First of all, let’s concretize what is meant and what branches form that thing, which has been above-mentioned as “industry”. Business which has more or less close relation to the term “DM” can be divided into several branches. I’d like to attract your attention to the fact that this division given is rather conventional since different services are often rendered by one company (for example, a typical situation when a call center fulfils making, packing and sending paper letters of its client “among other things”). So, nowadays we can separate the following segments in the Ukrainian DM industry:

1. «Address direct mail» – i.e. delivery services of addressed advertising materials – letters, parcels. I’d like to underline that they are services of delivery, not of personalization and packing of letters which pertain to the segment of «production of addressed parcels».

2. «No-address direct mail» – services connected with delivery of no-addressed advertising materials – leaflets, catalogs – as a rule to “all indiscriminately” – i.e. to all offices (for B2B) or to all apartments, houses (for B2C) in the given house or residential area. 

3. «Insert» – services of insertion of advertising materials into periodicals, bills of telecommunication companies (sometimes, into bills for communal services).

4. «Production of addressed parcels» - production of letters and post packages with advertising content (“letter-shop” – in the terminology of our European colleagues) and parcels with goods, which are expected to be paid by a consumer (traditionally such industrial warehouse complexes are called “fulfillment”).

5. «Services of outsourcing call-centers or contact-centers» – as a rule, these are services of receiving orders, giving consultations to consumers, actualization of address databases, active sales. More seldom the matter can concern creation of a “separate” outsourcing communication centre for consumers of a company-customer.

6. «Market of address databases» – this segment should be formed by companies which specialize in creating, selling and/or renting address databases, “list-brokers” who fulfill intermediary function between owners of DB and interested buyers. De facto in Ukraine this segment is in the egg.

7. «Creative and consulting works» – here I’d like to place the services of “devising” those things which are later sent by mail and which are voiced by the call-center operators. This segment also includes consulting services concerning marketing with use of direct communications (such services border with consultancy concerning client-oriented strategies, CRM, strategic marketing) or work with the State post operator “Ukrpochta”.

8. «Distance selling» – nowadays this segment  is a locomotive of Ukrainian DM and can be conventionally divided into selling through catalogs (they are sent by post or inserted into periodicals) TV-shops and Internet trading.
So, let’s consider each segment in details:

Address direct mail. The market volume in 2006 was about 149 mln. of conventional post packages (i.e. letters, parcels of different weight) with the average sending cost of about $0,19 (with the VAT). The growth compared to 2005 made up about 7,4%. The market volume in money terms made up about $28,35 mln., the growth compared to 2005 – about 18%. An increased growth rate in monetary equivalent is explained by the rise in tariff rates of the State post operator “Ukrpochta” at the end of 2005. “Ukrpochta” is a leading operator of this service, the market share of the national post operator makes up about 85% of all delivered address direct mail (i.е. about 126 mln. of conventional post packages).

In 2006 by means of the State post operator «Ukrpochta» there were delivered about 358 mln. of conventional post packages of correspondence. Among them there were about 53 mln. of registered correspondence, and about 250 mln. of post packages were the correspondence of legal entities. Address direct mail delivered via “Ukrpochta” correspondingly makes up about 50% of all correspondence of legal entities.

It’s a paradox, but “Ukrpochta” is not interested in development of address direct mail as a service since all current tariff rates (according to financiers of the post) do not give an opportunity to receive profits. Tariff rates for postal services in Ukraine are regulated by the state and artificially restrained at a low level owing to populism typical for Ukraine. As a result the necessary infrastructure does not develop (and even reduces – in particular, in the hinterland), and vulnerable population groups, for which the tariff rates are artificially lowered, lose a possibility to use postal services.

Dispatch of correspondence with high weight is a really profitable operation for “Ukrpochta”. As a rule, senders of such correspondence are the companies of distance selling (dispatch of catalogs), and recently a lot of attention of “Ukrpochta” has been paid to these companies.

15% of address direct mail is fulfilled by different courier and advertising services. Their main advantage is higher quality and good supply traffic at higher tariff rates than those of the post. It’s important to note that courier services perform delivery mostly within large megacities (because it has a considerably lower prime cost than delivery all over the territory of Ukraine).

The segment of address direct mail will extensively grow by 7-15% per year within the next few (in the first place, at the expense of activation of distance trading companies). In the long-term outlook if we want this branch to make a qualitative spurt, we’ll need a serious structural reform of the national post operator.

