antonio, TX, Harland Clarke employs discount and department stores, auto- more than 3,700 workers. The company

Valassis Communications Inc. (direct mail operations) - fi nancial performance* Revenue Operating Income Year ($ million) (% change) ($ million) (% change) 2012 1,365.6 N/C 201.4 N/C 2013 1,312.3 -3.9 191.5 -4.9 2014 1,347.5 2.7 204.3 6.7 2015 1,369.1 1.6 202.6 -0.8 2016 1,404.4 2.6 206.4 1.9 2017 1,407.2 0.2 204.0 -1.2

*Estimates SOURCE: ANNUAL REPORT AND IBISWORLD

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Major Companies

Player Performance is an integrated provider of marketing billion over the five years to 2017. Over continued data and analytics, payment solutions the past five years, the company and advertising services and operates announced its intention to invest more through multiple media channels, resources into its interactive website, including, online, mobile, print and since consumers are increasingly using direct mail. Harland Clarke is a the internet to find value. Over the five subsidiary of MacAndrews & Forbes, a years to 2017, growth in the company’s private diversified holding company with freestanding inserts and digital media investments in consumer products, segments were negated by declines in its marketing services, defense, gaming and neighborhood-targeted products entertainment businesses. Industry- segment due to pricing pressures and relevant direct mail services at the newly the company’s decision to change client formed company will continue to operate contracts to a different fee-based under the Valassis brand name. structure. Nevertheless, company revenue is expected to improve from Financial performance 2014 onward, as strong demand from Valassis Communication’s direct mail downstream markets, including revenue is expected to increase slightly consumer packaged goods, will help at an annualized rate of 0.6% to $1.4 drive sales at Valassis through 2017.

Other Companies Harte-Hanks Inc. December 2012, the company announced Estimated Market Share: 3.4% the sale of its Florida Shoppers business, Harte-Hanks began as a newspaper which operated under the name The Flyer. publishing company in 1923 and is now a The following year, Harte-Hanks agreed global multi-channel marketing to sell its California Shoppers business, company, whose customers include both which includes its PennySaverUSA brand, businesses and individual advertisers to subsidiaries of OpenGate Capital. encompassing a range of sectors, Moreover, in December 2016, Harte including real estate, employment, Hanks sold its Trillium Software, a data automotive, retail and financial services. quality and data governance product to According to Harte-Hanks’ latest annual Syncsort for $112.0 million. report, the company’s customer Over the past five years, the company interaction segment accounts for roughly reported a decline in revenue due to lost 90.0% of the company’s total revenue. clients and a drop in marketing Harte-Hanks’ customer interaction expenditures from existing clients. While segment provides direct marketing, demand from Harte-Hanks’ healthcare database solutions, digital services and clients remained stable, revenue from the lead generation for its corporate clients. company’s financial services clients Also within this segment, Harte-Hanks decreased by more than 14.0% in 2015. provides digital printing, advanced mail Revenue from the company’s auto and optimization, print on-demand services consumer brands segment also decreased as well as other direct mail services, from 2015 onward. As a result, the including commingling, wrapping and company’s revenue has undergone a specialized mailings offered in fulfillment marginal decline over the past five years, centers throughout the United States. as IBISWorld estimates industry-relevant Over the past five years, the company revenue at Harte-Hanks will total $351.6 has engaged in a series of divestitures. In million in 2017.

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Major Companies

Other Companies Quad/Graphics operations are outside the scope of this continued Estimated market share: 2.8% industry, as the company is primarily a Quad/Graphics (formerly Vertis printer of catalogs and magazines. Communications) provides integrated Nevertheless, direct mail advertising marketing and advertising services in the services accounts for an estimated 7.0% of United States, Latin America, India and company revenue. Relevant to this Europe (through Vertis Europe). Its industry, Quad/Graphics provides highly clients include operators from various customized direct mail, marketing industries, including advertising, programs, mailing management services, automotive, consumer packaged goods, automated digital fulfillment and specialty durable goods and manufacturing, advertising products. It is largely involved financial services, food and grocery, with the design, production and execution healthcare, publishing, retailers and of personalized advertising mailings, technology industries. The company is one enabling clients to more closely of the largest providers of advertising communicate with their customers. inserts and newspaper TV listing guides, IBISWorld estimates that the company producing more than 30.0 billion inserts generates about $291.1 million in annually. However, most of the company’s industry-related revenue in 2017.

