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KEY NOTE Direct Marketing : March 2004

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This report covers: telemarketing, direct mail, television, inserts, door to door, databases, new media, customer magazines,other magazines & newspapers, outdoor, radio, cinema,

Companies covered include:Broadsystern, Carlson Marketing Group (UK), EHS Brann, Proximity Lonodon, Sitel UK, Vertex Data Science, WWAV Rapp Collins, WPP Group,Draft Worldwide, MRM Partners Worldwide, OgilvyOne Worldwide,141 Worlwide, Claydon Heeley Jones Mason, TBWA/GGT Direct, Harrison Troughton Wunderman, Broadsystern, Merchants,Sitel UK, Ventura, Vertex Data Science, Cedar Communications, Haymarket Publishing, Publicis Blueprint, Redwood Publishing,

EXECUTIVE SUMMARY

Executive Summary 2003 saw continuing caution in the marketplace, delaying the much hoped-for economic recovery. While companies were struggling with cutting costs and consolidating their businesses, their marketing budgets — and above-the-line budgets in particular — were kept at 2002 levels or reduced. However, no company can afford to ignore its customers or prospective customers, even in recession, and the best way of reaching them is by marketing to them directly.

The direct marketing industry as a whole grew by 7% in 2003, to reach £12.15bn. However, the internal dynamics of the market were not uniform. This is a diverse industry and some sectors fared better than others. For example, direct-response advertising, in which some form of call to action is asked for within the advertisement, declined, reflecting the continuing downward trend in media expenditure. Magazine and press advertising showed the sharpest decrease in 2002, faring not much better in 2003, but inserts, rather than display advertisements, are showing growth.

Direct-response television (DRTV) is engaging the industry as the number of households with access to digital television rises, as this affords true interaction on the part of the viewer. It was an interactive television advertisement that picked up the Direct Marketing Association's (DMA) Grand Prix at the 2003 awards. Higher budgets are also being allocated to other new media, most notably the Internet, as advertisers recognise the growing importance of this medium as an efficient way of not just reaching customers but of tailoring communications to meet their personal preferences. E-commerce companies themselves are beginning to use direct marketing as a cost-efficient way of communicating, although they have yet to reach the same kind of sophisticated customer database analysis practised by advertisers that have been in this market for some time.

The Government has issued guidelines to clarify the EU Communications Directive, which came into force in the UK in December 2003 and which clearly states the new rules for e-mail marketing, such as prior consent and the need for the sender to make it clear who the message is from — the e-mail equivalent to the DMA's code requiring caller-line identification in telemarketing.

The US will also adopt these measures during 2004 but, unfortunately, this will not stop the kind of junk spam that Internet users have become accustomed to, as so much originates from outside of these territories and from senders who do not abide by any code of conduct. The very low cost of sending spam means that even a 0.00001% response will make it worthwhile.

The long-awaited return to growth is forecast to begin in 2004 and advertisers have already indicated that they are increasing their budgets for this year. The past few years have focused on consolidation and cost cutting. 2004 should see the beginning of a return to profitability for many client companies, but for some of the major marketing groups 2004 could expose their weaknesses and greater acquisition activity than has been evident in the past few years could be expected.

TABLE OF CONTENTS

Executive Summary

1. Market Definition

REPORT COVERAGE

MARKET SECTORS

MARKET TRENDS

Direct Marketing Outperforms Advertising

2003 International Direct Marketing Fair

EU Directive on Privacy and Electronic Communication

Royal Mail Price Changes

DMA Silent Calls Summit

ECONOMIC TRENDS

Population

Table 1: UK Resident Population Estimates

by Sex (000), Mid-Years 1998-2002

Gross Domestic Product

Table 2: UK Gross Domestic Product at Current

and Constant 1995 Prices (£m), 1998-2002

Inflation

Table 3: UK Rate of Inflation (%), 1998-2002

Unemployment

Table 4: Actual Number of Unemployed Persons

(million), 1998-2002

Household Disposable Income

Table 5: Average UK Household Disposable Income

(£), 1998-2002

MARKET POSITION

The UK

Overseas

2. Market Size

THE TOTAL MARKET

Table 6: The Total UK Market for Direct Marketing by Sector

by Value at Current Prices (£m), 1999-2003

Table 7: The Total UK Market for Direct Marketing by Sector

by Value at Current Prices (%), 2002 and 2003

BY MARKET SECTOR

Telemarketing

Table 8: The Telemarketing Sector by Value

at Current Prices (£m and %), 1999-2003

Direct Mail

Table 9: The Direct Mail Sector by Value at Current Prices

(£m and %), 1999-2003

Table 10: UK Direct Mail Volumes by Type of Mail

(million items), 1999-2003

Television

Table 11: The Direct-Response Television Sector by Value

at Current Prices (£m and %), 1999-2003

Table 12: UK Household Penetration of Multi-Channels

(%), Quarter 4 2001 to Quarter 2 2003

Inserts

Table 13: The Inserts Sector by Value at Current Prices

(£m and %), 1999-2003

Door-to-Door

Table 14: The Door-to-Door Sector by Value

at Current Prices (£m and %), 1999-2003

Database

Table 15: The Database Sector by Value at Current Prices

(£m and %), 1999-2003

New Media

Table 16: The New Media Sector by Value at Current Prices

(£m and %), 1999-2003

Customer Magazines

Table 17: The Customer Magazines Sector by Value

at Current Prices (£m and %), 1999-2003

Other Magazines and Newspapers

Table 18: The Other Magazines and Newspapers Sector

by Value at Current Prices (£m and %), 1999-2003

Outdoor, Radio and Cinema

Outdoor

Table 19: The Outdoor and Transport Sector

by Value at Current Prices (£m and %), 1999-2003

Radio

Table 20: The Radio Sector

by Value at Current Prices (£m and %), 1999-2003

Cinema

Table 21: The Cinema Sector by Value at Current Prices

(£m and %), 1999-2003

OVERSEAS TRADE

Table 22: International Marketing Expenditure Trends

by Type of Marketing Activity (%), 2002-2004

Table 23: Percentage of the Marketing Budget Spent on

Direct Mail and Interactive Marketing by Country (%), 2003

Table 24: Forecast Year-on-Year Changes in Direct Mail and Interactive Marketing Budgets by Country (%), 2004

3. Industry Background

RECENT HISTORY

NUMBER OF COMPANIES

REGIONAL VARIATIONS IN THE MARKETPLACE

Distribution

How Robust is the Market?

Legislation

Consumer Credit Act

Privacy and Electronic Communications (EC Directive)

Regulations 2003

KEY TRADE ASSOCIATIONS

Advertising Association

Advertising Standards Authority

Chartered Institute of Marketing

Data Protection Registrar

Direct Mail Information Service

Direct Marketing Association

Federation of European Direct Marketing

Incorporated Society of British Advertisers

Institute of Direct Marketing

Institute of Practitioners in Advertising

Interactive Advertising Bureau

Marketing Communications Consultants Association

The Marketing Society

4. Competitor Analysis

THE MARKETPLACE

Agencies

Bureaux

Media Owners and Brokers

MARKET LEADERS

Agencies

Table 25: Top Ten UK Direct Marketing Agencies

by Agency Gross Profit (£000), 2002

WWAV Rapp Collins Ltd

Company Structure