Data Base Marketing Strategies II

                Week 1
          Instructor: Santo Ligotti
Today’s Agenda
    Course outline, evaluation
    Direct & Database Marketing-Review
    List Management
    Handout Assignment #1
Review of Direct &
Database Marketing
Learning Objectives

 1.   To review what direct marketing is and how
      it differs from mass marketing;
 2.   To understand its importance in
      contemporary marketing.
           This week
DM review
Compare DM to advertising
DM agencies, suppliers and associations
Review customer segmentation,
targeting, positioning
Assignment 1 handout
Are you familiar with these
brands? Why?

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 Definitionuse of
     with customers media

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.
      stored on a
    database                  results
In Other Words…
 The purpose of direct marketing is to
 communicate with customers in a way
 that elicits response, which ultimately
 adds to…

Direct Marketing
       use of
                    Marketer      measurable
     media                            results

        Campaign    Fulfillment    Response

  interaction                       stored on a

   with customers   Customer       database
Database Marketing
•   Database Marketing: the discipline of continuously aggregating,
    interpreting, analyzing, and applying information about
    customers and prospects to achieve business objectives.

    Direct 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 1980
 growth of television created mass audiences for national advertising
 mass marketing makes mass production possible: lower prices,
 improved quality, higher disposable incomes
 mass marketing losing effectiveness for some products
   most people have the basics

   media fragmentation
Database marketing enables a 2-
way dialogue with one consumer
    Mass Marketing     Database Marketing

   Targeting to Many   Targeting to „One‟
 Key Differences -
 Mass vs. Direct Marketing
Mass                               Direct
 Directed at many via mass media      Targeted to individual, valuable
 Generic communications               customers via direct marketing
 Highly visible to competition        Customized communications
 In general, no clear action          Less visible to the competition
 communicated: designed to drive      Clear „call-to-action‟ requested
 awareness, change attitudes,         Results are measurable
                                      Almost “noise-free”
 Effectiveness tough to measure
 “Noise” reduces effectiveness

  Do you think mass marketing will eventually “cease to exist”?
Key Differences -
Mass vs. Direct Marketing
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
Database Marketing
Why use Database
Five typical applications:
  1.   Use profiles to find more loyal and
       responsive prospects
  2.   Increase customer retention rate, or
       repurchase rate
  3.   Increase referrals
  4.   Increase cross-selling and up-selling
  5.   Decrease marketing costs
Questions that DBM can
  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
  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: integrated
   E.g. traditional banks

 Direct marketing is used within the
 communications mix
   Peripheral

   E.g. mailing lists of small retailers
Three levels of Direct Marketing

       DM    1. ‘Stand alone’

                 2. Integrated
            3. ‘Peripheral
Reasons for Growth
 More demanding, time-poor consumers
  women make up higher % of workforce
  less time to spend on purchase decisions:
   DM is personal and targeted so saves time
 Decline in brand loyalty
  excessive price reductions, increasing
   retailer power, brand proliferation
  with 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
 Customer-based, not product-based
 Individualized: High Customer Involvement
 Targeted vs. wide reaching
 Attract Relationship Buyers, Detract Transaction Buyers
 Focus on Retention vs. Acquisition
 Focus: Share of „Customer‟ or „Wallet‟ vs. Share of
 Measurability: Test & Learn Approach
 Long-term oriented
 Industries that have adopted
 Telecommunications / Technology
 Financial services
 Travel & entertainment
 Non profit / charities
 Consumer packaged goods
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 , Internet
 Account Executives, Script Writers, Centre Managers, Trainers
 Hardware, Software vendors
 Financial Services Companies including banks, and insurance
 Retail Services Industries (bricks and mortar stores, on-line stores)
 Data Analyst Roles
 Strategy 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

             F.Buttle, “Customer Relationship Management
The 3 Direct Marketing

      Creative       Media

The 3 DM Variables: Creative

  Creative: the “packaging” of the offer
  in terms of:
   1.   Copy
   2.   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                                            Vision/Mission
                                  Corporate/ BU     Situation Analysis
                                     Strategy       Competitive Strategy

                                   Marketing        Target markets
                                    Strategy        Marketing mix

Where, when and
how promotional          IMC       Technology     Creative         Customer insight
expenditures will      Strategy     Strategy        Brief
        be made                                                    Messages


                    Campaign A      Campaign B       Campaign C      (tactical)
RECALL: Setting Direct
Marketing Strategy
•   What are you trying to achieve?

• 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

•   Individual campaigns / programs intended to implement the
Typical Marketing Strategies
1.   Create new profit centers
2.   Launch new products
3.   Maximize after-market
4.   Lead generation
5.   Drive retail traffic
6.   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, timelines
 Outlines the target segments and consumer
 Specifies the competition and other
 environmental variables
 Product, pricing, promotion, distribution
 Specifies the measurement activities
 Provides a formal review process
Marketing Plan Elements
1. Introduction
2. Executive Summary
3. Situation Analysis (SWOT)
     a)   Market environment
     b)   Competitive situation
     c)   Target group analysis (segmentation)
     d)   Distribution channels
     e)   Product situation
     f)   Research
Marketing Plan Elements
4.    Opportunity and Issue Analysis
5.    Objectives
6.    Marketing Strategy
     1.   IMC strategies
     2.   Creative brief
     3.   Technology strategy (data brief)
7.    Campaigns (tactics)
8.    Metrics
9.    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
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.

