The Convergence of Transactional Direct Mail —

The Convergence of Transactional & Direct Mail - making Mail more relevant Prepared for: by: The Strategy Works 31 st October 2007

Mail Convergence - TSW’s Primary Research Sources Upstream Mail Research with a mix of 32 BPO’s / Digital Printers / Manufacturers – March 2007 – article published in PFM magazine April 2007 Mailing House Research with 40 mailing houses – July 2007 – article to be published in Print Week magazine Hybrid Mail Research – September 2007 with 8 new entrants / suppliers specialising in Hybrid Mail - article to be published in PFM magazine - January 2008

Factors driving Mail Convergence - blurring of boundaries BPO ‘mail club’ growing in number – 20 companies - almost two thirds of the upstream sample - self classified themselves as (mail) BPO’s Emergence of DPO’s – document process outsourcers 4 self classified themselves as DPO’s – correct term for a (mail) BPO 45 (mail) BPO plants in UK (answered by 18 respondents) Trade with each other – mix of own customers / sub contract work

4 large BPO’s + a ‘long tail’ – aggregating to £ 1. 1 bn (excluding divisions of corporates) Sample size - 16 350 300 270 250 200 150 100 50 50 36 25 25 25 17 16 4 4 Inc Direct FCS Lasermail K 2 4 DM CFH MBA Inkfish Stralfors DSTI Lettershop Howitt TPF CDMS Williams Lea Communisis R R Donnelley Globa Document Solutions 0 40 Figures do not include TNT, XGS, Capita or OCE BS"

(Mail) BPO’s Relationships With Downstream Postal Suppliers

Factors driving Mail Convergence Transactional Mail (62%) preferred to Direct Mail Predictability of forecasting transactional mail vs. unpredictability of Direct Mail: “Transactional mail is all about continuity, high quality, high reliability, and very tightly managed processes. If you look at direct mail, however, this has a different profile - it is more campaign and event-driven with no pre-set production schedule”. Craig Scott – Divisional G. M. - TNT Document Services “When I used to forecast transactional mail I could roughly forecast my business plus or minus, 10% … when I had to forecast DM I couldn’t forecast two weeks hence because everything was dependent on when the campaigns were going to be placed. You would get campaigns cancelled at the last minute or dropped on you at the last minute so, in terms of production planning, it was an absolute nightmare. ” - spokesperson from Stralfors

Factors driving Mail Convergence Transactional Mail (62%) preferred to Direct Mail Better margins achievable: “There’s still a lot more margin in transactional than direct mail. Also there’s more opportunities to do something with it if you have an intelligent business…” Martyn Viquerat – Director - CDMS “A lot of DM companies are entering into the transactional space so they’re offering both. I think one of the reasons being the margins within DM are far less than they used to be. ” Robin Skinner – Sales & Marketing Director - 4 DM

Empowers even small companies to win large contracts – e. g. Inc Direct

Technology drives convergence Previously siloed databases - Financial and Marketing - now converging “ I found it hard to understand why the transactional biller and the marketers didn’t get their heads together sooner than they have done, to actually leverage the benefits of each other’s activities. ” Craig Scott – Divisional G. M. - TNT Document Services Stimulated by advances in database software technology “Basically this is data driven transactional direct mail; so it’s based on valuable rich data that the clients have and then turning it into something meaningful. ” Noel Warner – M. D. Inc. Direct

Technology drives convergence Building ‘middleware’ solutions - ‘intelligent production’ “Convergence is all about creating a middleware solution where you can ingest marketing and billing data to produce a transactional document that incorporates compliance information as well as marketing information, but employs intelligence in the data formatting process. ” Jarrod Green Business Manager Corporate - MBA

Factors Driving Convergence Improved Digital Print Quality / Speed “The quality of digital printers is at such an incredibly high standard these days. . . it is absolutely sufficient, serves the purpose and there is a decreasing need to actually use litho, particularly in the SME marketplace”. Bob van Ierland – Director of E 2 E Development - TNT Post Range of Examples - depending on application – trade off – colour quality vs. speed: “Océ achieve 50 ft/min full colour with their new 9000 laser -equivalent to 100 pages x A 4 sheets per minute” Dave Broadway – MD - CFH “We have just installed a Xerox i. Gen 3 sheet fed colour laser. This also runs at 100 x A 4 sheets per minute” Dave Broadway – MD – CFH “Each Kodak produces 1000 (duplex) pages x A 4 colour per minute - every page different” – Chris Walton - Chief Operations Officer - DSTI

DSTi - UK Credit Card Application with Kodak IPS Brand Identity Variable Graphics Transaction Detail Loyalty Information 1 -to-1 Messaging

Factors Driving Convergence White Space Management - Personalised transactional mail “Completely personalised to the individual, everyone is different, there’s 25 million combinations of the book … It is all done on two IGEN digital presses. ” - Noel Warner M. D. - Inc Direct “We have a product called ‘Easy Message’ and what that does is it allows our customers to go in via the web and actually insert marketing messages within their data … we would actually class it as a data segmentation tool. ” Mark Lee - Business Development Director - R. R. Donnelly Document Solutions

Factors Driving Convergence White Space Management - Personalised transactional mail “The traditional bill document, instead of being a necessary bit of compliance, it is actually a business tool … an intelligent message within the bill. ” Steve Berney – Business Development Director - Océ Business Services “So we have a product called VDE (Virtual Document Engineering) and this allows people to insert messages, images, text etc, based on content in the document”. Dave Thomas – Sales & Service Manager EMEA – Emtex Unused advertising space on bills / statements equates to 22% of UK annual direct mail spend – dsicmm Group research - August 2007

Factors Driving Convergence the ‘uncontrollables’ July 2006 Energy White Paper Increased transparency of utility bills will be a market driver and increase focus on colour transactional printing. “It could have been written with Océ in mind. It is designed to encourage customers to be energy conscious …the bills must include graphic information in colour, that drives and informs the users how to conserve energy and also to be more conscious of how much their bill is really costing them – in effect predictive billing information”. Steve Berney - Business Development Director - Océ Business Services.

