Direct marketers struggle with new privacy protection rules
New rules governing the use of databases have had a chilling effect on development of the fledgling direct marketing industry, executives said.
Under guidelines approved a year ago, databases containing information on individuals must comply with strict procedures governing storage, access, use and dissemination. The law also requires database users to seek consent from consumers when gathering and storing personal information. To aid compliance, all of these databases were required to register with the government by Oct. 31.
Such databases are the bread and butter of direct-marketing companies that build business on "below the line" advertising. Unlike outdoor billboard, radio and television that broadcast ads to a broad spectrum of the public, direct marketers use databases sorted by profiles of consumers to hook producers directly with targeted markets.
But the breadth of new restrictions, penalties for non-compliance and lack of track record on interpreting the law on database privacy protection has slowed growth in an ad medium that experiences widespread use in the Western market, industry members said.
"It basically scared the hell out of a lot of companies," said Heidi Stone, managing director of The Communications Bridge.
The main problem with the current legislation is unclear guidelines leaving some to speculate what may even constitute a database, industry members said. Moreover, penalties for not complying with the law are serious; improper storage, mishandling, damaging or misusing data, even if unintentional, can lead to fines and up to three years in prison, industry members said.
Direct marketing is considered part of below-the-line advertising using lists of individuals to contact consumers via telemarketing, the internet and direct mailing.
"It is a direct contact between the producer and client," said Jasja van der Veen, managing director of Bakker Polska, while describing the industry.
It is hard to say how many direct marketing companies operate nationwide. In addition to leading firms (see The List, page 25), a host of smaller companies operate nationwide making establishing a consensus and self-regulating bodies difficult, market watchers said.
While the data protection law can be a useful defense against those who abuse privacy rights and databases, reputable firms may be forced out of the market and the stunted growth of an ad medium that is widely accepted in other markets and boasts greater efficiency for marketing goods, industry watchers said.
But despite new restrictions, some direct marketers are reporting strong growth. The Communications Bridge, for example, is forecasting almost 100% sales growth this year, with revenue running zl. 8.5 million (about $2 million) by year's end, up from zl. 4.5 million (approximately $1.28 million) last year, the company said.
And there's plenty more room for growth, industry members said. Only 10% of advertising budgets in Poland are in direct marketing, said van der Veen. That number stands in stark contrast to the United States and Western Europe, where direct marketing can make up almost 50% of advertising budgets.
"We are still waiting for the breakthrough," van der Veen said.
And the fledgling industry here has potential to diversify, "if you really want to get involved in advanced marketing," Stone said.
Television may still be Poland's main advertising medium, comprising well over 50% of all advertising in the country. But with a proliferation of television stations, taking consumers will likely become more difficult. Television will not have the same degree of influence as in earlier days, van der Veen said. That allows direct marketers to take a stronger role in the ad market, he said.
Here the database is key, allowing companies to fine-tune their target audience, thereby reducing unnecessary and misdirected spending plans, industry members said.
The Polish consumer is always helping push the trend, according to those in the business. As they become savvier and more cost conscious, advertisers will also have become more creative in tailoring their campaigns.
"I think more and more companies will have to assess the effectiveness of the above-the-line campaign," Horne said. "One piece of paper is worth more than one TV spot."
Although the current law has added confusion to database management and obstacles to business development, the cloud has a silver lining. In November, President Aleksander Kwasniewski signed a bill that will effectively ban all tobacco advertising and sponsorship by 2001. The ban does not, however, affect direct marketing of the product. Another growth area is consumer financial services, Stone said.
On the flip side, a further hurdle facing direct marketers is cleaning up a bad reputation, a holdover from the early transition years, Stone said. To this end, Stone is pursuing a campaign to inform the public about direct marketing and how individuals can filter out unwanted advertising.
Time will heal the reputation, added Horne. People will get more used to the concept and the names of certain reputable brands will become more associated with direct marketing.
