MARK2038 Data Base Marketing Strategies II

1. MARK2038 Data Base Marketing Strategies II Week 1 Instructor: Santo Ligotti Email: sligotti@gbrownc.on.ca

2. Today’s Agenda • Introductions • Housekeeping • Course outline, evaluation • Lecture • Direct & Database Marketing-Review • List Management • Handout Assignment #1

3. Review of Direct & Database Marketing

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

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

6. Are you familiar with these brands? Why? 8

7. 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)

8. interaction with customers use of media 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. stored on a database measurable results

9. profit. In Other Words… • The purpose of direct marketing is to communicate with customers in a way that elicits response, which ultimately adds to…

10. measurable results use of media Campaign Fulfillment Response interaction with customers stored on a database Direct Marketing Marketer Customer Customer

11. 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

12. 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

13. Database marketing enables a 2-way dialogue with one consumer Database Marketing Mass Marketing Targeting to ‘One’ Targeting to Many 13

14. 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” Key Differences - Mass vs. Direct Marketing Do you think mass marketing will eventually “cease to exist”?

15. 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

16. Database Marketing

17. 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

18. 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?

19. 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

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

21. 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

22. 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

23. 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

24. 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?

25. 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

26. 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).

27. 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

28. The 3 Direct Marketing Variables Creative Media Offer

29. The 3 DM Variables: Creative • Creative: the “packaging” of the offer in terms of: • Copy • Layout (design) • Theme

30. The 3 DM Variables: Media Direct-response mediainclude: • Direct mail • Telemarketing • Print • Broadcast • Digital media Some are affinity channels, some are not.

31. 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

32. IMC Strategy Technology Strategy Creative Brief 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

33. 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

34. Create new profit centers Launch new products Maximize after-market sales Lead generation Drive retail traffic Develop niche markets Typical Marketing Strategies

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

36. 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

37. 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

38. Marketing Plan Elements (cont’d) • Opportunity and Issue Analysis • Objectives • Marketing Strategy • IMC strategies • Creative brief • Technology strategy (data brief) • Campaigns (tactics) • Metrics • Budget

39. Objective Setting

40. 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. 28

41. 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.

42. Segmentation Methods • Geographic • Demographic • Geo-demographic • Psychographic • Attitudinal • Behavioural • …or some combination of the above

43. 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 30

44. 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) 30

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

46. 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

47. 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)

48. 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 30

49. 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 30

50. 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