No-address direct mail. In 2006 in Ukraine there were delivered about 3,741 bln. of conventional units of no-address mail ($ 35,542 bln.). The growth compared to the previous year made up about 35%. A considerable share of no-address direct mail is performed “in-house” by the companies-customers (up to 40%, and delivery of advertising-information newspapers (70-80%) is performed by means of courier services of publishing houses). In this segment there is no an obvious leader – the State post operator «Ukrpochta» retains not more than 55% of the market, in spite of its infrastructure and high profitability of this service (tariff rates for these services are regulated by “Ukrpochta” itself). It can be explained by extremely irregular quality of this service (even within the limits of one population center) and by hidden additional costs. The other large players of no-address direct mail are the following companies: «Ukrainskiy kurier», «Profi», «Sonata», 059.

In 2006 the customers’ deliveries in the segment «Political parties and public organizations» (growth of 88,8%, besides, 70% of aggregate circulation was delivered in the first quarter), «Financial and insurance sector» (growth of 70%), telecoms operators (growth of more than 46%) expanded at the fastest rate.

№	Customer groups	Volume of no-address delivery, thousand of conv. units		Growth
		2005 г.	2006 г.
1	Advertising – information newspaper	1 280 000	1 600 000	25,16%
2	Retail	527 000	700 000	32,83%
3	Enterprises of service industry	499 200	590 000	18,19%
4	Political parties and public organizations	384 000	725 000	88,80%
5	Telecoms operators	37 700	55 200	46,42%
6	Financial and insurance sector	31 824	54 000	69,68%
7	Other producers	14 328	17 100	19,35%
8	Total	2 774 052	3 741 300	34,87%

At the same time the expectations of growth in the “Retail” segment were not justified because the large international operators hadn’t entered the Ukrainian market, except for the segments «building materials», «drug-stores, cosmetics and perfumery, household chemical goods», which increased the volume of no-address advertising twice or thrice.

In 2006 there was a clear tendency of movement of large Kiev operators of no-address delivery to regions. Thus, in the segment «advertising-information newspapers» the aggregate circulation outside the cities-“millionaires” increased more than twice (growth of 127%), «parties and public organizations» – growth of 150%, financial and insurance companies – 98%.

The segment of no-address direct mail is most likely to expand at a fast rate (25% per year).

Insert. This service didn’t have a considerable growth in 2006. The aggregate cost made up about $8 mln. (about 70 mln. of conv. units – the growth of about 10%, which is within the limits of statistical discrepancy). About 70-80% of the given quantity is the insert into printed word media. As before there is a chaotic and spontaneous price formation in the market, and it probably frightens away the advertisers. Almost all publishing houses declare the insert as a service. At the same time foreign customers of this service say that it is almost impossible to place the insert of a certain subject with an aggregate circulation of 1-1,5 mln. in Ukrainian periodicals – there is no enough printed word media.

Indirectly the insert market development is impeded by “Ukrpochta” which charges a fee from publishing houses for each additional insert placed in the periodical (“Ukrpochta” motivates it by increased costs for transportation of periodicals with inserts – but, it seems to me that it is inadequately overcharged). Besides, low technological effectiveness of this operation in the printing houses manufacturing magazines influences the cost of the insert.

“Parallel” delivery – i.e. insertion of different bills and address direct mail – makes up about 20-30% of total quantity of the insert.
In the future we may expect the structuring of this market and emergence of new offers of the insert into price-lists of buying agencies. The growth of this segment directly depends on the development of the market of printed word media (to be more exact, on its “magazine” segment).

Production of addressed parcels. The aggregate cost if manufacturing mailing packages in 2006 made up about $35 mln. (149 mln. of pieces). About 53 mln. of parcels sent through “Ukrpochta” were produced by senders “in-house” without attracting a specialized subcontractor (i.е. about 35% of aggregate circulation). It affects the correctness of address indication, efficiency of cooperation with “Ukrpochta” and, as a result, slowing down of correspondence traffic and increase of returns. The largest letter-shops are «Omni service», «Multipost», «OS-Direct». These companies retain about 17% of market in aggregate.