Provided to: Liberty University (2126773239) | 14 August 2017 WWW.IBISWORLD.COM Direct Mail Advertising in the US February 2017 25 Operating Conditions Capital Intensity | Technology & Systems | Revenue Volatility Regulation & Policy | Industry Assistance

Capital Intensity IBISWorld estimates that for every dollar spent on labor in 2017, roughly $0.06 Capital intensity will be spent on the use and replacement Capital units per labor unit Level of buildings and equipment. Therefore, 0.5 The level of capital IBISWorld estimates that this industry intensity is Low  has a low level of capital intensity. 0.4 The industry is information- and 0.3 knowledge-intensive, with a requirement to collect, collate, analyze, 0.2 store and retrieve data. Operators must 0.1 then print and organize mail-outs of the 0.0 contracted promotional material. For Economy Professional, Direct Mail these reasons, IBISWorld estimates Scientific and Advertising Technical Services that wage costs comprise 21.4% of Dotted line shows a high level of capital intensity industry revenue in 2017. While SOURCE: WWW.IBISWORLD.COM computing and related technology assists in this process, operators areas of sales, client meetings and require specialist labor input in the graphic design. Industry players also

Tools of the Trade: Growth Strategies for Success

New Age Economy Investment Economy Recreation, Personal Services, Information, Communications, Health and Education. Firms Mining, Finance and Real benefi t from personal wealth so Estate. To increase revenue stable macroeconomic conditions fi rms need superior debt are imperative. Brand awareness management, a stable and niche labor skills are key to macroeconomic environment product differentiation. and a sound investment plan. Capital Intensive

Postal Service Labor Intensive Advertising Agencies Traditional Service Economy Direct Mail Advertising Old Economy Wholesale and Retail. Reliant Credit Card Issuing Agriculture and Manufacturing. on labor rather than capital to Traded goods can be produced sell goods. Functions cannot Paper Wholesaling using cheap labor abroad. be outsourced therefore fi rms Database & Directory Publishing To expand fi rms must merge must use new technology or acquire others to exploit or improve staff training to economies of scale, or specialize increase revenue growth. in niche, high-value products.

Change in Share of the Economy SOURCE: WWW.IBISWORLD.COM

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Operating Conditions

Capital Intensity have to ensure that the data for mail- involve consultant services to clients on continued outs is accurate and relevant to clients’ promotional activities and monitoring needs. The direct mail task may also the success of direct mail campaigns.

Technology & Systems IBISWorld analysis indicates that the operators provide information via industry has experienced high websites, which clients can use to access Level technological change in recent years. The relevant information. Printing technology industry requires well-established links to is also used in promotional materials, The level of be developed with mailing list compilers high-speed labeling and delivery. Technology and sellers to meet clients’ needs. In the past five years, the industry has Change is High  Computers are increasingly used to adopted integrated marketing, which collect, store, analyze and retrieve data utilizes brand messages across both from clients’ databases that have been traditional and non-traditional advertising collected from the internet, promotions channels. Direct mail advertisers have and competitions, or specialist mail list adopted technologies, such as quick companies. Similarly, data requirements response (QR) codes. QR codes are matrix for mailings are usually specific to barcodes printed on direct mail cards that socioeconomic and demographic profiles can store data. When these codes are of households within a designated scanned with mobile devices, users can geographic area. It can also include access more complex online targeting businesses within certain advertisements. As a result, advertisers locations or of a certain revenue or are better able to integrate direct mail and employment size. Increasingly, direct mail digital media campaigns.

