Four Chicago-based direct marketing companies have signed an agreement to form a company that will sell merchandise and membership services to credit card holders.
The deal to create United Marketing Group LLC was signed last week. The headquarters will be in Schaumburg, Ill.
The four founding companies-Hi-Tech Group Inc., Roy Thomas Inc., United Promotions Inc., and Mail Services Inc.-have combined revenues of $120 million.
These companies' expertise is in the oil industry but they intend to expand "to retailers and banks," said Alan Portelli, chief executive officer of Hi-Tech. Effective Jan. 1, he will be CEO of United Marketing.
The four companies' clients for cardholder enhancement products include Mobil Oil, Sears, Roebuck and Co., and Bank One Corp.
Maxwell Sroge, a mail-order consultant in Evanston, Ill., said the timing is good for the companies to come together. The market leaders in the credit card enhancement business-Cendant Corp. and Signature Group-are both preoccupied with internal issues. Signature is seeking a buyer, and Cendant has been roiled by a scandal over inflated profits.
"Cendant's problems have not helped it to develop new programs, and executives at Signature have to be concerned about their future," Mr. Sroge said.
Indeed, several senior Signature executives have already joined United Marketing, according to a Signature executive who requested anonymity. Mr. Portelli was a nine-year-veteran of Signature, which is also based in Schaumburg, before joining Hi-Tech a year ago.
Mr. Portelli said United Marketing's merchandise business would set it apart from its competitors. None of the larger companies in this field, including Memberworks, a competitor based in Stamford, Conn., sells and fulfills merchandise orders, he said.
Roy Thomas and United Promotions, which owns a warehouse and does processing for mail-order services, would bring the merchandise part of the business to United Marketing.
Those companies sell items-like VCRs, pens, and cameras-that cost $5 to $1,000. The merchandise is advertised on credit card statement inserts and remittance envelopes.
Mr. Portelli said envelope marketing yields a 40% higher response rate than inserts. "The envelope marketing has a longer shelf life, because the consumer may see it three or four times before he pays the bill," Mr. Portelli said. "The inserts are thrown away more quickly."
The four companies are responsible for a total of 1.3 billion pieces of direct mail, 400,000 outbound telemarketing calls, and 1.5 million in-bound calls annually.
In 1999 United Marketing will easily surpass those numbers, Mr. Portelli said. The new company will start with a membership base of 1.5 million customers enrolled in credit card registration and other programs.
