MARK2038 Data Base Marketing Strategies II

Week 1

Instructor: Santo Ligotti Email: sligotti@gbrownc.on.ca

Today’s Agenda

IntroductionsHousekeeping Course outline, evaluation

LectureDirect & Database Marketing-

ReviewList ManagementHandout Assignment #1

Review of Direct & Database Marketing

1. To review what direct marketing is and how it differs from mass marketing;

2. To understand its importance in contemporary marketing.

Learning Objectives

This week

DM reviewCompare DM to advertisingDM agencies, suppliers and associations Review customer segmentation, targeting, positioningAssignment 1 handout

Are you familiar with these brands? Why?

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Direct Marketing

“Any direct communication to a consumer or business recipient, that is designed to generate a response in the form of an order (direct order), a request for further information (lead generation), and/or a visit to a store or other place of business for purchase of a specific product(s) or service(s) (traffic generation).”

The Direct Marketing Association (DMA)

Alternate Definition (Stone)

The interactive use of advertising media, to stimulate an immediate

behaviour that can be tracked, recorded, analyzed and stored on a

database for future retrieval and use.

interactioninteractionwith customerswith customers

use of use of

mediamedia

measurablemeasurableresultsresults

stored on a stored on a

databasedatabase

In Other Words…

The purpose of direct marketing is to communicate with customers in a way that elicits response, which ultimately adds to…

profit.profit.

Customer

Marketer

Response

Direct Marketing

Customer

Campaign Fulfillment

use of use of

mediamedia

interactioninteractionwith customerswith customers

stored on a stored on a

databasedatabase

measurablemeasurableresultsresults

Database Marketing• Database Marketing: the discipline of continuously

aggregating, interpreting, analyzing, and applying information about customers and prospects to achieve business objectives.

•ORDirect marketing is a way of acquiring and keeping customers by providing a framework for three activities: analysis of individual customer information strategy formation implementation such that customers respond directly

In this course, the terms “direct marketing” and “database marketing” are interchangeable

It began with Mass Marketing...Mass Marketing: A method of reaching

millions of people to tell them about available products and services.

predominated from 1950 to 1980growth of television created mass audiences for national advertisingmass marketing makes mass production possible: lower prices, improved quality, higher disposable incomesmass marketing losing effectiveness for some products most people have the basics media fragmentation

Database marketing enables a 2-way dialogue with one consumer

Targeting to ‘One’

Targeting to Many

Mass Marketing Database Marketing

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Key Differences - Mass vs. Direct Marketing

MassDirected at many via mass media Generic communicationsHighly visible to competitionIn general, no clear action communicated: designed to drive awareness, change attitudes, behaviourEffectiveness tough to measure“Noise” reduces effectiveness

DirectTargeted to individual, valuable customers via direct marketingCustomized communicationsLess visible to the competitionClear ‘call-to-action’ requestedResults are measurable Almost “noise-free”

Do you think mass marketing will eventually “cease to exist”?

Mass marketing build a brand and advertise it distribution to retail customer initiates buying

Direct marketing get to know customer because you start

recording your transactions with them maybe distribute direct company initiates contact

Key Differences - Mass vs. Direct Marketing

Database Marketing

Why use Database Marketing?

Five typical applications:1. Use profiles to find more loyal and

responsive prospects2. Increase customer retention rate, or

repurchase rate3. Increase referrals4. Increase cross-selling and up-selling5. Decrease marketing costs

Questions that DBM can answer:

Which customers are profitable now?Which customers could be more

profitable over time?Why are my customers leaving?What channels do customers prefer to

buy through?How do I know when and what

products to up-sell / cross-sell?