Factors Driving Convergence the ‘uncontrollables’ Environmental Drivers – Carbon Footprint “I think it’s inevitable for a number of reasons - I think because that is the document that people look at and also I believe there will be environmental and legislative pressure to move away from ‘carpet bombing’. ” Martyn Viquerat – Director - CDMS ”It’s about offering the range of list cleansing services that will reduce the amount of ‘gone aways’ which in turn reduces the amount of physical bags you create and therefore the volume of paper you use and the machine time you use to fulfil it” Paul Galpin – Sales & Marketing Director – dsicmm Group “When we are applying for tenders and projects, we are increasingly asked to specify our own environmental policy. ” Steve Gryf – M. D. - Hercules Direct Marketing

In-house IT expertise drives convergence Investment in IT (technology & people) is regarded as imperative CDMS - £ 100 m t/o – with 40 people employed in data / IT CFH - £ 25 m t/o – with 19 people employed in document composition / IT / system development Common denominator is IT investment in relation to size

In-house IT / Design expertise drives convergence “One of the reasons we can make White Space Management work so well is because of the quality of our creative design team – they are experts in putting the right messages in the right places. ” Elizabeth Mc. Mahon Marketing Manager - DST International Output “We’ve all got Xerox’s, we’ve all got Océs, but then the guys who are making the most money out of it will be these niche guys who have spotted an opportunity; they don’t have a lot of competition, it’s the IT skill, it’s that front end developer that’s making it happen, it’s how they’re getting the messages onto the paper. ” Spokesperson from Stralfors

Competition threat to mailing houses drives convergence 55% of research sample of mailing houses are developing ‘upstream’ services to combat the threat from BPO’s “The scale of our business means we can go forward with it. You’ve got two options – either watch the dark clouds gather by not embracing it and watch your business downsize or embrace it and take it to the market by building the solutions yourselves. The scale of our business means we can go forward with it. ” Paul Galpin – Sales & Marketing Director - dsicmm Group

New Mailing House Services include: Data Management Personalisation Creative Digital Colour Printing “We are trying to develop digital printing, personalisation, colour personalisation not just black and white. We do all of them: creative services; managing clients’ data; advising on personalised ‘intelligent’ mail. ” Terry Turner – M. D. - Priority Newstrade, Mailing & Digital Print

The Customer perspective - Banking “The direct mail industry is contracting – pushing these big companies into the transactional space…. there is the push the other way, from the marketing people, to maximise the impact of all our communications. The two are pushing hard together - coming up with this concept known as ‘transpromo’. It’s our strategy to suppress what mail we can (by encouraging use of on-line banking) but what we will be left with is communications that the customer wants…. . so the whole statement proposition is going to evolve” Leading UK Bank

Who is growing the UK ‘mail cake’? Convergence (in theory) contracts the market – form of substitution Royal Mail countering by developing ‘relationship mail’ “We see purchases on the internet as an opportunity to drive integrated digital and physical communications to stimulate cross selling” Thierry Saada – Director Sector Marketing – Royal Mail Personalised integrated media in partnership with Sony DADC technology

Example of Personalised Integrated Media

Global Postal Operators growing mail volumes “What I know, from a commercial perspective, is that, if you combine email with physical mailing, your penetration rate and your response rate is much higher than either one separately. ” Marc Pouw – Commercial Director - Belgium Post “Australia Post sees expansion in Hybrid mail as one of the future developments of mail and where mail will continue to add value in a changing world. Hybrid mail is really the electronic convergence of data streams and physical mail and its use is consistent with our strategy to actually grow mail volumes. ” Mark Worsley - CEO - Print. Soft (Australia Post)

New UK Hybrid Mail Entrants - impact on convergence New entrant Viapost partnering with large direct mail printers Polestar, St. Ives etc – thus protecting attrition of revenue streams from transactional printers “The SME print at the moment is done on a desktop printer, within an office. All of that is now going to come through us into the industrial print side. ” Simon Campbell - CEO - Viapost

New UK Hybrid Mail Entrants - impact on convergence Extensive network of printer alliances being set up across the UK by Viapost and other new UK market entrants e. g. Print. Soft (Inkfish / FCS Lasermail); PDQit; TNTit ; I-Mail Esker (‘Fly. Doc’) business model already exists in France & Australia Post model (‘Desk. Direct Global’) All based on a ‘Pay as You Go’ model with free downloadable software

Conclusions Convergence or ‘transpromo’ (transactional print & proactive marketing) is now a ‘given’ The (technology) ‘cat is out of the bag’ New market entrants proliferate from 3 different directions: BPO’s / Mailing Houses / Hybrid Mailers Mail relationships are fragile and subject to change – more and more influencers involved The industry needs to be seen to ‘self police’ its carbon footprint Mail must become more relevant - to survive and grow

The Convergence of Transactional & Direct Mail - making Mail more relevant Prepared for: by: The Strategy Works 31 st October 2007