Short report on research «Capacity of Direct Marketing market in Ukraine in 2005»

Special survey was conducted by OS-Direct Company and realized with the support of several partners and research companies (Neckermann Ukraine, Studio Moderna, Tanit). The subject of interest was the Ukrainian DM market, its quantitative (cost estimation) measurement.

Subject of research. Research was directed to quantitative (cost) measurement of the direct - marketing services market in Ukraine and, in particular, volume of the market address and non address direct - mail and the market of insert, address DB, manufacturing of mailing packages, consulting and advertising creative services, and also the adjacent markets, in particular, the market of distance trade. The glossary of research and the general description of methodology are given at the end of this report.

As a result of research the conclusion was drawn, that the total volume of the direct – marketing services market in Ukraine in 2005 has made up $97,7 million. Comments on some DM branches are indicated below.

Table 1. Volume of the DM market of in some branches:

№	Segment	Cost in $, mln.	Volume in nom. units, mln.	Cost per one unit, $
1	Non address Direct marketing. Including 14 mln. of nominal units ($0,07 mln.) – distribution on crossroads and in places of mass congestion of people. Including settlement cost of advertising newspapers delivery executed “in-house” by express services at editions of such newspapers.	25	2 774	0,009
2	Address direct mail	24	139	0,1727
3	Insert	7,4	64,5	0,1147
4	Manufacturing of materials for address direct mail, including the materials produced by customers “in-house”.	33,3	139	0,24
5	Call-center services, including cost of “In-house” works (about $1,4 mln.), without cost of telephony services	3,3
6	Address DB market	2
7	Creative, consulting, project management	2,7
	Total	97,7

Cost of manufacturing of non address direct mail materials, insert, return mailing packages, distributed during the BTL- campaigns (about $100 mln.) is not included in the calculation.

Comments for some segments:
Capacity of non address direct mail market made up 2 774 mln. of nominal units. It is necessary to note that the great part of deliveries is made by of companies-customers (hereafter «in-house» - 37,8% of cumulative circulation). The basic segments of customers: free-of-charge advertising - information newspapers (about 46 % of branch), retail (19 %), political parties (14 %), sphere of services (18 %).

In 2006 all main segments of non address direct mail will actively increase, but in long-term prospect the greatest and most stable increase is expected in segment of retail trade.

Capacity of address direct mail market in Ukraine in 2005 made up 139 mln. of nominal packages. At the same time B2B communications make up about 58 % of total capacity (78,5 mln. of nominal packages). The main market characteristic is the fact that about 39 % of dispatched packages are made in handicraft way by the companies-customers ("In-house" - about 51 mln. of nominal units - 37 % of total quantity, 34 % of address direct mail cumulative cost). The rest of quantity is made by the specialized companies, but in view of low manufacturability of production it has high cost of manufacture.

Among of all mailing packages made by customers of address direct mail "In-house" (51 mln. nominal packages) about 89 % are delivered by the National post operator “Ukrpochta” (45 mln. of nominal packages), by other express services - about 7 %, and the rest is independent. Among the mailing packages made by contractors (88 mln. of nominal packages) through the National post operator “Ukrpochta” is delivered about 86 % (75 mln. of nominal units), the rest is delivered through the alternative postal-express services. Address direct mail makes up about 32,6 % of all written correspondence capacity sent through the National post operator “Ukrpochta”. It is important to note, that this quantity does not include dispatched accounts (in particular, operators of mobile communication) - about 20 mln. packages per year which also can have advertising-marketing component.

Table 2. Division by kinds of customers address direct mail activity and communications characteristic (mln. of nominal packages):

Kind of activity	B2B	B2C	Total	%
Enterprises of public services	44 600	10 000	54 600	39,3
Companies of financial and insurance sector	13 250	2 500	15 750	11,3
Political parties and public organizations	2 000	4120	6 120	4,4
Retail	10 000	3 400	13 400	9,6
FMCG producers and other producers	2 000	13 000	15 000	10,8
Subscribing agencies	2 500		2 500	1,8
Educational establishments	2 730		2 730	2,0
Companies of distance trade	1 444	27 439	28 883	20,8
Total	78 524	60 459	138 983	100,0

The average annual growth of the direct mail market for the nearest 3 years is expected at the level of 22 %. The structure of the address dispatch market will change in accordance with active development of the distance trade industry and also more active use of address direct mail by enterprises of services sphere, financial sector, operators of communication. It will be promoted by essential media - inflation of traditional advertising channels. For the same reason the main part of increase will be concentrated in B2C-segment. Possible strengthening of restrictions on advertising of tobacco products and alcoholic drinks in traditional advertising channels also will influence to structure change in favour of B2C.

