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Direct Marketing and the Internet Week 8 Fall 2007 Ganesh Iyer 1 A Simple Comparison Four Distinctions Mass marketing Direct marketing standard custom Media broad, one-way narrow, interactive Target segment individual Focus transaction relationship Product Ganesh Iyer 2 Strategic Customer Aspects Managing customer equity = net lifetime value of a consumer » Dialogue – Promotions as response devices to elicit individual information. » Develop loyalty programs (frequent shopper programs) » Use of cross promotions. – Amazon recommendations. Ganesh Iyer 3 Cost Aspects Reichheld, F. (1996) The Loyalty Effect, HBS, Boston. Cost Implications: cost of acquisition v. cost of retention » Acquiring new customers is more costly than retaining current customers. Ganesh Iyer 4 The Loyalty Effect Ganesh Iyer HOMEWORK: CONDUCT CONSUMER LIFECYCLE ANALYSIS FOR C&C FOR A 5 YEAR CUSTOMER LIFE 5 Competitive Aspects Database Technology & Customized marketing strategy » Example from (Iyer and Soberman 2000) » http://groups.haas.berkeley.edu/marketing/PAPERS/IYER/prodmod.pdf ICOM’s has a relational database that incorporates household level information on demographics, activities, preferences and importantly brand consumption. » Consumer Data Base with 20 million households (loyalty/usage data) Use of ICOM’s database in the OTC pain relief category » Motrin and Advil are direct competitors in the OTC pain relief market and share the same active ingredient (i.e., ibuprofen). » Analysis of ICOM's database revealed that Advil's usage was relatively high among headache sufferers. In contrast, Motrin usage was higher among sufferers of backache. Ganesh Iyer 6 Database technology and customized marketing strategy Retention-Type Information » Using information from ICOM's database, J & J developed a communications and promotions program targeted at the frequent sufferers of backaches. » This adds-value to consumers who are loyal to Motrin. Conquesting-Type Information » J&J could also increase its appeal to the loyal consumers of Advil by communicating its efficacy for headaches. » This adds-value for Motrin among the loyal consumers of Advil. Ganesh Iyer 7 Internet and Direct Marketing Large scale interactivity (3 characteristics): 1. Firms can interact with a large number of customers on a one-to-one basis at a low cost. 2. Consumers can interact with firms. 3. Consumers can interact with each other. What does the Internet add to Direct Marketing? » Customization + Interactivity This leads to the concept of consumers being co-creators of products. Ganesh Iyer 8 NIKEiD: Product customization Dedicated whole division to this ($250mm commitment…expected to lose money initially as operations expand). Why is Nike doing this? Ganesh Iyer 9 Lands’ End customization Comment Customization and consumer behavior » Can there be over-provision of variety? Ganesh Iyer 10 Customized Marketing is: Consumer centric through 1. Building long-term relationships with consumers based on their individual needs. 2. Customizing interactions between companies and individual consumers Maximize the value of the lifetime relationship. [My advice is..] Stop being a company with its face towards the CEO and ass towards the customer” Jack Welch, CEO, G.E. Ganesh Iyer 11 Analysis Framework Perceptual mapping Company Analysis Marketing Myopia First mover advantages Customer Analysis Competitor Analysis Positioning Segmentation Marketing Strategy Pricing process Pricing and innovation Product Marketing Orientation Branding Price Promotion Direct marketing Place Going to market Goodyear Market Ganesh Iyer 12