The Economics of Everyday Things - 38. Junk Mail

Episode Date: February 26, 2024

Why does the mailman bring us so many catalogs, credit card offers, and pizza coupons? Because his job depends on it. Zachary Crockett checks the mailbox. SOURCES:Brett Chamberlin, program manager at Catalog Choice.Aaron Gordon, journalist.Mike Gunderson, president of Gunderson Direct. RESOURCES:"U.S. Postal Service Reports Fiscal Year 2023 Results," by the U.S. Postal Service (2023)."How We Ended Up With All This Junk Mail," by Aaron Gordon (Vice, 2020)."Here Are the Data Brokers Quietly Buying and Selling Your Personal Information," by Steven Melendez and Alex Pasternack (Fast Company, 2019)."How to Stop Junk Mail and Save Trees — and Your Sanity," by Elisabeth Leamy (The Washington Post, 2018)."How The Post Office Sells Your Address Update To Anyone Who Pays (And The Little-Known Loophole To Opt Out)," by Adam Tanner (Forbes, 2013).The Postal Reorganization Act of 1970. EXTRAS:"Is It Worth It for Charities to Harass Their Donors?" by No Stupid Questions (2022).

Alright, let's see what we got here. That's me partaking in a great American ritual. A daily trip to the mailbox. At least it used to be a great ritual. Alright, I have what looks like a bill here, but it's just a car insurance offer. We have some coupons, smart and final, Safeway, DoorDash. I have a credit card offer here, and this one's printed to look like it's handwritten

on a piece of binder paper, but it's just a guy trying to replace my windows. This stuff, the people who send it call it direct mail. Those of us who receive it call it junk mail. And my mailbox isn't the only one stuffed with it. By one estimate, the average American receives around 41 pounds of junk mail each year. In an age of digital ads and email inboxes, you may wonder why we still get bombarded with paper advertisements that, most of the time, go straight into the recycling bin.

Well, for starters, it works. The faux checks, maybe the official envelope that looks like it's a tax document. They're very inexpensive, and those work really, really well. But there's another reason. The Postal Service has an interest in delivering us as much junk mail as possible. The direct mail industry, one of the things they like to say is that they basically pay the USPS's bills. For the Freakonomics Radio Network, this is the economics of everyday things.

I'm Zachary Crockett. Today, junk mail. If you're listening to this at home and you have this vague perception that there's more junk mail now than there was when you were a kid, you're probably right. That's Aaron Gordon. He's a journalist who has spent a lot of time looking into direct mail. He says the road to the current onslaught of junk began in the late 1960s. There was a broad consensus amongst the American elite that if only everything was run more

like a corporation, we'd all be better off. And so the federal government is looking at a lot of things that are owned by the government and that they think could be better run if they were privatized or semi-privatized. Legislators set their sights on what was then called the Post Office Department, which was seen as the essence of bloated taxpayer-funded bureaucracy. In 1970, they passed the Postal Reorganization Act. It turned the Post Office Department into the U.S. Postal Service and structured it more like a corporation. It's still a part of the federal government, but important aspects of it were essentially

privatized. And the biggest, absolutely most important aspect was the USPS was going to lose its government funding and was going to have to start paying for itself starting in the 1980s So if you're a postmaster general you're trying to figure out, okay I got to make a lot more money But cutting cost is going to be actually pretty hard because I still have this mandate to deliver to every single Address in the country. What's the answer here? The marginal cost of delivering each piece of mail is very, very small, right?

Because you're very rarely going to have a piece of mail that has to be delivered to somewhere you weren't going to go anyways. So it's very natural if you're trying to figure out how to make more money as the USPS to be like, well, we just got to deliver a hell of a lot more mail to everybody. The USPS couldn't just force grandmas to start sending out more birthday cards. So, they turned to a group of people who had an interest in sending more mail. Marketers. Direct mail had been around since the mid-19th century, when Montgomery Ward and Sears Robuck used catalogs to sell jewelry, saddles, and sewing machines. Throughout the 20th century, it grew into a sizable industry.

