The business of junk mail

Letterbox Deals understood the effectiveness of printed catalogue advertising could be measured through coupon codes, dedicated web addresses and customised phone numbers.

Starting a business in the middle of the global financial crisis is not for the faint-hearted, let alone a printed advertising catalogue business in the internet era.

But Jamie Bakewell knew the business model was sound when he co-founded Letterbox Deals 3½ years ago, thanks to experience in the advertising industry through sister company Tonic.

Chief executive Bakewell and his three co-owners – John Eptaminitakis and Kerry Wood (who together still run Tonic), along with Christopher Roach – understood that printed catalogue advertising really does work and that its effectiveness could be measured through infrastructure such as coupon codes, dedicated web addresses and customised phone numbers.

Catalogues have been around for more than a century but the business founders saw a gap in the market for a best-of-breed “old media” product with digital integration and a focus on return on investment.

“Letterbox Deals is not a branding media, it is designed to get the phones ringing,” Bakewell says.

“We actually helped a lot of businesses get through some very tough times during the GFC. CEOs were becoming more involved in advertising decisions and there was far more pressure on advertising to directly produce immediate sales results.”

Competitors that were less focused on client response went out of business, helping Letterbox Deals emerge from the downturn in a position of strength.

The company now has 17 staff in Sydney and Melbourne and has just opened an office in Auckland.

The advertising footprint is close to national, with dedicated catalogues for different areas of Sydney, Melbourne and Perth, plus Brisbane and Adelaide. There is also a catalogue offering for national advertisers targeting regional Australia and based on feedback, the company will establish separate editions in regional centres such as the Sunshine Coast and Gold Coast. Another path to expand the business will be a shift to monthly frequency.

The catalogues are printed locally to cut down on distribution costs and then delivered by Australia Post to 4 million homes every two months. They contain consumer offers from businesses ranging from national brands such as Domino’s, Optus, Foxtel, NRMA and Suncorp to local tradesmen.

Bakewell says the business took more than $5 million in advertising revenue last financial year and is on track to earn $6 million this year and $7.5 million in 2013-14. Clients are clearly happy since Bakewell says retention from catalogue to catalogue is about 70 per cent.

Despite the decision to focus on the old-school medium of printed catalogues, Bakewell and his business partners are no Luddites. In fact, Letterbox Deals has an iPhone app called Vouchr launching in the next two months.

“What it does is, it replaces the manual system of ripping out a coupon or voucher and putting it in your wallet,” Bakewell says. “Instead you can scan the offer and digitally store it in Apple’s new Passbook along with your aeroplane boarding pass and movie and concert tickets. If you walk into a store that has the offer, you’ll be alerted. It works without Passbook, too, but only if you have location-based services enabled.”

As with any business, there have been challenges along the way. The founders were so confident in the quality of their product they thought it would sell itself. They started out with a bunch of backpackers on the phone, before realising the importance of more experienced sales staff.

The company also decided to wear the cost of using Australia Post rather than cheaper distribution models that would be less effective for advertisers. This meant a radical increase in the anticipated overheads, though it turned out to be a good strategic decision in the longer term.

The greatest setback came in the first year when a major client held off paying and subsequently went out of business. Letterbox Deals now manages clients upfront, performing background checks and insisting on guarantees and deposits.

The business has also refined its focus to be purely a business-to-consumer advertising medium. At one stage Letterbox Deals had a business-to-business offering but Bakewell says the response was disappointing and it was never clear if it was reaching key decision-makers or not.

At another stage, Letterbox Deals ran a competition to win a holiday and found it was mainly junior administration staff entering the contest.

The four co-owners, who all have families, have an eventual exit strategy in mind with a sale and partial exit to retire the mortgage.

• Tweet