Revenue Volatility Revenue volatility for the industry is low. reflecting the industry’s stagnation. Over the five years to 2017, the average While direct mail’s cost effectiveness annual absolute change in industry compared with other forms of main Level revenue is estimated to be 1.8%, media advertising and its standing as a The level of Volatility is Low  A higher level of revenue Volatility vs Growth volatility implies greater industry risk. Volatility can 1000 Hazardous Rollercoaster negatively affect long-term strategic decisions, such as 100 the time frame for capital investment. 10 When a fi rm makes poor investment decisions it Direct Mail Advertising may face underutilized 1

capacity if demand (%) volatility* Revenue suddenly falls, or capacity 0.1 Stagnant Blue Chip constraints if it rises –30 –10 10 30 50 70 quickly. Five-year annualized revenue growth (%)

* Axis is in logarithmic scale SOURCE: WWW.IBISWORLD.COM

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Operating Conditions

Revenue Volatility well-targeted promotional tool, provide to industry revenue. As a result, the continued a basis for industry demand, the arrival industry is expected to experience of competitors, in the form of digital slight revenue declines in four of the and mobile advertising, has threatened past five years.

Regulation & Policy IBISWorld analysis indicates that this personal information. For instance, the industry is subject to a heavy and federal government has passed increasing level of regulation. The legislation that forbids the use of Level & Trend Federal Trade Commission regulates information from drivers’ licenses and The level of the industry through the consumer automotive registration and purchase Regulation is Heavy  protection and fair trade laws, which without the consumer’s prior consent. and the trend relate to marketing to children online, The theft or misuse of a database can is Increasing  truth in advertising and other areas. lead to criminal and civil penalties; These laws are also supported by therefore, lists often include a number state-based consumer affairs of decoy names to detect misuse. legislation. The industry is also directly Unsolicited faxes are illegal, and the affected by privacy laws and restrictions penalty is fixed by statute at $500 per on the collection and use of certain completed fax.

Industry Assistance The USPS recently implemented several marketing services and direct mail discounts to companies that start direct advertisers, helping to connect small advertising promotions or send large businesses and industry operators, which Level & Trend volumes of direct mail. For example, the produce in-mail advertisements. The level of Industry USPS announced a new program for 2012 Additionally, the USPS provides limited- Assistance is Low  called the 2nd Ounce Free program, which time and seasonal discounts. For and the trend allowed commercial to send up to example, in 2017, the USPS offered a is Increasing  two ounces of mail for the price of one 2.0% discount on all pieces of direct mail ounce. Also in 2012, the USPS struck a deal advertisements that have video in print with Valassis, the industry’s largest direct features, near field technology or quick mail advertiser, potentially granting the response (QR) codes, which are company deep discounts (up to 36.0%), information-storing matrix barcodes provided Valassis produces 1.0 million printed on direct mail cards. pieces of advertising mail within a year. The primary industry organization is The USPS has taken additional steps to the Direct Marketing Association (DMA), promote direct mail advertising through which conducts research, provides its Every Door Direct Mail program, education, organizes conferences and which started in 2012. The program offers a library of direct marketing- provides geographic and demographic related research materials that members filters, allowing businesses to target can access. It also has an international customers without street addresses or department with links to similar names. The USPS also provides an organizations across 52 countries. The extensive directory of local printers, DMA has also developed list guidelines.

