True or false: U.S. companies spend more on direct mail than digital ads. Larry Kavanagh, CEO of NaviStone, knows the answer, and he and his team see tremendous opportunity in it.
“U.S. companies spent $45 billion on direct mail just this year,” Kavanagh says. “To put that in perspective, U.S. business will spend $30 to $35 billion on Google in digital ads.”
Surprised? So are investors. “What surprises a lot of people, especially VCs, is how big the direct mail industry is,” he says.
Something else surprising about direct mail? It’s primed for disruption. As Kavanagh points out, “The industry really hasn’t seen any innovation in about 25 years.”
Direct Mail: Alive, Healthy, and Growing It’s easy to understand why direct mail has been taken for granted by entrepreneurs. Those in the industry call it direct mail, but consumers call it something else: junk mail. Furthermore, most MarTech startups seem to have their eyes set on the digital frontier.
And yet, direct mail beats digital ads in conversions — by a lot. Take a look at these marketing campaign response rates reported by ListGIANT:
- Direct mail: 6 percent
- Online display: 0.9 percent
- Social media: 0.6 percent
- Paid search: 0.5 percent
- Email: 0.45 percent
So how do we reconcile the perception that direct mail is dying with the reality that it outperforms digital ads? Kavanagh points to one thing. “The key with all marketing is relevancy. Is this piece of direct mail talking to me about something I’m interested in?”
Direct Mail + Online Data = Golden Opportunity Relevancy is where direct mail succeeds spectacularly — and fails spectacularly. When relevant, direct mail is stickier than any other form of marketing.
“It goes on the fridge,” Kavanagh says. “Or it’s a catalog that lies around the house for a while.” This also makes direct mail more personal. ListGIANT points out that nearly 70 percent of consumers say receiving mail is a more personal experience than using the internet.
So what’s direct mail’s problem? It’s traditionally been terrible at arriving the moment a consumer is ready to buy. Digital ads have the opposite problem: They’re fatiguing because they’re always there, whether consumers are ready to buy or not.
For all the data marketers have to work with (e.g., demographics, past purchase behavior), positioning online ads is still more of a shotgun blast than a science.
“Consumers are more irritated with digital ads and spam emails than they are with direct mail today,” Kavanagh says. “Digital ads are not great at converting. They’re easy to tune out. There are so many digital ads out there — and tools to avoid them.”
Less Marketing Chaos, More Marketing Synergy It’s clear that digital ads and direct mail have their own unique advantages and disadvantages. What’s historically been less clear is how marketers can leverage the benefits of each while eliminating their drawbacks. This is NaviStone’s M.O.
“We’re sending direct mail on behalf of the business to people who visited the business website,” Kavanagh says. “That means prospective buyers get the personal experience of direct mail with the precise arrival of a digital ad.”
The level of targeting goes deeper than just website hits, too. NaviStone’s technology analyzes four key pieces of visitor behavior to decide if and when to send direct mail:
- Level of interest
- Quality of engagement with the website
- Likelihood to respond to direct mail
- How direct mail should be personalized
When the timing is right, NaviStone secures privacy-compliant names and addresses for use in direct marketing campaigns. Personalized postcards can go out in as quickly 24 to 48 hours after a website visit.
What Kavanagh finds especially exciting about this is how much potential lies in harmonizing disparate ad channels, which too often get used in either/or situations.
“Ad channels are still very siloed. Email and browser and social, they’re all often operating independently,” Kavanagh explains. “That creates almost competing channels. There’s an opportunity to blend these ad channels together and leverage them synergistically.”
Why Cincinnati, Not the Coasts, is the Perfect Home for NaviStone Since NaviStone’s beginning, one of the company’s secret weapons has been geography. Headquartered in Over-the-Rhine, NaviStone has benefitted from the city’s legacy of successful B2C and CPG companies. “In Cincy, people are more aware of what’s happening in old world marketing,” Kavanagh says.
Indeed, many Cincinnati investors see the same opportunity as NaviStone. In fact, Queen City Angels ultimately led the company’s seed round. That’s not surprising given the high concentration of Fortune 500 companies that continue to anchor Cincy’s B2C and CPG industries.
Another advantage of starting up in Cincinnati? The availability of skilled talent compared to the coasts. “I’ve built tech companies on the coast, and I will tell you it is absolutely easier to attract good people in Cincy than on the coasts. There’s so much less competition,” Kavanagh says.
And he’s optimistic that Cincinnati’s homegrown startups are close to rapidly evolving the local tech ecosystem. A few more big exits — on the scale of Columbus-based CoverMyMeds, which sold to McKesson for $1.3 billion in 2017 — could bring more capital into the environment and lead to successful spinoff companies.
“We need the successes first to create the spinoffs and create that demand. I think you need the successes first, and then you get VCs,” Kavanagh says.
About Matt Hunckler
Matt Hunckler is the CEO of Powderkeg and host of the Igniting Startups podcast. Powderkeg is a community as a service platform for entrepreneurs, investors, and other professionals based in tech hubs between the coasts. This network helps members connect and find the resources they need to scale their companies outside of Silicon Valley. Powderkeg’s members have collectively raised more than $575 million in funding. Learn more at Powderkeg.com.
