Special delivery: UPS gets into the advertising business

Last week, UPS (UPS) made a few special deliveries. In addition to the more than 15 million packages that the company normally carries every day, Big Brown's drivers in Chicago, Dallas-Fort Worth, Miami, Phoenix, and Washington DC brought selected customers special offers and samples from Sephora, West Elm, Pottery Barn, and nine other popular retailers. The pilot program, which UPS calls "Direct to Door," represents an attempt to expand the company's core business into the advertising arena.

For retailers, the most attractive aspect of Direct to Door may be its audience. While traditional advertising methods -- such as mail circulars or magazine ads -- engage a wide range of consumers, there is no guarantee that the people who see the ads will be comfortable with mail-ordering products or will actually spend their money on premium brands. By using UPS as an advertising method, the companies shortcut the mail order problems; by vetting customer deliveries, the carrier can guarantee that various offers find their way to the most promising customers -- those who regularly receive UPS packages.

Direct to Door isn't free for either UPS or for its partners. In addition to using valuable cargo space to carry promotional packages, UPS has also had to give its employees extra training. While the delivery company will not disclose the prices that it is charging Direct-to-Door participants, it seems likely that UPS is passing its additional costs -- plus a little extra -- on to the Direct-to-Door advertisers.

In spite of the cost, however, it seems like many companies are eager to get involved with the program. Lisa Lynn, director of UPS new product development, stated that the company has conducted talks with several potential partners, noting that there is "a lot of interest" in the program. She pointed out that a voluntary survey of Direct-to-Door customers has produced an "overwhelming response," indicating that customers strongly appreciated the free samples and special promotions.

While it is unclear if Direct to Door will become a permanent part of UPS's business, it seems to be a timely option for both advertisers and delivery companies. By developing a new revenue stream, carriers like UPS, DHL, and FedEx (FDX) could potentially reduce their delivery costs, making them more competitive.

From the advertising angle, companies involved with Direct to Door-style programs could save a great deal of time and effort by narrowing their focus to the most promising customers. And, from the customer perspective, these programs hold the allure of great deals and lowered freight prices. With so much to offer, it seems likely that, even if UPS decides against continuing Direct to Door, somebody else will choose to pick it up.

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