Provided to: Liberty University (2126773239) | 14 August 2017 WWW.IBISWORLD.COM Direct Mail Advertising in the US February 2017 28 Key Statistics

Industry Data Total US Industry advertising Revenue Value Added Establish- Wages Domestic expenditure ($m) ($m) ments Enterprises Employment Exports Imports ($m) Demand ($b) 2008 12,890.4 4,235.9 3,386 3,049 72,688 -- -- 3,585.9 N/A 270.7 2009 10,934.7 3,380.6 3,191 2,879 60,841 -- -- 2,864.5 N/A 231.1 2010 11,380.8 3,326.8 3,088 2,785 55,091 -- -- 2,678.0 N/A 252.3 2011 11,255.0 3,398.4 2,982 2,682 52,793 -- -- 2,648.3 N/A 267.3 2012 11,012.9 3,430.2 2,979 2,768 51,257 -- -- 2,590.2 N/A 274.8 2013 10,660.3 2,958.8 2,827 2,649 46,101 -- -- 2,298.6 N/A 282.9 2014 10,685.5 3,062.2 2,691 2,503 45,717 -- -- 2,335.6 N/A 291.7 2015 10,456.1 3,212.2 2,619 2,433 45,069 -- -- 2,302.6 N/A 300.5 2016 10,242.6 3,086.4 2,582 2,400 43,792 -- -- 2,236.3 N/A 310.4 2017 10,231.8 3,053.3 2,519 2,337 42,597 -- -- 2,186.7 N/A 314.1 2018 10,236.2 3,045.1 2,503 2,322 42,185 -- -- 2,170.1 N/A 320.5 2019 10,221.6 3,007.9 2,444 2,264 40,984 -- -- 2,119.8 N/A 330.5 2020 10,255.8 3,001.6 2,429 2,248 40,522 -- -- 2,102.8 N/A 335.4 2021 10,250.0 2,969.0 2,375 2,196 39,321 -- -- 2,052.6 N/A 340.2 2022 10,251.3 2,952.9 2,350 2,172 38,764 -- -- 2,029.3 N/A 346.4 Sector Rank 22/35 27/35 35/35 35/35 28/35 N/A N/A 27/35 N/A N/A Economy Rank 663/1551 660/1546 743/1551 685/1551 652/1551 N/A N/A 598/1551 N/A N/A

Annual Change Total US Industry Establish- Domestic advertising Revenue Value Added ments Enterprises Employment Exports Imports Wages Demand expenditure (%) (%) (%) (%) (%) (%) (%) (%) (%) (%) 2009 -15.2 -20.2 -5.8 -5.6 -16.3 N/A N/A -20.1 N/A -14.6 2010 4.1 -1.6 -3.2 -3.3 -9.5 N/A N/A -6.5 N/A 9.2 2011 -1.1 2.2 -3.4 -3.7 -4.2 N/A N/A -1.1 N/A 5.9 2012 -2.2 0.9 -0.1 3.2 -2.9 N/A N/A -2.2 N/A 2.8 2013 -3.2 -13.7 -5.1 -4.3 -10.1 N/A N/A -11.3 N/A 2.9 2014 0.2 3.5 -4.8 -5.5 -0.8 N/A N/A 1.6 N/A 3.1 2015 -2.1 4.9 -2.7 -2.8 -1.4 N/A N/A -1.4 N/A 3.0 2016 -2.0 -3.9 -1.4 -1.4 -2.8 N/A N/A -2.9 N/A 3.3 2017 -0.1 -1.1 -2.4 -2.6 -2.7 N/A N/A -2.2 N/A 1.2 2018 0.0 -0.3 -0.6 -0.6 -1.0 N/A N/A -0.8 N/A 2.1 2019 -0.1 -1.2 -2.4 -2.5 -2.8 N/A N/A -2.3 N/A 3.1 2020 0.3 -0.2 -0.6 -0.7 -1.1 N/A N/A -0.8 N/A 1.5 2021 -0.1 -1.1 -2.2 -2.3 -3.0 N/A N/A -2.4 N/A 1.4 2022 0.0 -0.5 -1.1 -1.1 -1.4 N/A N/A -1.1 N/A 1.8 Sector Rank 35/35 35/35 35/35 35/35 35/35 N/A N/A 35/35 N/A N/A Economy Rank 1336/1551 1349/1546 1457/1551 1446/1551 1480/1551 N/A N/A 1462/1551 N/A N/A

