MARKETING STRATEGY

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MARK2038 Data Base Marketing Strategies II
Week 1 Instructor Santo Ligotti Email
sligotti_at_gbrownc.on.ca
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Todays Agenda

• Introductions
• Housekeeping
• Course outline, evaluation
• Lecture
• Direct Database Marketing-Review
• List Management
• Handout Assignment 1

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Review of Direct Database Marketing
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Learning Objectives

• To review what direct marketing is and how it
  differs from mass marketing
• To understand its importance in contemporary
  marketing.

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This week

• DM review
• Compare DM to advertising
• DM agencies, suppliers and associations
• Review customer segmentation, targeting,
  positioning
• Assignment 1 handout

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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)

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Alternate Definition (Stone)
interaction with customers
use of 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.

measurable results
stored on a database
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In Other Words

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

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Direct Marketing
Marketer
Customer
Customer
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Database Marketing

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

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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

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Database marketing enables a 2-way dialogue with
one consumer
Database Marketing
Mass Marketing
Targeting to One
Targeting to Many
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Key Differences - Mass vs. Direct Marketing

• Mass
• Directed at many via mass media
• Generic communications
• Highly visible to competition
• In general, no clear action communicated
  designed to drive awareness, change attitudes,
  behaviour
• Effectiveness tough to measure
• Noise reduces effectiveness

• Direct
• Targeted to individual, valuable customers via
  direct marketing
• Customized communications
• Less visible to the competition
• Clear call-to-action requested
• Results are measurable
• Almost noise-free

Do you think mass marketing will eventually
cease to exist?
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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

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Database Marketing
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Why use Database Marketing?

• Five typical applications
• Use profiles to find more loyal and responsive
  prospects
• Increase customer retention rate, or repurchase
  rate
• Increase referrals
• Increase cross-selling and up-selling
• Decrease marketing costs

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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?

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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

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Three levels of Direct Marketing
DM
1. Stand alone
2. Integrated
DM
DM
3. Peripheral
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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

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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

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Core Concepts of Direct Marketing

• 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 Market
• Measurability Test Learn Approach
• Information-intensive
• Long-term oriented

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Industries that have adopted DM

• Telecommunications / Technology
• Financial services
• Automotive
• Retail
• Publishing
• Travel entertainment
• Non profit / charities
• Consumer packaged goods
• Pharmaceutical

Can you think of some examples from each
industry?
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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
• Printers
• Fulfillment
• Hardware, Software vendors
• Financial Services Companies including banks, and
  insurance organizations
• Retail Services Industries (bricks and mortar
  stores, on-line stores)
• Data Analyst Roles
• Strategy Development
• Database Management

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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).
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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

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The 3 Direct Marketing Variables
Creative
Media
Offer
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The 3 DM Variables Creative

• Creative the packaging of the offer in terms
  of
• Copy
• Layout (design)
• Theme

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The 3 DM Variables Media

• Direct-response media include
• Direct mail
• Telemarketing
• Print
• Broadcast
• Digital media
• Some are affinity channels, some are not.

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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

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Strategy
Corporate/ BU Strategy
Vision/Mission Situation Analysis Competitive
Strategy
Objectives Target markets Marketing mix Resources
Marketing Strategy
Where, when and how promotional expenditures will
be made
Customer insight USP Messages
Database Marketing Strategy
Programs (strategic)
Campaigns (tactical)
Campaign A
Campaign B
Campaign C
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RECALL Setting Direct Marketing Strategy

• 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

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Typical Marketing Strategies

• Create new profit centers
• Launch new products
• Maximize after-market sales
• Lead generation
• Drive retail traffic
• Develop niche markets

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Marketing Plan

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

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Purpose of a marketing plan

• Sets objectives for sales, profit, market share,
  new customers, timelines
• Outlines the target segments and consumer
  behaviour
• Specifies the competition and other environmental
  variables
• Product, pricing, promotion, distribution
• Specifies the measurement activities
• Provides a formal review process