1.   Group customers that respond
     similarly to various marketing
2.   Establish & refine segments as
     ongoing points of reference in your
3.   Segments must be profitable to serve.
Segmentation Methods
1.   Geographic
2.   Demographic
3.   Geo-demographic
4.   Psychographic
5.   Attitudinal
6.   Behavioural

     …or some combination of the above
Segmentation: Data Types
Purchase behaviour data
  Segment by customer value (LTV)
  Segment by customer need

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

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
    Profile data (consumer characteristics)-

         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                                Database overlays with external data;
        individuals: what they want from you                               profiling/modelling techniques

        Targeting your spend in order to                                   Modelling techniques, RFM
        maximize ROI per campaign

        Profiling existing customers in order to                           Profiling/modelling techniques
        target new customers

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 Procedures
    Regression Analysis

    Cluster Analysis

    Discriminant Analysis

    Factor Analysis

    CHAID (Chi-square automatic interaction
    Segmentation Applications
Segment by customer value
  Not all customers are created equal - most sales are to a
  minority of customers
  PARETO Principle: For most companies the 80/20 rule
  applies: 20% of customers account for 80% of profits
  Goal : 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

  Segmentation Applications: LTV
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
   That revenue generated over those years is essentially
   their lifetime value
   You 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
      Customer Value Dictates
             Best Customers (MVCs)                               Objective: Retain
              20% of Customers                    GOLD          Spend Service Dollars
              80% of Revenue                                    Here

                                                                 Objective: Grow
             Best hope                             Move up       Spend Marketing
             for new GOLD customers                              Dollars Here

             Worst Customers                                     Objective: Drop or
                                                  Unprofitable   make Profitable
              50% of Customers
                                                                 Reprice, move up,
              1% of Total Revenue                               lose

Source: Strategic Database Marketing, A. Hughes
    Segmentation Applications
Segment by customer need
  Quite common in marketing to segment by customer
  Helps to understand the benefits obtained by different
  sets of consumers from the same product
       Market Research
       In house information from your warehouse
       External psychographic or demographic information (PSYTE)

         Customer Profiling

Customer profiles
    a way of identifying possible new prospects for your

      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-Helps Find
the Low Hanging Fruit

          High $

          Low $
        Customer Profiling

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

    Customer Profiling:
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.

• Surveys - ask questions on satisfaction surveys, application
  forms, contests etc.
• Applicant data - banks, insurance, credit card companies
Customer Profiling: Cluster
 •   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
Customer Profiling: Cluster
 Applications -
• 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
    Major Industry Roles
    Marketers                Agencies                        Suppliers
•Brand/Category        •Account Executives/         •Media
Management             Supervisors/ Directors
                                                    •Media measurement
•Regional Management   •Creative Services/
                       Copywriters/ Art Directors   •List houses
•Segment Management
                       •Research Services           •Fulfillment houses
•Global Management
                       •Production                  •Technology
                       •Media Planners/ Buyers/
                       Supervisors                  •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
      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
Direct mail:
      a direct marketing medium

Direct-response advertising:
      The use of traditional advertising media as a
       carrier vehicle for a direct marketing message.
Database technology allows marketers
to create a different marketing mix for
each target segment. (T/F)
Sustainable competitive advantage
comes from making products or
services that are very similar to those
sold by competitors. (T/F)
Alternative direct marketing plans are
best evaluated by the amount of sales
volume they are expected to generate.
Marketers should take advantage of all
opportunities they see in the
marketplace. (T/F)
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)   Timelines
  B)   Market share
  C)   Financial targets
  D)   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
   The total projected revenue from the campaign
  List Types and Sources

Internal            House
  A                  Response

           Renter            Compiled
             C                 Lists
               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 records
shipping records
records of inquiries
warranty cards
survey 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”

   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

   Consumer compiled list
   Consumer lifestyle-enhanced list
   Business compiled list (directories)
            Example: InfoUSA
    BusinessUSA:               14 million businesses
    HouseholdsUSA:           200 million households
    Physicians & Surgeons:       732,000 physicians
    Big Businesses:               218,000 top firms
    Manufacturers:           612,000 manufacturers
    Small Business Owners:                4.5 million

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

 List A: bought a similar product
 List B: bought within the category
 List C: bought something by mail
bought an identical product by mail
     bought a similar product by mail

      inquired about your product

         bought within the category

           bought something by mail
            any other action by mail
Affinity – Another Perspective
   Most      • Active Customers
             (bought in last x months)
             • Inactive Customers        RFM
             (bought in > x months)
             • Former Customers

             • Select Prospects
             (high propensity to buy)
             • Other Prospects
       Case Study – CAA
In your new job as a
direct marketer at
the CAA, you are
responsible for

What are some
potential list
        List Management

The role of list managers
Selection criteria
Data 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 Criteria
When 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: a common practice by list
compilers/brokers of adding disguised
names and addresses to monitor list
             Data Hygiene
Data hygiene: business processes that
maintain the usability of customer data.

   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.

   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
                                 Peppers & Rogers Consulting
                                   Direct Marketing News
                         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

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