Three levels of Direct Marketing

Direct marketing drives the business: “stand alone”E.g. ING DIRECT, BELAIRdirect

Direct marketing drives part or all of the marketing strategy: integratedE.g. traditional banks

Direct marketing is used within the communications mixPeripheral E.g. mailing lists of small retailers

DM

DMDM

1. ‘Stand alone’

3. ‘Peripheral

2. Integrated

Three levels of Direct Marketing

Reasons for Growth

More demanding, time-poor consumerswomen make up higher % of workforce less time to spend on purchase

decisions: DM is personal and targeted so saves time

Decline in brand loyaltyexcessive price reductions, increasing

retailer power, brand proliferationwith DM, identify best customers and

reward loyalty

Reasons for Growth cont.Proliferation of media media fragmentation makes it difficult to

reach customers by traditional media growth opportunities for DM because a cost

effective means of reaching customers

Demand for accountability often easier to measure effectiveness of DM

tactics vs. traditional mass marketing tactics

Changing technology continuing drop in computer processing costs Internet

Core Concepts of Direct Marketing

Customer-based, not product-based Individualized: High Customer InvolvementTargeted vs. wide reaching Attract Relationship Buyers, Detract Transaction BuyersFocus on Retention vs. Acquisition Focus: Share of ‘Customer’ or ‘Wallet’ vs. Share of ‘Market’Measurability: Test & Learn ApproachInformation-intensiveLong-term oriented

Industries that have adopted DMTelecommunications / TechnologyFinancial servicesAutomotiveRetailPublishingTravel & entertainmentNon profit / charitiesConsumer packaged goodsPharmaceutical

Can you think of some examples from each industry?

What job opportunities exist?

Direct Response Ad Agencies Account Executives, Copywriters, Media Planners & Buyers List Brokers, List Compilers Telemarketing , InternetAccount Executives, Script Writers, Centre Managers, Trainers Printers Fulfillment Hardware, Software vendors Financial Services Companies including banks, and insurance organizationsRetail Services Industries (bricks and mortar stores, on-line stores)Data Analyst RolesStrategy Development Database Management

Relationship Marketing

Relationship marketing uses customer databases to record individual characteristics and preferences.

Targets individual customers according to

their specific needs, and building customer loyalty.

Marketers find or create products and experiences tailored

to delight individual customers (rather than the opposite).

Relationship Marketing•It is the core business strategy that integrates internal processes and functions and external networks to create and deliver value to targeted customers at a profit. It is grounded on high-quality customer data and enabled by information technology

F.Buttle, “Customer Relationship Management

The 3 Direct Marketing Variables

Creative Media

Offer

The 3 DM Variables: Creative

Creative: the “packaging” of the offer in terms of:

1. Copy2. Layout (design)3. Theme

The 3 DM Variables: Media

Direct-response media include: Direct mail Telemarketing Print Broadcast Digital media

Some are affinity channels, some are not.

The 3 DM Variables: Offer

Offer: the promise of the transaction, communicating the benefits of purchase in terms of:

The product or service itself Price Payment terms Guarantee Incentives

Strategy

Marketing Strategy

Database MarketingStrategy

Customer insightCustomer insightUSPUSPMessagesMessages

Where, when Where, when and how and how

promotional promotional expenditures expenditures will be madewill be made

Corporate/ BU Strategy

Vision/MissionVision/MissionSituation AnalysisSituation AnalysisCompetitive StrategyCompetitive Strategy

Campaign A Campaign B Campaign C

ObjectivesObjectivesTarget marketsTarget marketsMarketing mixMarketing mixResourcesResources

CampaignsCampaigns(tactical)(tactical)

IMCStrategy

Creative Brief

TechnologyStrategy

Programs Programs (strategic)(strategic)

Objectives• What are you trying to achieve?

Strategy• How are you are going to achieve your objectives?• Are generally broad statements about the approach

you are going to take to your business• Strategies provide direction – a set of guidelines

which guide your actions

Tactics• Individual campaigns / programs intended to

implement the strategy

RECALL: Setting Direct Marketing Strategy

Typical Marketing Strategies1. Create new profit

centers2. Launch new products3. Maximize after-market

sales4. Lead generation5. Drive retail traffic6. Develop niche markets

Marketing Plan

Marketing Plan: A document that communicates marketing objectives, activities and resources.

