Instatement Channel - at an Inflection Point

Oct. 17, 2005

By: Greg Ovalle
EVP Sales and Marketing
V12 Group
                               
Media and advertising channels mature and change over time and follow trajectories dictated by market efficiencies and economics. Successful channels prove themselves over time and morph into a standardized and established mainstream medium. Alternatively, niche advertising channels are relegated to JV status or sometimes RIP status, typically due to economic reasons - either their audiences dwindle or they become marginalized by new alternative mediums. Rarely is there an opportunity to examine a channel that is on the verge of migrating from a niche channel to a mainstream channel as there is in the instatement billing instatement advertising space.

First of all, we need to define instatement advertising. Advertisers contract to have their advertisements and offers ride along in monthly bills mailed directly to customers of credit card, gas and oil, retail and utility companies. Benefits for advertisers are plentiful. Statement issuers are varied across geography and income levels with unique file demographics and sizes. Distilled down to numbers, many statement issuers essentially own channels that can provide direct reach to their customers with some billing files containing in excess of 40+ million users. For advertisers, the costs of utilizing the instatement channel can be extremely attractive, especially when compared to the costs of alternative customer acquisition channels such as direct mail. Prices for instatement advertising can be anywhere from 5-15 times less expensive than direct mail because postage and the recipient list are bundled into the fee paid to an issuer for the right to enclose advertising. Since there are stringent limitations on postage weights, the number of offers included within a single envelope is limited, making an advertiser's offer prominent within the envelope. This exclusivity is very different than common bundled shared mail pack offers that often hit the trash bin without ever being opened. Lastly, instatements are opened 100% of the time because they share an envelope with important billing information that needs to be responded to in a timely manner. Not many other mediums possess this unique distinction.

Before we talk about the transformational changes taking place within the instatement space, we first have to look at the history of instatements. Instatement advertisements were developed in the 1960's by companies such as Columbia House and Rand Corporation. While at Columbia House, Ben Giordano, a veteran direct marketing executive, had an innovative idea to approach a variety of credit card issuers with a very simple and compelling offer. Giordano secured the rights to insert his offers with a wide variety of impulse and functional products at multiple price points within a bill issuer's monthly statement envelope. Giordano's proposition to the issuers was straightforward: he would pay a fee to the credit card issuers for the opportunity to allow his offers to ride along in issuers' monthly statements. In addition to these fees, the card issuer would have the ability to generate from the purchase of these products additional transactions and finance fees. This simple model worked for all parties: Giordano got to sell products and reach customers by using an untapped and relatively inexpensive channel. The banks and oil companies generated revenue for bills they were sending out anyway, plus they were able to generate additional revenue from finance charges and shares of product sales revenues that Giordano wisely mixed into the equation. As with every successful business, Giordano's model was emulated, and more and more product sellers or product syndicators began using this new channel.

Since its inception, the instatement channel matured into a relatively segregated eco-system that has grown to include two subsets: hundreds of statement issuers and a cadre of product syndicators who have successfully mined this channel to sell products. Since selling product was the primary goal of the channel, only issuers who could provide the ability for these immediate transactions where targeted. This “immediate gratification sales” focus meant many other potential card issuers and statement sources, such as telecom, utilities, motor acceptance and mortgage issuers, were simply not included into the instatement ecosystem, and the size of the channel remained static. For over 60 years, the instatement channel continued along in this format, serving its members well, but remaining unknown as a viable channel to most B2C advertisers or above the line agencies and media buying entities. However, over time, several savvy direct advertisers began to discover the value and effectiveness of the channel. These advertisers include Geico with insurance, Bose with higher end audio products and Synapse, a division of TimeWarner that has quietly leveraged the instatement channel as their primary stream for customer acquisitions for the last ten plus years. "Synapse has partnered with a key player in the instatement space and has acquired 10s of millions of new magazine subscribers in the past year by efficiently using this channel"

So what's next for the instatement channel? Since more traditional advertisers are now adopting the channel, the number of new issuers has increased, since “immediate sales gratification” is no longer the requisite issuer criteria to be effective in the channel. Over time, several established instatement brokerage players have collected detailed demographic and historical response data in the quest to best match an advertiser's offer with an issuer's demographic. New advertisers are finding the instatement channel's ability to instigate multiple calls to action (drive to a web site, respond via the insert as direct mail or call a toll free response number) attractive, since all these actions provide a closed loop system to capture response rates to measure, test and refine. However, what is on the horizon is most exciting of all. Recent technological advancements will soon make it possible for the instatement channel to segment by individual customer, providing a granular level of equal to direct mail while retaining significant cost advantages. Currently, customers are segmented based upon the characteristics of an entire bill issuer's demographic. Imagine this scenario: an automotive advertiser is rolling out a campaign to promote several new models, each targeted at a different demographic and buyer income level. Instead of every customer receiving the same offer, the recent college graduate will receive the special offer regarding the new entry level vehicle with an invite to test drive at a dealer located in his neighborhood, while the head of the household with four kids receives the offer for the new SUV or mini-van, and the business executive receives the luxury brand offer.

In summary, the instatement channel has proven itself as a scalable and unique advertising medium that continues to attract growing numbers of advertisers and issuers. The channel is not yet mainstream, but as segmenting and targeting abilities of the channel become even more refined, you may soon see instatement advertising become a standardized channel no less broad in scope and reach than print, direct mail, internet, television or magazine advertising.