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Marketing Plan Elements

• 1. Introduction
• 2. Executive Summary
• 3. Situation Analysis (SWOT)
• Market environment
• Competitive situation
• Target group analysis (segmentation)
• Distribution channels
• Product situation
• Research

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Marketing Plan Elements (contd)

• Opportunity and Issue Analysis
• Objectives
• Marketing Strategy
• IMC strategies
• Creative brief
• Technology strategy (data brief)
• Campaigns (tactics)
• Metrics
• Budget

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Objective Setting
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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

• Group customers that respond similarly to various
  marketing treatments.
• Establish refine segments as ongoing points of
  reference in your business.
• Segments must be profitable to serve.

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Segmentation Methods

• Geographic
• Demographic
• Geo-demographic
• Psychographic
• Attitudinal
• Behavioural
• or some combination of the above

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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

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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)-DEMOGRAPHI
  CS or PSYCHOGRAPHICS (Lifestyle attributes)

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Segmentation Applications Techniques in Direct
Marketing
Principles of Direct and Database Marketing, 3rd
Ed., Alan Tapp, pg 58.
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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

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Some Commonly Used Statistical Procedures and
Software for DM

• Statistical Procedures
• Regression Analysis
• Cluster Analysis
• Discriminant Analysis
• Factor Analysis
• CHAID (Chi-square automatic interaction
  detection)

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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

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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 you
• 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

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Customer Value Dictates Strategy

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

Objective Retain Spend Service Dollars Here
GOLD
Objective Grow Spend Marketing Dollars Here
Best hope for new GOLD customers
Move up
Objective Drop or make Profitable Reprice, move
up, lose

• Worst Customers
• 50 of Customers
• 1 of Total Revenue

Unprofitable
Source Strategic Database Marketing, A. Hughes
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Segmentation Applications

• Segment by customer need
• Quite common in marketing to segment by customer
  need
• Helps to understand the benefits obtained by
  different sets of consumers from the same product
• How
• Market Research
• In house information from your warehouse
• External psychographic or demographic information
  (PSYTE)

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Customer Profiling

• 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

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Customer Profiling-Helps Find the Low Hanging
Fruit
GET IT?
High
Low
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Customer Profiling

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

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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

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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

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Customer Profiling Cluster Analysis

• 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

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Major Industry Roles
Marketers (Clients)
Agencies
Suppliers

• 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

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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
  individuals database record.

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Review of Key Terms (contd)

• 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.

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Review of Key Terms (contd)

• Direct mail
• a direct marketing medium
• Direct-response advertising
• The use of traditional advertising media as a
  carrier vehicle for a direct marketing message.

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True/False

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

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True/False

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

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True/False

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

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True/False

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

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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)

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Multiple Choice

• Marketing objectives are usually classified in
  terms of
• Timelines
• Market share
• Financial targets
• All of the above.

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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

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List Types and Sources
House Lists
Response Lists
Compiled Lists
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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

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House List Sources

• accounting records
• shipping records
• records of inquiries
• warranty cards
• survey research results

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Response Lists

• Response List an external list made up of
  individuals who have already exhibited a type of
  interaction desired by the firm.
• Another firms house list
• Examples
• Buyer lists
• Attendee/Membership/Seminar Lists
• Subscription lists
• Donor lists

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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)

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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
• .

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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 category
• List C bought something by mail

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Affinity
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
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Affinity Another Perspective
Most Effective

• Active Customers
• (bought in last x months)
• Inactive Customers
• (bought in gt x months)
• Former Customers
• Select Prospects
• (high propensity to buy)
• Other Prospects

RFM
Least Effective
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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?

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List Management

• The role of list managers
• Selection criteria
• Seeding
• Data hygiene

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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

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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

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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

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Seeding

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

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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

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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)

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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/readerfor
  um1.htm