Cashing in on coupons.
NEARLY EVERYONE AT SOME POINT HAS received envelopes full of coupons stuffed in their mailbox. And how about that batch that always falls from the Sunday newspaper? What many people may consider "junk mail" is actually a big business--direct marketing via coupons.
Now that marketing has become more science than sales, couponing is evolving into an effective means of enticing consumers to sample products. The effectiveness of coupons is what led Andrew Morrison to launch Nia Direct Inc., a New York City-based direct response marketing company, in 1988. Through its Nia's Coupons For Savings, Morrison selectively targets 1 million African American households twice a year with a variety of consumer offerings, from food products to health and beauty aids to life insurance and travel club memberships.
After eight years in the business, the 31-year-old Morrison's efforts are starting to pay off. His fledgling start-up has grown into a $2.5 million enterprise that has helped establish the viability of direct marketing to black consumers.
In 1995, direct marketing, which includes couponing, was responsible for over $1 trillion in sales, according to the Direct Marketing Association (DMA). Of that, marketing efforts directed to consumers accounted for $594.4 billion last year, and, will climb to $841.2 billion by the turn of the century.
For years, the little known but highly profitable direct (mail) response business has been dominated by majority-owned media companies, such as industry giants Cox Target Media (a subsidiary of Cox Communications Inc.) and Rupert Murdoch's News America Corp.
Morrison's five-employee firm, located in New York's Wall Street area, is one of few minority firms in the business that does coupons. His firm has grown from servicing small local businesses to heavyweight clients such as Kraft Foods, Exxon Travel Club, Gerber Life, Beneficial Life Insurance and Columbia House. Nia Direct can also count several magazines, including Vibe, Heart & Soul and BLACK ENTERPRISE, among its roster of current and former clients. Morrison handles all the creative design of the coupons via computer.
"Nia works because Morrison has been able to get a really good ethnic mailing file," says Pete Burgess, CEO of COX Direct Inc. in Largo, Florida. "We'd love to have his file. You have magazines that target black consumers but they won't sell their lists to us. Retailers want to reach African Americans, but we don't have the base," he explains.
As direct marketing becomes more segmented and ethnic markets more sought out, Morrison's challenge will be to expand his business, while protecting his niche from larger competitors. The objective is to tap into new markets without sacrificing Nia's initial customer base.
Besides coupons, Morrison now provides direct response consulting services and database development. Looking to the future, he wants to develop software that will allow consumers to do electronically what must now be done by mail.
CHANGING THE FACE OF AMERICAN CONSUMERS
Depending on the consumer market an advertiser wants to reach, direct mail can target specific households and segments of those households through geographic, demographic and psychographic profiles. Through selective packaging, companies can offer the same coupons with different values--50 cents off vs. $1.00--to people who may be living even next door to one another.
Traditionally, African Americans have been left out of groups targeted by manufacturers to receive direct mail coupons. Whether you received coupons or not depended on the kind of product, where you lived (usually an indicator of income) and whether or not the newspapers in your area carried them. If you lived in a predominately African American neighborhood, you were least likely to be part of the targeted demographic buying audience. As such, manufacturers discounted the power of the black consumer.
Major corporations are now recognizing that in order to expand their market share among certain segments, they must seek help to tap into groups they once ignored.
"Most direct markets miscount when it comes to identifying African American mailing lists," says Morrison. "Within this ethnic group, the list industry is an emerging market. Black churches, college, fraternities, sororities and social and civil rights associations all possess a hidden gold mine of names that can be tapped, if the right questions are asked," he explains.
Even with what marketers have found to be a great list base, Morrison still faces an uphill battle. There is competition from larger and more powerful businesses like the Value Pak and Carol Wright, two major co-op companies. Consumer inertia is another problem. According to the DMA, African Americans are least likely to respond to direct mail advertising--43% versus the industry average of 63%. Morrison says it's because African Americans must be approached differently.
Morrison's attack is a two-pronged approach: African American consumers must be "invited" to respond or initially approached with information that they can follow up with a response. For this reason, much of what you'll find in Nia's Coupons For Savings are solicitations or cents-off coupons with some other premium attached, such as General Mills' donation to the United Negro College Fund for every coupon redeemed. The other element is African Americans' ability to influence friends in their purchases--"the Jones' syndrome."
What Morrison's clients like about him is that he has culled a high-quality list of responsive African American households. The reason he's able to get an above-average response rate is his value-added approach, a marketing tactic that has done well in other business arenas.
Since his days as student body president at Rensselaer Polytechnic Institute in Troy, New York, Morrison has been employing creative marketing tactics. He helped boost membership and participation in 150 student clubs by getting business management students to sign on as advisors while earning course credits. He also managed a $5 million budget.
A newly minted electrical engineering graduate in 1988, Morrison applied for a job at MacKenzie and Co., a market research firm in New York City. "I thought it would be a good marriage of skills in engineering and marketing. But they turned me down," Morrison sighs. "I'd said that if I didn't get the job, I'd start my own firm."
And that's just what he did. Originally called Nia Publishing, the Brooklyn-based firm did everything from computer training, installation and repairs to publishing local newsletters. To pay the bills, while knocking on doors to trump up business, Morrison accepted a $30,000-a-year word processing job on the 4 p.m. to midnight shift at Lehman Brothers (then a division of American Express). Morrison earned six promotions in two years, earning close to a six-figure salary.