The USPS decided to give these direct marketers an incentive to send more mail. So the USPS said, what if we encouraged companies to sort the mail themselves? So then we don't have to do it. We can just give it straight to the delivery guy who then puts it in every mailbox. So they created a pricing category that's called pre-sorted, and the rates for pre-sorted

mail are much cheaper than regular postage rates. Those cheaper rates made it possible for marketers to send a lot more mail. In 1972, junk mail was about 25% of all mail pieces people received. 10 years later, by 1982, it was up to 32%. And then in 2019, it was 63%. Today, all that junk mail keeps the postal service afloat. Last fiscal year, the agency delivered 59 billion pieces of it, more than all other types of mail combined. Marketing services accounted for around $15

billion, 20% of the agency's revenue. Postal workers, some of them refer to these batches of mail that they have to put in every mailbox along their route as job security. Now, there's no universal definition of what junk mail is. Some people think it's any unsolicited commercial mail. Others think it's just the stuff that isn't relevant to you. But one thing is certain. The companies that make it and send it out would rather you not use the J word at all. Well, we don't like it. Is there a term you prefer? I would say hand-delivered communications.

Mike Gunderson is the president of Gunderson Direct, one of the largest direct mail companies in America. Since founding the firm in 2003, he's helped companies like Wells Fargo, Union Bank and Redfinn send out enough paper to fill a mailbox that's 80 miles tall. We're sending out anywhere between 200,000 pieces of mail to millions of pieces of mail per month. Direct mail comes in a lot of forms. The cheapest and simplest version is something that Gundersen calls the taco.

The taco is like, it's usually coupons, it's got a couple other mailers in it, sometimes it's got a rubber band around it, and all your other mail is stacked on top of it. This taco actually has some more formal name. Everydoor direct mail. And it's a product of the US Postal Service. Through a USPS online platform, advertisers can select which demographics they want to target, and the USPS will recommend a mail route. The mail is delivered to every household on that route without names or addresses on it.

And it only costs around 20 cents per piece. It's pretty much just like closing your eyes and essentially mailing an untargeted list to see if you get anybody to raise their hand. This tactic tends to work best for small local businesses. If you open up a small coffee shop, say here in Alameda, California, you can essentially select that I want to send everybody in this one mile radius, a postcard for free cup of coffee. That's a very good tactic to spray and pray and just send it to everybody.

And it's very inexpensive to do that. The problem is not everyone is a big fan of the taco. Some people are trained to just throw that taco out right when they get it. So you want to get above that and really get something that's a little bit more personalized. Above the taco. Yeah, above the taco. That's right. But sending you something that's a little more personalized requires a direct

mailer to get access to your data. And it also calls for some psychological trickery. That's coming up. The aim of direct mail purveyors like Mike Gunderson is to make sure the mail you're getting is actually relevant to you. If you're a single mom raising a kid and you're getting an offer for men's cologne, that's not right. If you've never golfed in your life and you're receiving

golfing ads, that's not cool, right? You don't want that. The goal is to get it to the right person and then let them make a decision whether or not that product or service is right for them. Getting a piece of mail to the right person comes down to data. When a new client comes to Gundersen, the first step is to look at their existing customers and find other people with similar characteristics, who might be responsive to a flyer or catalog. To find those prospects, Gundersen turns to a data broker who has

a surprising amount of information about what we've all bought in the past. A lot of the websites that you might be purchasing from, if you read their extensive privacy policy, you can see often that your information can be sold. Data brokers buy all that information and put it in a database, which makes it very useful to marketers. They have transactional level data that they can apply to the model in order to figure out if you're going to be the right candidate for that they can apply to the model in order to figure out if

you're going to be the right candidate for that offer or service in the mail. So if you buy something from LL Bean, there might be a good chance that you might like something from Coleman, right? The Postal Service also shares data with advertisers. If you file a change of address form at the post office, you might start getting ads for home goods. The USPS receives that information, change of address, or then able to say, hey, what products would they likely need as part of that new move, right? Maybe they need a Home Depot gift card in order to start shopping and repairing that new home.

You know, maybe they need furniture. Perhaps they need a new refrigerator. Finding the right people to send this mail to is one thing. Getting them to open it, that's a different challenge. If you have a recognizable product with a really good offer, say 25% off your next Home Depot purchase, Gunderson says it's best to send a postcard. The recipient can look at it and immediately see the value. But if you're a fledgling business with a less enticing offer, it's best to disguise it in an important looking envelope.

The industry calls this stealth mail. It might be designed to look like a pay stub, a bank statement, or a tax document. These more official packages, especially in fintech financial insurance, break through because you have to open it before you throw it away. When they open it up, it really does look like a tax form. And in a very small type, it says this is an advertisement, but it's very convincing. One favorite tactic is creating a sense of urgency.

We love expiration dates. Even if you don't have an expiration date for certain offers, saying reply by, you know, we'll gain some traction and get people to move faster, which is really great. You could say response required. I don't know about response required. I think that one might piss me off a little bit. In my...