Also essential structurization and increasing of players of the address direct mail market in 2006 is expected according to establishment of discounts scales for post tariffs by the National post operator “Ukrpochta”.

In opinion of the interrogated experts, among 380 mln. of nominal units of the simple mail correspondence sent by means of National post operator “Ukrpochta” in 2005 there are about 114 mln. - the mail correspondence of physical bodies and 266 mln. - legal entities (at the same time about 56 % of the simple mail correspondence of legal entities were sent according to the contract with “Ukrpochta”). Address direct mail makes about 65 % of the legal entities correspondence sent without the contract (independently), and about 30 % of the legal entities correspondence sent under the contract (In total address direct mail in volume of simple mail correspondence of National post operator “Ukrpochta” is estimated in 120 mln. nominal units). The advertising-information component is often present at the simple mail correspondence of legal entities dispatched with other purposes (for example, in billings - about 13 % of the correspondence sent by legal entities under the contract).

Capacity of insert market. Obviously, that this service in Ukraine has not got mass character (all 64,5 mln. of nominal units, $7,4 mln.) insert into printed mass-media makes about 65 %, 31 % - insert into various sorts of billings, 4 % - parallel dispatch together with address direct mail. The branch is characterized by very high specific cost of insertion ($0,115 for copy). During the nearest 3 years it is possible to expect increase of insert into printed mass-media (on average 35 % per year), simultaneously with depreciation of insertion. Also essential increase of insert volume in accounts and other forms of joint "cross" projects are possible.

Manufacturing of mailing packages for address direct mail. Cumulative cost of mailing packages manufacture for address direct mail is calculated through average cost of mailing packages manufacture.

Capacity of distance trade market. Distance trade market capacity in Ukraine in 2005 made up about $110 mln. At the same time trade by catalogues through the Post office made up about 40 %, quantity of the goods sold through the Internet – about 53 %, TV shops – about 7 %. The high share of the Internet - sales is explained by high cost of the goods sold through the Internet (first of all audio-video and home appliances). These sales are attributed to the distance trade market "on the basis of formal attribute" - presence of the virtual catalogue, but actually production is redeemed by "distance trading" company from the importer warehouse especially for the concrete client and delivered to the buyer without intermediary participation in the form of post service.

Post charges on the goods sending to consumers in 2005 made up about $8 mln.
In books market structure ($180 mln.) as the most widespread goods for distance trade, sales through the Internet made up about 3,9 %, sale through the catalogue made up about 11 %.
In opinion of experts, among 11 million of parcels sent by means of National post operator “Ukrpochta” in 2005 there were about 6,3 million parcels of distance trade.

In 2006 the essential increase of sales share by the catalogue owing to book production, clothes, and perfumery-cosmetic production is expected. This increase will be connected with increase of local companies’ activity and entrance of the Russian and European companies into the Ukrainian market, in particular, under the scheme of post consignment.

Research glossary.Under non address direct mail (hereafter "NDM”) within the research services on mass delivery of leaflets and other not personalized (non address) materials (booklets, catalogues, newspapers, etc.) to the mail boxes of apartment houses and offices is understood. It is meant, that such delivery is made in all successively boxes (offices) which are being in this zone of delivery (for example, in the given house). Distribution of materials on crossroads and in places of mass congestion of people is attributed to this kind of services This kind does not include services/works on delivery of subscription editions to subscribers, accounts of communication operators, power supply companies, housing and communal services.

Under address direct mail (hereafter "ADM”) complex of works on delivery of the personalized advertising materials (letter, post packages, parcel) to specially chosen addressees by means of post or express services is meant. This kind does not include the services/works on delivery of subscription editions to subscribers (it is considered as separate service).

Under "Insert" the services on delivery of advertising materials together with press, various sort of accounts and address direct mail are meant.

Research methodology.

As similar researches were not carried out earlier in Ukraine, the methodology of research was defined, tested and corrected during the research.

It is important to note, that calculation of market capacity includes volumes of services which are carried out by customers independently.

All calculations within this research are resulted in view of taxes. It is supposed, that the error makes +/-10 %. The received results are rechecked in accordance with again acting information.

Organizers will be grateful to all interested parties for possible remarks and the additional information.
Detail information about methodology of research you can find organizing committee of Days of DM ‘2006. tel.: +380 44 490 90 88, org@dmit.com.ua.

© OS-Direct, 2006

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