August 08, 2006
How To

How to Buy (and Sell) Package Inserts -- Higher Conversion Rates Than You'd Expect at Decent ROI

SUMMARY: From Amazon to Lillian Vernon, more than 550 ecommerce merchants and catalogers allow other marketers to place promos in outgoing fulfillment packages to customers.

Although this DM tactic is as old as the hills, results can be phenomenal (0.35% buyer conversion rates) at a very low CPM. Here's your Sherpa Guide on:

-> Media buying tactics for package inserts

-> Creative & production notes

-> How you could sell inserts in your own packages

Includes real-world advice from the exec in charge of package inserts for

Did you know you can get a 0.35% acquisition rate from a package insert for a third the price of a postal mail program? MarketingSherpa talked to Jill Eastman Vidal, Director Third Party Marketing for Inc., about how to buy into a program or how to start your own package insert program for third parties.

First, some factoids:

-> 550 ecommerce companies and catalogers offer package insert programs to third parties.
-> 12% of marketers use package inserts, according to the DMA 2005 Statistical Fact Book.
-> Package inserts capitalize on recency, hitting consumers days after their purchase instead of waiting one to three months to purchase a postal mailer’s hotlist.

Even has had a package insert program since 2003. It’s pricey though -- rate card is 4 cents to 7.5 cents per insert and it suggests that it best serves advertisers wanting to reach at least 1 million customers.

Buying into another marketer’s package insert program

Free-standing promotional pieces are inserted into the outgoing packages carrying merchandise. The cost of participating in a package insert program runs 30%-40% less than the cost of renting names (and that’s not counting printing and postage, etc.)

Here are six steps to follow:

Step #1. Decide how many inserts you want to send
Package insert programs usually have minimum tests of 10,000 to 25,000. Insertion costs are typically $55/M-$65/M while printing the insert runs from $20/M-$50/M and you have to supply the printed piece and ship it to the mailer’s fulfillment facility. You’ll be able to target by product or dollar amount in some of the larger programs, but you probably won’t be able to target geographically.

Step #2. Design your piece
A significant discount or the word “free” always make an effective offer, although you have to be careful -- some marketers will limit the use of the word free. Instead of experimenting with price points with a new insert program, it’s best to stick with ones that have worked for you in the past. Use images and not too many words, especially if you’re creating a buckslip insert (one that’s roughly the size of a dollar bill).

Step #3. Get the right size
Generally, the maximum weight for a package insert is 0.25 oz and the maximum dimension is 8 1/4 inches. The program that you’re participating in will have guidelines on what they accept, the type of paper the insert needs to be printed on and such.

Step #4. Test, test, test
As with all marketing endeavors, it’s essential to test the success of the program. Don’t test with more than two copy approaches. Once you have the right headline, offer and design, make that your control piece and start testing different inserts against it.

Step #5. Use source codes and expiration dates
Make sure you use a source code with your package inserts so you can measure their effectiveness. If possible, code pieces by the month they’re inserted so you can track which months work best.

If you’re testing a customer acquisition piece, don’t include an expiration date in your offer. This way, some production-related, freight-related or unrealistic volume projection problem won’t cause a snag.

Step #6. Prepare for orders
One of the biggest problem with package insert programs is knowing when the consumer will see your offer. You ship 100,000 inserts to a marketer who mails 100,000 packages a month, but you have no control over when the inserts go into the mailstream and when the packages actually arrive in consumers’ homes. They could all go out in the first few days or all in the last week.

Starting your own package insert program for third parties

There’s a big incentive in allowing other marketers’ messages into your packages: money. “At the end of the day, you might have a 60 percent margin business,” says Eastman Vidal.

If you’re interested in starting your own package insert program, you’ll face similar issues as buying into a program but you’ll also have several new ones. Here are seven steps:

Step #1. Assess organizational capabilities (and limitations)
Here, Eastman Vidal suggests that the first step to take is an operational review. Make sure that your outgoing packages have room for inserts weightwise (without sending them into a higher postage class).

If you can safely add 1.5 ounces to 2 ounces to your packages, you’re all set -- and it costs just a penny a pick (for each envelope to be dropped into a package from your distribution center packing line). It’s a huge advantage if your operating system allows you to track the space that’s left once catalogs or other marketing materials are added.