When I talk to my friends, and when I talk to other marketing experts, like, I just hate that I hate that you trick me. But we try not to be dishonest. We want to make sure if we're tricking you to open the envelope that what's inside is more important than the feeling that you got by being tricked. Another trick that works well is putting something lumpy inside the envelope. A plastic card, a key chain, sometimes even a real dollar bill.

It's a very expensive tactic. And usually when you see it, it's because you just bought a car who still does it effectively as JD Power and Associates. So when you buy a new car from like BMW, they'll send you that letter to fill out a survey, right? And it'll give you the dollar. Now, what the dollar does is it says, they are giving me a dollar, right? Okay, I'll fill out the survey. That's all the dollar does. At the Gunderson Direct Office in the San Francisco Bay Area, there are cabinets full of the company's various innovations over the years, each designed to get attention. There's a pamphlet advertising the groundbreaking ceremony for a new Boys and Girls Club that

has a little baggie full of dirt in it. There's a letter from AAA that smells like a new car leather. There's even a piece of mail from a luxury real estate company that plays a video on a tiny LCD screen when you open it. chapters so you can skip to the very next section just by pushing a button that's built into the direct mail piece. And this goes through the mail? This goes through the mail. Once Gunderson and the client have agreed on a design, strategy, and target list, the

printer takes over. Certain facilities specialize in direct mail with runs in the millions. And they have their own USPS service centers, where they sort mailers into little bins for delivery right down to the carrier route. This is where the post office's pre-sorted rate comes in. If you mail a standard letter, you'll pay 68 cents in postage. A direct mail company might pay as little as 20 cents. The user then goes out, they grab that direct mail, hopefully respond,

and then based off of a bunch of different tactics, could be a QR code, could be a vanity URL, could be a special phone number. We'll get those responses in. We have direct attribution to the people that receive that mail and we're able to prove they transacted off of that mail. A company like Wells Fargo or DoorDash pays to send you junk mail because it actually works pretty well, at least when compared to digital advertising. For email, your response rate is typically going to be about a half percent, and your

conversion rate is probably going to be about 4 percent. The direct mail average response rate is going to be between 1 and 4 percent, and your conversion rates are going to be up to 14, 20, 25 percent. Those are great numbers for advertisers. But Junk Mail is still a game of volume. And that game has consequences. Tens of millions of letters and catalogs are thrown away without even being opened or read. The majority of junk mail is really just unwanted and unneeded.

That's Brett Chamberlain. He's the program manager at Catalog Choice, a nonprofit that helps consumers opt out of receiving unwanted junk mail. There are federal laws and policies that can help you block email spam and telemarketing calls, but there's no equivalent for direct mail. On catalog choice, you can type in advertisers' name into a search bar and fill out a form to ask them to stop sending you junk. There's no guarantee that direct mailers will comply with this request.

But most of them do. We call it experiencing mailbox bliss. It's a real pain in the butt for people to constantly get a flood of junk mail every single day that they need to sort through and dispose of. Catalog choice now has nearly 3 million users. And over the last decade, those users have submitted 30 million opt-out requests to around 8,500 different companies. That corresponds with an estimated diversion of over 100,000 tons of paper waste and nearly 2 million tons of CO2.

But Chamberlain does not see direct mail firms as his enemy. By filtering out people who don't want junk mail, Chamberlain says he's actually doing marketers a favor. For a marketing associate at a direct mail marketing company, weeding out the people that are just not interested in that marketing to begin with, can maybe help drive up their response rates and of course keep their marketing costs down. Mike Gunderson has no problem with that kind of service. In fact, he has an opt-out button on his company's website. His ultimate goal is to not be considered junk at all. When I explain what I do to people in this day,

you're the junk mail guy. I go, I'm actually, I'm not the junk mail guy. Everybody else is the junk. I'm doing my best to truly give you products and services that you want. Now you may not want them right now, but eventually I think you're gonna want this great offer that's in the mail.

There's so many times people say, I hate direct mail, but if you really dig deeper, they're like, oh yeah, I guess I did respond and get a credit card. Oh yeah, I did get my life insurance through direct mail. Or that's right, I did take advantage of that 30% off the pottery barn. So it works. For the economics of everyday things, I'm Zachary Crockett. This episode was produced by me and Sarah Lilly and mixed by Jeremy Johnston.

We had help from Daniel Moritz Rapson. It's got a special varnish on it that smells like... It smells like car leather. How cool is that? It smells a lot better than my car. The Freakonomics Radio Network. The hidden side of everything. Stitcher.