Well over one-third of survey respondents within the top 1,000 UK companies currently outsource their entire direct marketing campaign management process (except for creative concept and design), according to research from data management and document services specialists CDMS and Marketing UK.
Interestingly, the 38.7% of companies outsourcing the whole process is forecast to grow even more. By 2007, the figure is expected to rise by 10 percentage points, to almost half of the businesses surveyed (48.6%).
The research canvassed the opinions of senior marketers within the Banking, Utility, Insurance, Leisure & Travel and Retail industries in order to quantify the penetration of campaign management outsourcing by industry, and to reveal the various motivating factors that drive companies to outsource.
Successive reports from Bellwether point to a long-term downturn in brand advertising budgets as responsive and accountable marketing methods gain ground. As a result, direct marketing expenditure and volumes have more than doubled in size over the past decade. Business leaders are increasingly demanding tangible return on investment from marketing campaigns and the pressure is mounting to squeeze maximum value from increasingly complex campaigns.
Every aspect
In recent years UK companies have tended to outsource data processing services to third parties. Now, in this age of multi-stage, multi-channel campaigns, effective campaign management must underpin the entire marketing effort. It is now widely accepted that cutting-edge technology has to be combined with human insight, and, since many of the skills involved in extracting commercially productive insights from campaign processing are rare, organisations have become much more open to outsourcing every aspect of campaign management except the creative concept
From database hosting, segmentation and analysis, web-based counts and selections, and campaign processing, entire process outsourcing is now becoming widespread, whereas five years ago it was almost unheard-of.
Benefits
Overall, marketers cited the following benefits of outsourcing, in descending order of importance:
- Highly skilled personnel:
The overwhelming conclusion of the research is that companies often do not have the skills and experience in-house to ensure that their technology investments deliver an appropriate level of return on investment. Feedback from clients who had previously brought database marketing in-house have found it difficult to recruit the calibre of staff required to extract actionable insights from campaign analysis. The fact is that the career path of an in-house analyst is likely to be limited (in a service department), while employment within bureaux will offer far greater opportunities to progress (involved with the company s core business), making them more attractive to top class employees. Maintaining in-house expertise covering all aspects of marketing is not always economically viable, and using a third party tends to inject vitality and a fresh perspective, where in-house staff can sometimes be so close to a product or service that marketing opportunities are overlooked. As database analytics has risen in prominence over the last few years and the complexity of queries has increased, it has become more difficult to automate querying and data processing. More so than ever, the expert human touch is required to deliver tangible, commercially productive insights back into the company.
- Access to the latest technology:
The marketing department has historically been at the bottom of the pile when it comes to large-scale technology investment, and with the technological advances that are occurring in the marketplace, many companies need to access cutting-edge technology through an outsourced provider. Others have struggled to keep campaign management in-house because the IT department was unable to provide the technical support for advanced campaign management systems. Despite the step-change in the power and accessibility of database technology, clients who have experimented with their own in-house systems have found that technology is no substitute for the experience that database marketing companies have developed over the years.
- Large technical and human resources:
Smaller companies, under pressure to keep core staff to a minimum, often prefer to partner with a specialist bureaux, enabling them to overcome the issue of having staff either under or over-employed during peaks and troughs in activity. Bringing in outsourced specialists also allows in-house marketers to dedicate their time to strategic development work or refined model development.
- Rapid campaign turnaround:
Outsourcing the campaign management process to an expert third party ensures there is no learning curve and that rapid campaign turnaround is possible.
- Compliance of opt-in/opt-out regulations:
As legislation governing consumer and business privacy has become more stringent and complex, clients are evidently turning to outsourced experts to ensure they do not unwittingly break the law. Compliance with opt-in and opt-out records was a relatively high priority for marketers, with a score of 64.7% falling just shy of the average. Flagging records with permission data is now more complex than ever, with legislation differing depending on the channel in question. Individuals who have either opted-in or opted-out must be flagged, and many companies are finding it a challenge to update records dynamically. There have been instances reported of companies who, anxious not to flout the Data Protection Act, have not only added permission flags on immediate receipt of opt-in/out requests, but physically suppressed them, making it highly confusing where there are multiple data feeds involved.
- No capital investment required:
The cost of setting up cutting-edge software solutions in-house will be prohibitive for all but the largest organisation, and, even here, some find that they cannot justify the cost of replacing or updating the solutions at a rate that allows them to retain a competitive edge. Many prefer to mitigate the risk of such investment, taking advantage of the technological muscle that bureau have both in terms of their own database technology and the partnerships that many have established to widen their service offering.
- Reduced headcount:
Reduced headcount, scalability and the fact that no capital investment is required through the outsource route are all factors falling below average in terms of benefit to the client.
- Scalability:
Scalability was seen as the least important factor, probably because campaign management IT solutions, whether in-house or outsource, are now more affordable and easily scaleable than in they have traditionally been, especially with the advent of fail-safe web server architecture.
The research also found that banks and retailers are the highest users of outsourced campaign management, with 44%-45% of them taking advantage of the services offered by third parties. Next came the Insurance and Travel & Leisure sectors. The lowest users of outsourced campaign management are utilities, at 31%.
Banks to benefit most
CDMS believes that banks have attracted expert staff whom they want to concentrate on strategy development, while the outsource provider handles hosting, campaign management, processing and data management, and possibly analysis/modelling support. Long recognised as heavy investors in CRM solutions, banks therefore stand to gain most benefit from outsourcing at least the campaign management back-office.
Banks have very high customer volumes. Campaigns vary between mass campaigns (for example conversions to e-banking, post-merger/acquisition cross-selling, or mortgage products) and highly targeted niche campaigns to small and particular segments. Therefore volume volatility in a climate of fierce competition and impending rigorous capital adequacy requirements - makes it increasingly untenable for banks to gear up for peak volume levels all year round.
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