The 1M1M Deal Radar 2010: Merkle ,Baltimore,Maryland

Merkle, an independent marketing agency, builds custom databases that analyze information and translates that information into marketing intelligence. The company offers the full services of a traditional agency but bases its approach on tools for quantitative measuring and testing to help clients get a better return on their marketing investment.

The company, which was founded in 1971 as Merkle Press, is headquartered near Baltimore with additional offices in Boston, Chicago, Denver, Little Rock, Minneapolis, New York City, Philadelphia, Seattle, and Hagerstown, Maryland. Owner David Williams started with Merkle when he bought the then small business over twenty years ago at age twenty-five. At the time, he was working at his first post-college job at an investment firm. He was researching Merkle as a company for his employer to buy when the idea occurred to him that he should buy it himself. Twelve banks turned Williams down for the business loan he needed to acquire Merkle. Later, while he was getting started in his new role as president at Merkle, he lived with his grandmother at a nearby retirement community.

According to the Direct Marketing Association, in 2008, marketers – commercial and nonprofit – spent $176.9 billion on direct marketing. Database marketing is a small but growing multibillion dollar subset of that industry.

Essentially, database marketing – using data and analytics to improve marketing results – did not exist when Williams acquired the company. As he explains, “We are inventing an industry when we come to work every day.” Williams has actively led and shaped the company in order to change its business model into what it is today. Although as an agency Merkle does design campaigns for clients in the traditional sense and employs a large creative staff, it also has about 150 statisticians dedicated to marketing analytics.

The company offers a range of solutions: custom-built databases; predictive tools for marketing and targeting optimization; measuring tools to better manage marketing performance; tools to help customers quantify and measure their direct marketing efforts, and e-mail marketing tools. As an example of these tools in action, the American Cancer Society wanted to better communicate with its database of 55 million people. After using Merkle’s tools to analyze its this database, the society realized that many people were involved with activities on many fronts. It decided to send its magazine, Triumph, to this “high-affinity” segment, and not just to top donors. “Just by sending Triumph to this key segment, we realized a huge lift in year-to-year retention among the test group,” said chief development officer Guy Fischer. “We also saw a significant lift in annual donation value. If extended to all high-value constituents, this learning holds the promise of millions of dollars in additional giving over time.”

DirecTV used Merkle’s models to refine its target audiences and media placement decisions. Whereas in the past DirecTV’s advertising had been aimed at a general audience of adults 25 to 55 years old, the company used the information it discovered in its database discoveries to narrow its target to men aged 35 to 55 who were married with families living in single-family homes. It moved away from those who ordered DirecTV services but had a “hard time paying their bills or switched from service to service in search of a better deal. These customers could actually end up costing the company money, given the investment DirecTV makes in hardware, installation, and marketing money to set up a new subscriber.” DirecTV was able to double its subscriber base.

Competitors include Fulcrum Analytics, which has also been in the field of marketing analytics for a long time and offers marketing research and data warehousing; KnowledgeBase Marketing, which grew out of the merger of three direct marketing companies; and Targetbase, which, like Merkle, positions itself as an agency that has expertise in both direct and digital marketing. Merkle uses a combination of data, analytics, strategic thinking, and creative talent to help its clients better reach customers and prospects.

The top target segments are commercial B2C companies in many industries (including retail, insurance, and finance) and nonprofit fundraising organizations. Commercial clients include Samsung, GEICO, Dell, Bank of America, Royal Caribbean, Kroger, Wendy’s, and Nike, among others. Nonprofit clients include the National Multiple Sclerosis Society, The Salvation Army, the U.S. Air Force, and the AARP, among others.

Merkle is owned by Williams and a silent partner, and the company has never sought outside funding. Current annual revenues are about $250 million. Williams has no plans to sell Merkle and plans to grow it into a $1 billion company. As part of this strategy, in 2009 Merkle acquired Analytici and CognitiveDATA, both wholly owned subsidiaries, that add to Merkle’s marketing technology and database services expertise. Also in 2009, Merkle formed a new company, LogicLab, based in New York. LogicLab was formed to apply innovating data and analytic practices to media buying.

One of the reasons we have included Merkle in Deal Radar is that it represents a lucrative category in which many more entrepreneurs should be able to build easy-to-bootstrap service businesses. There are a variety of niches of marketing analytics out there and also a variety of software companies catering to these niches. An easy way to bootstrap a company would be to provide analytics-based marketing services on top of some of these technologies, whereby, you become a marketing services BPO, which is exactly what Merkle has done – very successfully.

Recommended Reading
Deal Radar 2008: Coremetics
Deal Radar 2009: Enquisite
Taking on Business Intelligence: Lucidera CEO Ken Rudin

This segment is a part in the series : The 1M1M Deal Radar 2010