Direct Mail as an engine for postal growth

”Direct Mail as an engine for postal growth” Bern, 22 October 2003

Direct Mail or Direct Marketing?

DIRECT MARKETING – KEY TO EXTRACT LIFETIME VALUE OF COSTUMER… Awareness Marketing tool – Broadcast (TV, radio) – Print (press, magazine) – Display (billboard) – Direct Marketing (mail, phone, e-mail, …) – Sponsoring (sports, cultural event) – Promotion (in-store rebates, coupons) Source: Interviews; Mc. Kinsey analysis Image credibility Experience Loyalty repurchase

… WHICH FITS IN THE TREND OF INCREASED SOPHISTICATION IN MARKETING • Production era • • WW I "A good • product will sell itself!" WW II Sales era "Make them • buy!" • Today Marketing era "The • customer is king. Find a need and fill it!" Relationship era "Know thy customer!" Direct Marketing key in developing relationship Source: Interviews; Mc. Kinsey analysis

DIRECT MARKETING SUFFERS FROM POOR AWARENESS AND IMAGE … Unpopular • "Direct Marketing is not perceived as sexy in the advertising world. You want to tell your friends you made that spot on TV. " • Marketing Manager in a FMCG Company … Difficult … Unknown • "You have the 4 P's of Marketing and the 4 T's of Direct Marketing: test, test and test!" • Marketing manager in a publishing company • "Everything I learnt about Direct Marketing was on the field. I didn't have a single class on that topic at university. " • Marketing manager in a non-profit association 5 Source: Interviews, Mc. Kinsey

1. The Importance of Direct Marketing to CTT

BUSINESS EVOLUTION TRAFFIC AGR (average growth rate) in the last 10 years : 19%

BUSINESS EVOLUTION REVENUE AGR (average growth rate) in the last 10 years: 16%

DIRECT MARKETING MARKET SHARE IN THE LETTERPOST BUSINESS TRAFFIC REVENUE

MARKET SEGMENTATION TRAFFIC REVENUE

SEGMENTATION BY PRODUCT LINE REVENUE TRAFFIC Addressed Products 38% Unaddressed Products 19% Unaddressed Products 62% Addressed Products 81%

2. Direct Marketing and the Advertising Market

WE’RE ACTING IN THE ADVERTISING MARKET COMPETITION: TV, Outdoor, Radio e Press WWW, SMS, E-mail MKT TARGET: Clients Advertising Agencies Lettershop’s, Mailhouses

National Advertising Market Allocation of Portuguese Advertising Expenditure -Gross Values-

3. Direct Marketing and the Role of Postal Operators

“Direct Marketing. . . Main handspike for supported growth of the volumes of postal operator and a natural area for the positioning of other operators, in a scene of liberalization of the sector!” Mckinsey, May 2002

CHANGES IN THE POSTAL BUSINESS • Slowing down of the GNP growth • Liberalisation/Deregulation/Postal Market Regulation (new legal and regulatory framework) • More aggressive competition • Globalisation • New Technologies and the New information Society • More demanding customers

CHALLENGES FOR POSTAL OPERATORS IN DIRECT MARKETING Growing role of alternative Direct Marketing media – Growing share of alternative media, even though substitution probably limited in the medium-term – Possible changes and evolution favoring e-marketing in the long term – Evolution of marketing towards "multi-touch" approach requiring new capabilities

SIZE OF DM OPPORTUNITY IN PORTUGAL. . . WITH CHALLENGING MARKET CONDITIONS Favorable to DM development • • • + – Small country-easy mail distribution + + – Lack of selectivity by mass media (TV; press; radio) – TV accounts for 55% of total advertising (35% in other countries) Unfavorable to DM development • • • - – TV advertising is underpriced - – Proliferation of consumer and professional press titles - – Significant regulatory constrains to database marketing - – Immature data market - – Unsophisticated marketing environment 20

ALTERNATIVE MEDIA GROWING FASTER THAN DIRECT MAIL • 100% • = 25. 4 3 • Internet • 32. 2 5 • 42. 1 5 • Telemarket ing 30 28 14 • Direct Mail 8 • 1995 • 1997 • 1999 Percent; EUR Billions Source: FEDMA CAGR 1995 -99 Percent 21

4. The new positioning of CTT (Value Chain) and the future strategy

Goal: To promote the growth of Direct Marketing in Portugal • To increase the Direct Marketing participation in the Advertising Market • To increase the contribution of Direct Marketing to the Postal Business • To offer complete and integrated service solutions

DELIVERY OF DIRECT MAIL IS ESPECIALLY ATTRACTIVE FOR ATTACKERS Characteristics of Direct Mail – Currently few large clients concentrating most of the volume (large corporations, Direct Marketing agencies) – Large volume batches – High standardization / automation possible – Lower quality requirements • Speed less important than accuracy in delivery • Higher tolerance for loss in certain segments – Wider value chain compared to regular mail Source: Mc. Kinsey analysis Attractiveness for attackers – High volumes – High cost reduction achievable in collection, sorting and distribution – Limited local sales force needed, with possibility to leverage relationship with multinationals in home country – Opportunity to crosssell value-added services 24

SUCCEEDING IN DIRECT MARKETING REQUIRES AN INTEGRATED APPROACH Product offering – Focus initial efforts on growing DM volumes by making available a comprehensive database as well as the necessary skills to manage information – Progressively expand scope of activity in the DM value chain, reinforcing its ability to provide turnkey solutions and further absorving margins – Avoid competing in content creation, as advertising agencies should be understood as core DM clients/partners 25

SUCCEEDING IN DIRECT MARKETING REQUIRES AN INTEGRATED APPROACH – Select target industry segments – Raise awareness/ education levels to stimulate usage – Lower trial hurdle via targeted marketing incentives – Develop tailored approach for small and medium businesses Customer management 26

and. . . expand CTT presence through the Direct Marketing value chain Traditional sector 1 st Data bases • LNE • DB Addresses’ changes • Other DB 2 nd Creation 3 rd Production 4 th Delivery 5 th Handling Of replies CTT: • CTT • Cesa • Post • Contact Center contacto • Cesa • Postcenter Strategic intervention area