Key Ratios Imports/ Exports/ Revenue per Share of the IVA/Revenue Demand Revenue Employee Wages/Revenue Employees Average Wage Economy (%) (%) (%) ($’000) (%) per Est. ($) (%) 2008 32.86 N/A N/A 177.34 27.82 21.47 49,332.76 0.03 2009 30.92 N/A N/A 179.73 26.20 19.07 47,081.74 0.02 2010 29.23 N/A N/A 206.58 23.53 17.84 48,610.48 0.02 2011 30.19 N/A N/A 213.19 23.53 17.70 50,163.85 0.02 2012 31.15 N/A N/A 214.86 23.52 17.21 50,533.59 0.02 2013 27.76 N/A N/A 231.24 21.56 16.31 49,860.09 0.02 2014 28.66 N/A N/A 233.73 21.86 16.99 51,088.22 0.02 2015 30.72 N/A N/A 232.00 22.02 17.21 51,090.55 0.02 2016 30.13 N/A N/A 233.89 21.83 16.96 51,066.40 0.02 2017 29.84 N/A N/A 240.20 21.37 16.91 51,334.60 0.02 2018 29.75 N/A N/A 242.65 21.20 16.85 51,442.46 0.02 2019 29.43 N/A N/A 249.40 20.74 16.77 51,722.62 0.02 2020 29.27 N/A N/A 253.09 20.50 16.68 51,892.80 0.02 2021 28.97 N/A N/A 260.67 20.03 16.56 52,201.11 0.02 2022 28.81 N/A N/A 264.45 19.80 16.50 52,350.12 0.02 Sector Rank 34/35 N/A N/A 3/35 33/35 1/35 18/35 27/35 Economy Rank 829/1546 N/A N/A 849/1551 657/1551 662/1551 760/1551 660/1546

Figures are in inflation-adjusted 2017 dollars. Rank refers to 2017 data. SOURCE: WWW.IBISWORLD.COM Provided to: Liberty University (2126773239) | 14 August 2017 WWW.IBISWORLD.COM Direct Mail Advertising in the US February 2017 29

Industry Financial Ratios Apr 2015 - Mar 2016 by company revenue Apr 2012 - Apr 2013 - Apr 2014 - Apr 2015 - Small Medium Large Mar 2013 Mar 2014 Mar 2015 Mar 2016 (<$10m) ($10-50m) (>$50m)

Liquidity Ratios Current Ratio 1.1 1.1 1.1 0.9 0.9 0.8 1.3 Quick Ratio 0.9 0.9 0.9 0.8 0.8 0.7 1.0 Sales / Receivables (Trade Receivables Turnover) 8.6 10.4 9.0 10.6 21.7 12.9 7.4 Days’ Receivables 42.4 35.1 40.6 34.4 16.8 28.3 49.3 Cost of Sales / Inventory (Inventory Turnover) n/c 193.1 200.8 194.1 n/c 83.0 142.3 Days’ Inventory n/a 1.9 1.8 1.9 n/a 4.4 2.6 Cost of Sales / Payables (Payables Turnover) 10.4 11.7 10.9 12.2 18.3 10.1 12.2 Days’ Payables 35.1 31.2 33.5 29.9 19.9 36.1 29.9 Sales / Working Capital 104.6 73.9 129.7 -81.7 -86.8 -37.2 20.6

Coverage Ratios Earnings Before Interest & Taxes (EBIT) / Interest 5.0 6.5 4.2 4.1 6.0 7.2 0.6 Net Profit + Dep., Depletion, Amort. / Current Maturities LT Debt 3.2 2.1 2.6 2.9 n/a n/a n/a

Leverage Ratios Fixed Assets / Net Worth 2.3 1.6 2.0 2.1 1.7 2.2 2.4 Debt / Net Worth 7.4 3.8 5.4 5.8 6.2 5.4 5.0 Tangible Net Worth -3.0 9.3 3.7 -1.6 -5.5 1.0 -3.0

