DMA: Despite Q4 DM Growth, Q1 Expectations Reflect Economic Concerns

March 4, 2008

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Despite some concerns about the economy, direct marketers are again expecting growth in the first quarter of 2008, after having experienced 18 consecutive quarters of positive growth, according to the Direct Marketing Association Quarterly Business Review (QBR) for the fourth quarter of 2007.

The report details the experiences and projections of the greater direct marketing community – direct marketers, agencies, and suppliers.

Overall a Strong Quarter

Direct marketers experienced growth in Q4 revenue – which, compared with the same quarter last year, scored 55 in the QBR Index.

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A score of 50 represents no change in performance compared with the same quarter last year (SQLY); scores above 50 represent growth, and those below 50 represent a decline.

Profitability results were also strong, at 65, remaining healthy for all three segments that QBR benchmarks.

Below, additional highlights from the QBR for 4Q07.

Direct Marketing Community Overview

  • Despite fourth-quarter growth, revenue vs. SQLY was the first time in five years that fourth quarter results ended lower than the Q1, Q2, and Q3 results.

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  • Q4 revenue vs. SQLY was positive for every segment: The agency segment posted a somewhat higher index at 57 than both marketers (55) and suppliers (54).
  • The healthiest results came from Q4 profitability figures: Marketers registered the strongest index at 68; suppliers and agencies reported somewhat lower numbers – 63 and 62, respectively.
  • Looking toward Q1 of ’08, while still optimistic direct marketers’ expectations were lower than their previous predictions:
    • Overall, the direct marketing projected revenue index was 57, down six points from the 63 for Q4 2007, eight points below the 65 projected for Q3, and nine from the 66 forecast for Q2.
    • Individually, agencies and suppliers project the greatest Q1 2008 revenue growth at 59, followed by marketers at 55.

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Marketers’ Concerns on the Economy

  • Direct marketers cited the economy and client budgets as the factors most likely to impact their Q1 2008 revenue: 51% of survey respondents pointed to the economy and 48% pointed to budgets.
  • This focus on the economy’s impact on Q1 2008 revenue represents a marked increase from the expectations in Q4 2007, when 39% of direct marketers overall cited it as a concern. Marketers and agencies cited the economy somewhat more often than did suppliers.
  • DMA’s latest QBR also reflects the fact that direct marketers are concerned about consumer perceptions: 32% cite consumer confidence as a factor that may affect Q1 2008 revenue.
  • In the event of a recession, just about half (47%) of marketers will keep their marketing budget the same but reallocate expenditures.
  • Of those marketers who plan to alter their spending, 42% plan to reduce spending on postage, while 50% plan to increase expenditures on email marketing.

“QBR first asked marketers about their expectations of a recession in the Q3 2007 survey,” Frankel said. “At that time, just over a third (36%) of marketers felt that a recession was at least somewhat likely in 2008. Now, three months later, marketers seem more certain that a recession may be imminent – with 47% saying it is somewhat likely, and 19% stating that it is very likely to take place in 2008. Given these economic concerns, it comes as no surprise that marketers also voiced more conservative expectations vis-?-vis revenue in 2008,” said Anne B. Frankel, DMA’s senior research manager in research and market intelligence.

Direct Marketers

  • Q4 revenue vs. SQLY (55) dipped slightly from Q3’s 57. Profitability (68) also showed a slight decline from Q3’s 70.
  • The weighted average revenue change (the measure that is more reflective of the direct marketing community in aggregate) was 2.8%.
  • Marketers expect future growth, with a projected revenue index for Q1 of 55.
  • In terms of Q1 spending, marketers project moderate increases in their budgets for total advertising, direct marketing, and direct marketing services and vendors, with larger expenditures on new customer acquisition. Unlike previous quarters, marketers expect to hold new product development expenditures flat.

Direct Marketing Agencies

  • Revenue vs. SQLY (57) decreased in Q4 from Q3’s 59. Q4 continued this metric’s steady drop in 2007, with Q2 at 60 and Q1 at 63. While stronger than revenue, profitability is also seeing a steady fall at 62, three points lower than Q3’s 65, six points below Q2’s 68, and seven points lower than Q1’s 69.
  • Agencies also steadily lowered revenue expectations, with a Q1 2008 projected revenue index of 59 representing a five point drop from that for Q4 2007 (64), and down seven points from the Q3 projection (66). This was nine points lower than that of Q2 (68), and 11 points lower than that of Q1 2007 (70).
  • For the 11th consecutive quarter, agencies planned to spend the most in the next quarter on new customer acquisition.

Direct Marketing Suppliers

  • Suppliers saw modest revenue vs. SQLY growth in Q4 2007, at 54. This figure reflects a three-point decrease from Q3, a two-point drop from Q2 2007, and a five-point drop from Q1. Despite the conservative revenue reports, suppliers saw profitability remain healthy at 63. This, however, remained below profitability figures from Q3, Q2, or Q1 2007 (65, 67, and 67, respectively).
  • Optimistic suppliers expect healthy Q1 2008 revenues, at 59. This figure is down from Q3 and Q4’s 64, but closer to Q2’s 62.
  • Consistent with the previous eight quarters, new client acquisition heads the list of projected Q1 expenditures, complementing the prediction that client budgets were most likely to affect Q1 performance.

B2B Segment

  • Both the revenue vs. SQLY (53) and profitability (65) indices were positive for business-to-business (B2B) direct marketers.
  • The weighted average revenue change – the measure that is more reflective of the B2B community in aggregate – was 7.3%.
  • Looking at the horizon for Q1 2008 projections, B2B marketers expect revenue to grow, with an index of 54. But it’s not all fair skies; B2B expectations dove seven points since the Q4 2007 projection of 61.

Catalog

  • Catalog marketers registered revenue vs. SQLY of 53 and profitability of 69. These figures were below the Q3 2007 numbers of 60 for revenue and a low 70s measure for profitability.
  • The weighted average revenue change (the measure that is more reflective of the catalog community in aggregate) remained positive at 1.5%. But this metric registered a sharp drop since Q3 2007, when it was 10.7%.
  • Catalogers expect very modest growth – the Q1 projected revenue index is 51. Their expectations have become much more conservative since Q4 2007, when the index was 63.

B2C Segment

  • Down one point from Q3 2007, revenue vs. SQLY (56) reflects a slight decline in Q4.
  • Profitability (68) remained robust.
  • Consumer marketers expect future growth, but with softened expectations. The Q1 2008 metric is 56, while the Q4 2007 projected revenue index was 63.

About the data: DMA’s Quarterly Business Review (QBR) for the fourth quarter of 2007 is based on three online surveys of DMA marketer, agency, and supplier member companies. The surveys were conducted by DMA’s Research and Market Intelligence department from January 16, 2008, through January 24, 2008. Altogether, DMA received 447 survey responses.

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