There are no full-fledged outsourcing fulfillment productions in Ukraine («Omni service» Company, which services international catalog companies «Readers Digest» and «International Master Publishing», has the most developed technological base). «Family Leisure Club» (Kharkov) is the only company having a real technological base which allows working with a large product range, but this company hasn’t been noticed in the outsourcing of its capacities yet.

The future of Ukrainian producers of mailing packages directly depends on the activity of distance selling companies. Here it is possible to expect doubled or tripled growth. In other segments there will be an extensive growth within the limits of 7-15% per year and redistribution of production of mailing packages from “in-house” to outsourcing production.

Call-centers. 2006 was marked by setting up several new companies. Nowadays in Ukraine there are about 15 contact centers which are organized professionally enough. The aggregate sales volume of call-centers in 2006 was assessed within the limits of $5 mln. (without cost of services of telephone companies). There is a tendency to specialization of call-centers for servicing customers from certain segments. The most actively growing segment of customers is «Financial and insurance sector» which range of services for physical bodies is growing at exponential rates.

Market of address databases. The volume of databases, sold or rented in 2006, is assessed at about $2 mln. During the last year none of the companies specializing in gathering and actualizing address information were set up. As before, the sources of new address data in the B2B segment are the city telephone directory or business reference book, as well as databases «picked up» in the state structures or some companies. In the B2C segment the DB sources are mostly advertising campaigns, in the course of which the consumers are registered in some way, more seldom there is a DB of buyers of some goods.

The factor impeding the development of professional activities in the sphere of address BD is the absence of regulatory acts which are able to protect the rights of the database owner. The absence of law on personal data protection creates difficulties both for consumers, whose data are often used without any control, and for handlers (processors) in case of dishonest attitude of physical bodies – owners of personal data.

Development of the address DB market fully depends on adoption of regulatory acts and appearance of methods which allow protecting of intellectual rights of DB owners.

Creative and consulting works. Unfortunately, intellectual component of Ukrainian direct marketing does not develop quickly enough. The clients still do not willingly pay for intellectual work. When designing mailing packages the clients would better include the cost of design, writing of texts and preparing of communicating staff into the manufacturing cost, at worst they “reinvent the wheel” themselves. Ukrainian offices of international advertising agencies, which have worldwide recognition as developers of DM projects in Ukraine, very often “go away” to BTL and PR-tools. De facto the business-consultants for client-oriented business strategies and CRM implementation take part in the development of direct communications (since any CRM strategy imply building and management of mass direct communications). Besides, the business-consultants, as a rule, work directly with top-management of the companies and it makes taking necessary decisions much easier.

As a rule, foreign companies entering the Ukrainian market, in particular distance selling companies, use consultations and advice concerning work with “Ukrpochta”. The aggregate cost of creative consulting services in the sphere of DM made up about $4,5-5 mln. In the long view this segment will be enlarged and “crystallized” at the expense of emergence of recognized domestic authorities in the sphere of DM.

Distance selling. The aggregate cost of goods distantly sold in 2006 made up about $152,75 mln. (the growth compared to 2005 is about 36%). At that, the selling through catalogs by means of the post made up about $74,33 mln. (the growth of 64%). Such growth became possible due to an active entrance of international companies into the Ukrainian market (Neckerman, Yves Roche, International Master Publishing) and the development of «Family Leisure Club» Company, which got a reliable owner-investor in the person of “Bertelsman Group” several years ago..

Sales through Internet made up about $60 mln. in the aggregate volume of distance sales. Their high share is explained by the high cost of goods marketed (first of all, audio-video equipment and household appliances). These sales were referred to the distance selling market according to the “formal attributes” – availability of a virtual catalog, but in fact these products are bought out by a “distance-selling” company from the importer’s warehouse for a special concrete client and are delivered to the buyer without participation of an intermediary in the form of postal services.

Sales through TV-shops in 2006 made up about $18,4 mln. (the growth of about 35%). The leaders of this segment are the following companies: «Studio Moderna» and «Vneshposyltorg».

In the future it is expected a considerable market extension (about 30% per year) at the expense of business growth of existing companies and emergence of new operators.

The aggregate calculated volume of DM market in Ukraine in 2006 made up about $117 млн. – and it is inadequately small volume for such a big country as Ukraine. For example, the quantity of address and no-address direct mail per capita in some European countries exceeds our figures almost ten times.

Well, it gives us grounds to expect an active development of DM markets in the years to come. And we’ll do our best to stimulate these processes.

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