Purpose of a marketing plan

Sets objectives for sales, profit, market share, new customers, timelinesOutlines the target segments and consumer behaviourSpecifies the competition and other environmental variablesProduct, pricing, promotion, distributionSpecifies the measurement activitiesProvides a formal review process

Marketing Plan Elements

1. Introduction2. Executive Summary3. Situation Analysis (SWOT)

a) Market environmentb) Competitive situationc) Target group analysis (segmentation)d) Distribution channelse) Product situationf) Research

Marketing Plan Elements (cont’d)4. Opportunity and Issue Analysis5. Objectives6. Marketing Strategy

1. IMC strategies2. Creative brief3. Technology strategy (data brief)

7. Campaigns (tactics)8. Metrics9. Budget

Objective Setting

GENERIC SPECIFIC

Increase market share Increase share of market from 12% to 15% (in Q4)

Increase sales revenue Increase sales revenue by 10% to $110MM (in Q4)

Maintain prices Maintain an average price of $72.00 per unit thru Q4

Increase margin Achieve a gross margin profit of 40% (in Q4)

Generate leads Generate 1200 new leads in Q4

Segmentation

A Segment is: A group of customers or prospects with similar characteristics that you have identified for marketing purposes.

Segmentation is:The process of dividing larger customer groups into profile groups (or segments) based on one or more meaningful characteristics for targeted marketing purposes.Direct your marketing dollars to where they will do the most good.

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Segmentation

1. Group customers that respond similarly to various marketing treatments.

2. Establish & refine segments as ongoing points of reference in your business.

3. Segments must be profitable to serve.

Segmentation Methods

1. Geographic2. Demographic3. Geo-demographic4. Psychographic5. Attitudinal6. Behavioural

…or some combination of the above

Purchase behaviour dataSegment by customer value (LTV)Segment by customer need

Profile dataTarget existing customers – identify those most likely to respond (ROI-driven marketing)Target new customers more accurately

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Segmentation: Data Types

Segmentation is based on 2 main types of data Behavioural (purchase) data-such as what

banks and retailers like Shoppers Drug Mart do (OPTIMUM CARD)

Profile data (consumer characteristics)-DEMOGRAPHICS or PSYCHOGRAPHICS (Lifestyle attributes)

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Segmentation: Data Types

Segmentation Applications & Techniques in Direct Marketing

Application Technique

Setting budgets LIFE TIME VALUE (LTV)

Understanding customers’ value to you

RFM (RECENCY, FREQUENCY, MONETARY), LTV

Understanding existing customers as individuals: what they want from you

Database overlays with external data; profiling/modelling techniques

Targeting your spend in order to maximize ROI per campaign

Modelling techniques, RFM

Profiling existing customers in order to target new customers

Profiling/modelling techniques

Principles of Direct and Database Marketing, 3 rd Ed., Alan Tapp, pg 58.

Discovering opportunities

Data Mining • is the process of using statistical analysis to detect relevant

patterns and trends in purchasing behavior in a database• requires task-appropriate software to sift through massive

quantities of data• helps transform data into marketing information, e.g.:

develop models that predict future purchase behavior based on past purchases determine response to marketing programs help forecast sales

allows for creation of customer profiles

Some Commonly Used Statistical Procedures and Software for DM

Statistical ProceduresRegression AnalysisCluster AnalysisDiscriminant AnalysisFactor AnalysisCHAID (Chi-square automatic interaction

detection)

Segment by customer value Not all customers are created equal - most sales are to a minority of customersPARETO Principle: For most companies the 80/20 rule applies: 20% of customers account for 80% of profitsGoal : increase profitability by identifying and focusing on that 20% of customers How much are your customers worth today, their lifetime value (present value of future profits), or their potential value (future growth) given growth

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Segmentation Applications

Lifetime Value (LTV)Calculate how much profit each customer is likely to be worth to the company

Focus marketing strategy Determine allowable marketing spend

What it really means is that throughout the time that a customer spends with you, they will generate revenue for youThat revenue generated over those years is essentially their lifetime valueYou can determine, what the value of that customer is today, given how long they will stay, this is all you need to understand about LTV

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Segmentation Applications: LTV