Operating Ratios Profit before Taxes / Net Worth, % 39.8 44.1 32.2 35.2 n/a 39.1 n/a Profit before Taxes / Total Assets, % 6.7 8.0 8.3 5.6 14.3 6.9 -0.6 Sales / Net Fixed Assets 15.4 15.2 13.8 13.6 12.1 7.7 17.7 Sales / Total Assets (Asset Turnover) 2.5 2.4 2.5 2.8 4.6 2.8 2.0

Cash Flow & Debt Service Ratios (% of sales) Cash from Trading 34.9 37.3 34.7 29.6 56.9 21.2 31.3 Cash after Operations 5.7 6.2 5.7 4.2 12.5 3.4 12.8 Net Cash after Operations 5.7 6.6 6.1 4.1 8.8 3.1 11.5 Cash after Debt Amortization 2.4 1.3 1.7 0.3 3.8 -1.5 2.8 Debt Service P&I Coverage 3.7 2.2 1.5 1.5 n/a 1.5 1.5 Interest Coverage (Operating Cash) 8.2 9.9 3.9 7.5 n/a 7.5 3.5

Assets, % Cash & Equivalents 15.4 20.5 15.4 13.9 19.7 12.8 10.5 Trade Receivables (net) 28.7 27.7 32.4 27.1 19.6 28.8 30.7 Inventory 2.9 4.4 4.1 4.8 4.3 4.3 6.3 All Other Current Assets 3.4 3.2 3.6 2.6 0.8 2.9 3.9 Total Current Assets 50.5 55.8 55.5 48.4 44.4 48.7 51.4 Fixed Assets (net) 21.6 22.9 28.5 29.0 29.2 35.4 16.3 Intangibles (net) 18.5 12.8 9.7 11.2 7.3 5.2 26.7 All Other Non-Current Assets 9.3 8.5 6.3 11.4 19.1 10.7 5.7 Total Assets 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Total Assets ($m) 1,525.3 1,425.4 1,437.2 1,661.5 37.1 308.8 1,315.5

Liabilities, % Notes Payable-Short Term 6.3 7.8 7.7 12.0 14.5 10.8 11.9 Current Maturities L/T/D 4.3 4.3 4.9 4.8 6.1 5.0 3.1 Trade Payables 19.2 16.8 19.3 18.4 21.2 18.6 15.3 Income Taxes Payable 0.1 0.2 0.1 0.1 n/a n/a 0.4 All Other Current Liabilities 23.0 24.2 21.4 18.0 19.7 17.4 17.4 Total Current Liabilities 52.8 53.4 53.5 53.2 61.4 51.9 48.1 Long Term Debt 18.0 17.6 24.3 28.6 24.2 36.1 18.2 Deferred Taxes 0.6 0.7 0.6 0.8 0.3 0.3 2.1 All Other Non-Current Liabilities 13.1 6.2 8.2 7.8 12.3 5.5 7.8 Net Worth 15.5 22.1 13.4 9.6 1.8 6.2 23.7 Total Liabilities & Net Worth ($m) 1,525.3 1,425.4 1,437.2 1,661.5 37.1 308.8 1,315.5

Maximum Number of Statements Used 102 91 82 62 15 31 16

Source: RMA Annual Statement Studies, rmahq.org. RMA data for all industries is derived directly from more than 260,000 statements of member financial institutions’ borrowers and prospects. Note: For a full description of the ratios refer to the Key Statistics chapter online.

Provided to: Liberty University (2126773239) | 14 August 2017 WWW.IBISWORLD.COM Direct Mail Advertising in the US February 2017 30

Jargon & Glossary

Industry Jargon LETTERSHOP An independent agency that manages SHOPPER A usually free paper carrying advertising and mailings for clients and performs tasks such as poly sometimes local news. wrapping, inserts, addressing and labeling. MAIN MEDIA Advertising in the traditional media areas of TV, radio, newspapers and magazines. QUICK RESPONSE (QR) CODES Matrix bar codes, which store data and are printed on direct mail. When these codes are scanned with mobile devices, users can access more complex online advertisements.