The size of your program (how many packages you mail each month) depends on your niche. If you mail to a specific demographic, you don’t have to be large, but a good number would be 50,000-100,000 a year. Most larger advertisers look for programs that mail at least 500,000 packages a year.

Step #2. Assemble your team
If you’re really going to get into inserts, you may want to hire a package insert program manager to work as an intermediary between you and the insert brokerage world.

To ensure a good fit, learn as much as you can about your program manager before you approve the hire. There are many questions you can ask: Find out how many resources he or she will use and whether they can handle your capacity; what do they know about your competitors?

The program manager will also serve as an intermediary with your collation shop. (Some organizations collate in-house, others outsource it). The manager is responsible for creating monthly collation grids for outside collation vendors.

Step #3. Calculate your costs
Your checklist here will include envelopes, printing, collation services and the actual placement of materials into the envelope. Depending on colors used, paper weight and coating, envelope printing averages about $10/M to $24/M, Eastman Vidal says.

Collation costs can range from $17/M to $26/M -- depending on the number of pieces being collated into the envelopes. There also are freight costs for both collation services and envelope printing (these can be controlled by ensuring a short distance between your mail house and distribution center).

If you open your program to other advertisers, you’ll need to decide how many to allow in with each shipment. The number varies from as few as one to as many as 12 (four to eight may work best).

Step #4. Decide on the specifics of your program
Do you really need a four-color envelope when a one-color or two-color one will do? (Test it). You’ll obviously save money with fewer colors. Also, tell your printer that you don’t need glue on the envelope, Eastman Vidal says. After all, the envelope is being included in another package and you want the offers to come out as easily as possible. And again you’ll save money in printing and mailing costs (that glue weighs something and may end up costing you more postage).

Don’t forget that the envelope itself is a great place in which to promote your brands or a new product or a special offer, Eastman Vidal says.

You also need to decide what type of program you’ll offer. There’s buckslips, bifolds and trifolds, mini catalogs … some companies will even allow insertion of a full catalog.

Step #5. Look over the inserts you’re accepting
Make sure the inserts you include from other companies are appropriate, tasteful and respect your brand. Because you’re including these inserts in your packages, they reflect on your company. Many marketers won’t accept ones from their competitors. You should look over every insert sample before accepting it. Weigh it and make sure it won’t go over your limits.

Step #6. Test your program
When you first launch a program, it may be necessary to consider many different categories with which to partner. Relevancy may be secondary at this point because you’re just trying to uncover what works.

Once you’re ready for a full test, program managers will coordinate a process to ensure that the insert program is working effectively. Eastman Vidal suggests testing an insert program for at least six months.

Also to consider:
->Placement of the envelope is key. An envelope placed on top of a package’s contents will be more successful than one on the bottom. If you ship a lot of back orders or multiple boxes, be sure the mailing is placed in the first box or in a complete order. That way, customers won’t receive duplicates and you won’t over-circulate the mail pieces.

-> Make sure inserts are being included in every order. With orders going out every day, it’s easy to miss one, but you’re missing a prime opportunity. Watch the people doing the inserting and make sure they’re putting one (not five or six) in each complete order.

Step #7. Get the entire company on board
It’s important to have buy-in from your organization’s senior management team before embarking on an insert program. Just as important is to inform the entire organization of the actual offers included in the programs.

Example: If a customer calls your contact center about the details of a particular offer (especially one that involves a third-party advertiser), your representatives need to have knowledge of that offer so they can effectively guide that customer.

Eastman Vidal says her team provides their reps with samples of what customers receive. Also explain to packers why it’s important to include just one insert package into a customer’s box (so you don’t inundate people with offers).

Response rates: What you can expect

On the customer acquisition side, Eastman Vidal says typical responses range from 0.15% to 1%. (She notes that the average is in the 0.35% range). However, results can vary by program.

If you’re selling a package insert program, margins can typically be 50%, however, this is dictated by how many distribution points you have. For instance, if you have one distribution center and your collation is done nearby, your margins can be even greater.

Another factor is how much money you’re spending on your envelopes. Obviously, your margins will be higher with a two-color envelope than a four-color one. Still, your average income per envelope should be anywhere from 8 cents to 14 cents, Eastman Vidal says.

When considering cutting costs further, look at your envelopes and the collation of your envelopes, both of which represent variable costs.

Useful links related to this article:

A glossary of insert program terms

DMA Insert Council’s online list guide

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