Mail merge is something that allows you to mass produce letters, envelopes, mailing lables, and other documents and they appear to be personalized. The purpose of mail merge is to let you create multiple documents and envelopes using the same template and only having to insert a data source to insert different information for each person. An example of mail merge would be like a Verizon wireless company sending out letters/notifications to all their customers that have past due bills, it would take a lot of time for the person to create so many letters and type up so many different envelopes, when all they have to do is use mail merging and they can create thousands of them within minutes.
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