Customer Value Dictates Strategy

Source: Strategic Database Marketing, A. Hughes

Best Customers (MVCs) 20% of Customers 80% of Revenue

GOLD

Best hope for new GOLD customers

Worst Customers 50% of Customers 1% of Total Revenue

Move up

Unprofitable

Objective: RetainSpend Service Dollars Here

Objective: GrowSpend Marketing Dollars Here

Objective: Drop or make ProfitableReprice, move up, lose

Segment by customer need Quite common in marketing to segment by customer needHelps to understand the benefits obtained by different sets of consumers from the same productHow:

Market Research In house information from your warehouse External psychographic or demographic information

(PSYTE)

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Segmentation Applications

Customer profiles a way of identifying possible new prospects for

your company

Divide customer base into segments with similar attributes: purchase behaviour, demographics, lifestyle

Works on the principle that our best prospects are like our existing customers

Customer Profiling

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Customer Profiling-Helps Find the Low Hanging Fruit

High $

Low $

GET IT?

Various ways to create customer profiles, e.g.: – Demographics– Cluster Analysis

Customer Profiling

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Customer Profiling: Demographics

What are Demographics?• Facts about people that describe who they are and that

we can determine, measure and record • e.g. - income, age, presence of children, housing, sex,

marital status type of car, occupation etc.

Sources• Surveys - ask questions on satisfaction surveys,

application forms, contests etc.• Applicant data - banks, insurance, credit card companies

Customer Profiling: Cluster Analysis

• Data is searched to find natural groupings, the members of each group having more in common with each other than they do with members of other groups e.g.:

– parents of babies– sports enthusiasts– people who read: fiction vs. biographies

• Software suggests additional purchases that would likely appeal to a customer based on what others in the segment have bought

Applications - e.g.: •Bank - have teller display screens suggest “next product”•Department store - identify households that buy cribs and strollers and target them for baby clothes and infant toys

•Start thinking about relationships that might not be obvious - e.g., a U.S. company that sells wine direct discovered:

Champagne buyers are more likely to add glassware, chocolates or gift items to their order

Red wine buyers more likely to take advantage of full case discounts

Buyers of California wine are more likely to add other California wines to their order

Customer Profiling: Cluster Analysis

Major Industry Roles

Marketers(Clients)

Marketers(Clients)

AgenciesAgencies SuppliersSuppliers

•Brand/Category Management

•Regional Management

•Segment Management

•Global Management

•Account Executives/ Supervisors/ Directors

•Creative Services/ Copywriters/ Art Directors

•Research Services

•Production

•Media Planners/ Buyers/ Supervisors

•Media

•Media measurement

•List houses

•Fulfillment houses

•Technology vendors/integrators

•Data Processing services

Review of Key Terms

Direct marketing:• The interactive use of media to stimulate

customer response that can be measured and stored using database technology.

Relationship (1-to-1) marketing: Marketing messages specifically tailored for

individual customers based on information about their preferences and purchases contained in an individual’s database record.

Review of Key Terms (cont’d)

LTV: Net present value of all future profits to be

realized on the average new customer during a given number of years.

Lead generation: Direct marketing activity designed to invite

inquiries for sales follow-up.

Review of Key Terms (cont’d)

Direct mail: a direct marketing medium

Direct-response advertising: The use of traditional advertising media as a

carrier vehicle for a direct marketing message.

True/False

Database technology allows marketers to create a different marketing mix for each target segment. (T/F)

True/False

Sustainable competitive advantage comes from making products or services that are very similar to those sold by competitors. (T/F)

True/False

Alternative direct marketing plans are best evaluated by the amount of sales volume they are expected to generate. (T/F)

True/False

Marketers should take advantage of all opportunities they see in the marketplace. (T/F)

True/False

Given that a marketing plan consists of forecasts and estimates, management will never really know if a plan is successful even well after it has been executed. (T/F)

Multiple Choice

Marketing objectives are usually classified in terms of:

A) TimelinesB) Market shareC) Financial targetsD) All of the above.

It all starts with the list

A list is a collection of names and addresses used by direct marketers to target offers.