IBISWorld Glossary BARRIERS TO ENTRY High barriers to entry mean that INDUSTRY CONCENTRATION An indicator of the new companies struggle to enter an industry, while low dominance of the top four players in an industry. barriers mean it is easy for new companies to enter an Concentration is considered high if the top players industry. account for more than 70% of industry revenue. CAPITAL INTENSITY Compares the amount of money Medium is 40% to 70% of industry revenue. Low is less spent on capital (plant, machinery and equipment) with than 40%. that spent on labor. IBISWorld uses the ratio of INDUSTRY REVENUE The total sales of industry goods depreciation to wages as a proxy for capital intensity. and services (exclusive of excise and sales tax); subsidies High capital intensity is more than $0.333 of capital to on production; all other operating income from outside $1 of labor; medium is $0.125 to $0.333 of capital to $1 the firm (such as commission income, repair and service of labor; low is less than $0.125 of capital for every $1 of income, and rent, leasing and hiring income); and labor. capital work done by rental or lease. Receipts from CONSTANT PRICES The dollar figures in the Key interest royalties, dividends and the sale of fixed Statistics table, including forecasts, are adjusted for tangible assets are excluded. inflation using the current year (i.e. year published) as INDUSTRY VALUE ADDED (IVA) The market value of the base year. This removes the impact of changes in goods and services produced by the industry minus the the purchasing power of the dollar, leaving only the cost of goods and services used in production. IVA is “real” growth or decline in industry metrics. The inflation also described as the industry’s contribution to GDP, or adjustments in IBISWorld’s reports are made using the profit plus wages and depreciation. US Bureau of Economic Analysis’ implicit GDP price INTERNATIONAL TRADE The level of international deflator. trade is determined by ratios of exports to revenue and DOMESTIC DEMAND Spending on industry goods and imports to domestic demand. For exports/revenue: low is services within the United States, regardless of their less than 5%, medium is 5% to 20%, and high is more country of origin. It is derived by adding imports to than 20%. Imports/domestic demand: low is less than industry revenue, and then subtracting exports. 5%, medium is 5% to 35%, and high is more than EMPLOYMENT The number of permanent, part-time, 35%. temporary and seasonal employees, working proprietors, LIFE CYCLE All industries go through periods of growth, partners, managers and executives within the industry. maturity and decline. IBISWorld determines an ENTERPRISE A division that is separately managed and industry’s life cycle by considering its growth rate keeps management accounts. Each enterprise consists (measured by IVA) compared with GDP; the growth rate of one or more establishments that are under common of the number of establishments; the amount of change ownership or control. the industry’s products are undergoing; the rate of technological change; and the level of customer ESTABLISHMENT The smallest type of accounting unit acceptance of industry products and services. within an enterprise, an establishment is a single physical location where business is conducted or where NONEMPLOYING ESTABLISHMENT Businesses with services or industrial operations are performed. Multiple no paid employment or payroll, also known as establishments under common control make up an nonemployers. These are mostly set up by self-employed enterprise. individuals. EXPORTS Total value of industry goods and services sold PROFIT IBISWorld uses earnings before interest and tax by US companies to customers abroad. (EBIT) as an indicator of a company’s profitability. It is calculated as revenue minus expenses, excluding IMPORTS Total value of industry goods and services interest and tax. brought in from foreign countries to be sold in the United States.

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Jargon & Glossary

IBISWorld Glossary VOLATILITY The level of volatility is determined by WAGES The gross total wages and salaries of all averaging the absolute change in revenue in each of the employees in the industry. The cost of benefits is also continued past five years. Volatility levels: very high is more than included in this figure. ±20%; high volatility is ±10% to ±20%; moderate volatility is ±3% to ±10%; and low volatility is less than ±3%.

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