Discover-ed: How Direct Mail Competes With Digital Marketing Channels

A major financial services company provides a rare peek inside its direct-marketing strategy, with lessons aplenty for printers, marketers, and postal officials


With more than $300 million spent annually on direct-mail postage, Discover Financial Services is one of the U.S. Postal Service’s largest customers. And though Discover still spends most of its direct-marketing budget on mail, it is increasingly shifting those dollars to a variety of digital media.

A Discover executive recently provided a peak inside the company's marketing strategy, demonstrating how digital media have become more competitive with direct mail and yet how good old snail mail endures as a marketing channel despite its high cost.

“Last year, for the first time, more of our new accounts were acquired through digital channels than they were through the mail channel,” Harit Talwar, Discover’s chief marketing officer, told the Postal Regulatory Commission recently.

Postage rates up; digital costs down
Though they “once were rather immature marketing outlets,” digital marketing channels “are now viable, fully effective, cost efficient channels that produce good results, he wrote. “Moreover, they are channels that tend to become less expensive over time. This is in contrast to mail which also produces good results but tends to become more expensive over time.”

“For the Postal Service to continue to play in this arena, it must maintain and improve the effectiveness of mail, push mail to work effectively with other channels, and deliver that effectiveness at appropriate price points,” Talwar wrote. He was explaining why the PRC should approve a proposed negotiated service agreement between USPS and Discover that would provide incentives for Discover to spend more on direct mail.

“It is critical to understand that for us, Standard Mail is not a monopoly product for it operates in a highly competitive market that includes a wide variety of targeted digital channels,” he wrote.

“Our digital channels are now viable, effective, cost-efficient channels with higher adoption rates that reach far more recipients at a much lower price than mail.”

“Discover has many choices, and their number and effectiveness grow every year,” Talwar added. For example, the ability to target people by interests and even location, along with new creative formats, have made web advertising far more effective than it was in the days of untargeted, undifferentiated banner ads.

He categorized Discover’s nine direct-marketing channels as email, pop-ups (including home page takeovers), paid search, banner ads, social media, Discover’s web site, mobile web, mobile apps, and direct mail.

Skipping the light Fandango
“New technologies are emerging that would allow an advertiser such as Discover to promote the 5% Cashback Bonus promotional earn category to a user who is making a dinner reservation in their Open Table® app, reading a restaurant review in their Yelp® app, or buying movie tickets from their Fandango® app.”

“More customers are signing up for a Discover card via our mobile app than initially expected.”

Contrary to popular opinion, however, email no longer competes with direct mail when it comes to attracting new customers because consumers have learned to ignore un-targeted email blasts. But email is still “a highly effective channel” for cross-selling existing customers, Talwar wrote.

“Among the targeted marketing channels, mail is about two-thirds of our marketing spend for promotion of the Discover card. Four years ago it was a bit more than 80%.” Nevertheless, Discover’s spending on postage has increased 27% during the three-year life of its current NSA – an indication of how rapidly the company’s total direct-marketing expenses have risen.

Answering the unanswered question
For the printing and mailing industries, Talwar left a key question unanswered: Why does Discover continue to spend so much money on direct mail – the vast majority of it for postage – when its cost per acquisition from digital channels is in general so much lower? But he did provide a few hints:

• “To acquire new cardmembers, we partner with an outside source on a database of prospects. Based on credit bureau attributes and risk tolerance, we send pre-approved offers with segmented messaging and pricing, or we send invitations to apply.”

• Some new-customer mailings go to all of Discover’s “analytic segments, while others go only to select segments. “Segmentation is based, among other things, on customers’ creditworthiness and response rates.”

• “We market primarily to those whose credit quality is sufficient to qualify for a Discover card.”

•  Mail is used extensively with existing customers, with “targeted offers to encourage them to activate their card, to increase their use of the card, or to take advantage of balance transfers. Mail is also used to promote our card's features and benefits, to promote business with our partner merchants, and to ‘cross sell’ our other products and services.”

• “Mail is used in tandem with the other channels to reinforce each other and send a coordinated set of messages, or a common message across our channels to our targeted recipients.”

It's clear that Discover derives huge value from direct mail's ability to hone in on precise targets. Only mail messages can be delivered solely to prospects having good credit scores and other characteristics that make them likely to get approved for a credit card and to be profitable customers. Mail's targetability enables Discover to send different offers to different people, with especially high-value prospects getting additional mailings.

Mail is also the only reliable way to reach existing customers with a cross-selling promotion. (Yeah, there’s email and mobile apps, but do you look at every email and download the apps from all of your banks and credit-card providers?)

Talwar’s comments indicate that Discover doesn’t fall victim to “the last-click fallacy” – the belief that a sale should be attributed solely to the last communication the customer received before signing up. The company realizes that direct mail, like event sponsorships and TV advertising, makes people more likely to click on its digital offers.

“Mail is a very strong, viable, and highly effective channel, which is not going away,” Talwar wrote. “It is just not the only game in town anymore, and it is going to have to compete with these other channels, as well as with the channels that will emerge in the future if it is to maintain its position and prosper.”

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