The list determines: WHO will ultimately receive your message The total number of interactions possible for

the campaign The total projected revenue from the

campaign

List Types and Sources

House Lists

ResponseLists

Internal

CombinedList

RenterA

RenterB

RenterC

CompiledLists

House Lists

House List: an internal list compiled from internal customer records.

Can contain purchase data and purchase patterns

A valuable asset House lists can be “bartered” (traded) with

strategic partners

House List Sources

accounting recordsshipping recordsrecords of inquirieswarranty cardssurvey research results

Response Lists

Response List: an external list made up of individuals who have already exhibited a type of interaction desired by the firm.= “Another firm’s house list”

Examples: Buyer lists Attendee/Membership/Seminar Lists Subscription lists Donor lists

Compiled Lists

Compiled List: an external list that includes records without any previous indication of willingness to respond, but with some defined characteristics.

Examples: Consumer compiled list Consumer lifestyle-enhanced list Business compiled list (directories)

Example: InfoUSA

BusinessUSA: 14 million businessesHouseholdsUSA: 200 million householdsPhysicians & Surgeons: 732,000 physiciansBig Businesses: 218,000 top firmsManufacturers: 612,000 manufacturersSmall Business Owners: 4.5 million

.

Discuss

If you were purchasing a single response list for an upcoming direct mail campaign, which one would you choose?

List A: bought a similar product List B: bought within the categoryList C: bought something by mail

Affinitybought an identical product by mail

bought a similar product by mail

inquired about your product

bought within the category

bought something by mailany other action by mail

Affinity – Another Perspective• Active Customers Active Customers (bought in last x months)(bought in last x months)• Inactive Customers Inactive Customers (bought in > x months)(bought in > x months)• Former CustomersFormer Customers

• Select Prospects Select Prospects (high propensity to buy)(high propensity to buy)

• Other ProspectsOther Prospects

Most Effectiv

e

Least Effectiv

e

RFMRFM

Case Study – CAA

In your new job as a direct marketer at the CAA, you are responsible for building membership.

What are some potential list sources?

List Management

The role of list managersSelection criteriaSeedingData hygiene

List Management Roles

List renter: the list “buyer”

List compiler: the company or person who compiles the list

List broker: an intermediary who: Maintains list hygiene and suppression Provides recommendations, discounts, etc. Typically paid on a commission basis

Selection CriteriaWhen was the list last updated?How deliverable is the list? (hygiene)What selections are available, and at what cost?What is the source of the list?Is the list owner a member of the CDMA?What is the rollout potential of the list compared to rollout fees? Size and turnover

Selection Criteria - Costs

“Premium” lists contain: Recently verified contacts (30-90 days) Proven mail-order buyers Contacts with highly detailed profiles Hard-to-find customer data

“Bargain” lists contain: Unconfirmed contacts Inquired instead of purchased Names/addresses only

Seeding

Seeding: a common practice by list compilers/brokers of adding disguised names and addresses to monitor list usage.

Data Hygiene

Data hygiene: business processes that maintain the usability of customer data.

Reasons: Non-standard/missing address data Incorrect Name Titles, Gender Duplication Inappropriate Gone away, died

Demonstration - InfoUSA

Use the InfoUSA web site to investigate how many small retail stores could be targeted in the Manhattan area.

Selections: Under 20 employees “Excellent” or “Very

Good” credit rating Toronto-GTA area (area

code 416,905,647)

Homework … Sign up for an industry e-newsletter

www.1to1.com Peppers & Rogers Consulting www.dmn.ca Direct Marketing News www.crmcommunity.com CRM Community

• Determine group for Group Project• Start working on Assignment 1• Reading

• Today covered Chapter 1, 2 and 3 in TAPP textbook• Next week: Chapters 10, 11, and 12 in TAPP textbook, Stone pp. 37-44• READ the DMN Article handed out in class; “Is it Possible to change public

perception of direct marketers as junk mailers, if so how?”. Be prepared to discuss in class next week:

http://www.dmn.ca/Articles/Articles/2004/readerforum1.htm