He ran his company from home during the day and, as the business grew, was able to branch out into a small office space, within walking distance from his night job.
Morrison started developing marketing. and direct mail campaigns after his customers began asking if he could help them drum up clients for their businesses. "Several clients hired me to buy or develop a mailing list and a customer database so that they could mail newsletters or brochures. But when I would go back a few months later to ask, them how the mailing went, they told me that they could only afford to mail to half the list," he recalls.
That's when Morrison came up with the concept of doing package deals. Since he had three or more clients with the same problem, he decided to merge them as a way to cut costs. The resulting product was known as the African American Value Pack, a 3-by-5-inch deck of cards wrapped in cellophane. "I did some research and found that there were card packs for all kinds of users out there--Macintosh users, hunters, golfers," he says. "I said to myself, `Why can't there be a card deck for African America, consumers?"'
Morrison began soliciting other businesses, targeting black consumers to participate in his venture. With cards from 30 businesses in the New York City area, Morrison mailed 20,000 packs initially, charging each customer $500--and later on $1,000--which covered the cost of designing, printing and postage.
Costs ran about $10,000 for the package. This "cooperative" arrangement became an affordable, economical and profitable venture for both Morrison and his clients. Between 1988 and 1993, the Value Pack was mailed four times a year, with a new package of offers each time for a selling period that lasted three months.
As the number and variety of interested businesses grew, he focused his efforts nationally with subsequent mailings of 100,000 going out to include cities like Baltimore, Chicago and Washington D.C. To build a client base, he began taking classified ads in business journals and publications that would be interested in reaching black consumers.
GETTING BIGGER, GETTING BETTER
In business, timing is everything. Morrison had determined that the profit margins on the card packs were too small--"only clearing about $5,000"--and too hard to collect from small businesses. After four years of splitting shifts and running from his "job" to his nearby office, Morrison quit his night gig at Lehman in 1993 to become a full-time entrepreneur of what is now Nia Direct.
Although there were other African American media companies reaching out to black consumers, "there was no one actively in the direct mail business," says Morrison. "Most consumer goods companies devote 7% of their advertising budgets to direct mail," he adds. But little of this direct mail effort was directed toward reaching African American consumers.
According to a report in Promo magazine, a direct marketing trade journal, CMS Redemption Inc. in 1995 found 1% of couponing efforts were marketed via direct mail solo promotions; another 0.8% were generated via co-op mail programs like Nia Direct.
When companies are targeting a select market with only a few products, solo mailings can be too costly. Sharing the production and distribution costs of direct mail with other advertisers increases the number of households they can afford to reach while containing costs. It was this strategy that Morrison hoped would lead him in his transition from index-sized cards to a 6-by-9-inch mailing envelope stuffed with offerings from major companies.
But, it was Kraft Foods Corp. that helped Nia Direct to do that and put the business on the map. Morrison was looking to snare larger, deep-pocketed clients and Kraft was searching for a viable way to tap deeper into the American consumer market.
"Many of our brands sell well among African American families, and we wanted to know how we could position them better," recalls Steve Bachler, manager of database marketing for Kraft Foods. Bachler had developed a database of black consumers from coupons Kraft had run in black newspapers and magazines, which solicited the names and addresses of the person exchanging them for such brand products as Kool-Aid, Maxwell House coffee and Stove-Top stuffing. After reading about Morrison's company in a trade publication, Bachler called on the entrepreneur to find out how Kraft could better target specific products to the black market. For Kraft, the idea of a cooperative mailing with Nia was economically appealing. (Kraft is one of the top five manufacturers that use direct marketing, and is among the top three that use couponing.)
Nia's biggest one-time client so far is General Mills, which ran six of its brands--HoneyNut Cheerios, Trix, Kix, Betty Crocker Frosting, Betty Crocker Brownies and Bisquick--in its August 1996 mail pack. "General Mills is committed to diversity," says its director of special markets, Autumn Boos. "We're looking at ways to target various markets. It's always challenging to meet ethnic markets. That's why we were so thrilled to find Nia Direct," she adds.
Each product brand was treated as a separate insert and charged accordingly. Nia Direct currently mails to 1 million African American households twice a year, at a cost to advertisers of $43,000 per coupon for each mailing. Morrison plans to increase each mailing to 3 million in August, at a cost of $129,000 per coupon. The cost per million is 4 cents per name. The campaign with General Mills grossed Nia Direct slightly more than $250,000 for these brands.
While it sounds like a lot of money, Morrison says he needs at least 10 brands in his package to break even on the cost of producing the pack.
According to CMS Redemption Services in Winston-Salem, North Carolina, 325 billion coupons were distributed in 1995, with an average face value of 58 cents, making the coupon business a $6.95 billion industry. Most coupons, 89.4%, are distributed as free standing inserts through newspapers and account for $1.3 billion spent on preparation and dissemination. Another $520 million was spent on direct mail coupon packs such as Nia's.
"Being a consumer advocate, I need to raise the comfort level of African Americans shopping by mail. Maybe we need to have some kind of seal or logo, like the Good Housekeeping Seal of Approval, that guarantees a product is high quality." If there's anyone who'll try to do it, it will probably be Andrew Morrison.
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|Title Annotation:||Andrew Morrison's Nia Direct Inc.|
|Article Type:||Company Profile|
|Date:||Feb 1, 1997|
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