Transcript What do you believe a good working definition of Direct Marketing is?

University of Washington EMBA Program
Marketing Management
“Direct Marketing”
Instructor: Elizabeth Stearns
Marketing Plan Review
Analysis of promotional program situation
Analysis of the communication process
Budget Determination
Develop integrated marketing communications program
Advertising
Direct Marketing
Sales Promotion
•Create Awareness
•Generate a Sale
•Develop Attitudes
•Change Attitudes
•Generate a Lead •Stimulate
•Qualify a Lead
demand/sales(short
•Inform
•Enhance a db
term)
•Persuade
•Relationship
•Support sales
Building
force/trade/customer
•Create Excitement
(selling and buying)
PR/ Publicity
•Fostering
Goodwill between
co. and publics
•Brand Awareness
•Build Attitudes
•Encourage
purchase behavior
Personal Selling
•Influence
purchase needs
•Educate
consumers
•Provide
Product
usage/marketing
assistance/
•After sale
service and
support
Communications Stream/Response
How Customers Respond
Person
Mail
Phone
Fax
email
Web
How Cos. Communicate
Person
Mail
Phone
Fax
email
Web
TV
Radio
Outdoors
POS
Dr. Gary Bridge, IBM
Wireless
INTRODUCTION
Direct Marketing
• An organized and planned system of
contacts
• Using a variety of media
• Supported by general advertising in print
and broadcast media, if appropriate
• Aimed at selected prospects and
customers
Direct Marketing
• Seeking to produce a lead or an order
• Measurable in its costs and results
• Improvable through testing and analysis
• Expandable with confidence
Functions of Direct Marketing
•
•
•
•
•
Make a sale
Generate a lead
Qualify a lead
Relationship building
Database enhancing
Definition of Direct Marketing
• “Direct marketing is an interactive system
of marketing which uses one or more
advertising media to effect a measurable
response and/or transaction at any location”
Direct Marketing Update 2000
• Total Sales Revenue:
Catalogue
Internet
US$ 1.7 trillion
US$ 110.6 billion
US$ 24.2 billion
• Jobs:
15.6 million
11.6 % US Employment
• DR Advertising
:
Mail alone
Source: WEFA/DMA
US$ 191.6 billion
(56.5% total adv. $)
US $33 billion
Image Response
• Connectivity between all communications
• Maximizing budgets
• Not distruptive of other efforts
Available Media
•
•
•
•
•
Brochures or catalogs sent by mail
Radio and TV ads
Television Shopping Networks/Programs
Telephone
Newspaper and magazine ads, preprints, bind-ins,
etc.
• Statement inserts
• Cooperative mailings
Available Media
• Package and bag stuffers
• Take-ones
• Cereal boxes, egg and milk cartons, matchbooks,
etc.
• Interactive cable
• Worldwide Web/Internet
The Role of Media
• Media planning is concerned with how to
use advertising time and space most
effectively (and efficiently) to contribute
to the achievement of marketing
objectives.
The Role of Media
• Media provides a bridge that delivers the
right message (and offer) to the right
target. In this respect, media decisions
that deliver both image/awareness are the
same for direct response efforts.
• Media planning that is involved with
generating a direct response, goes steps
further in analyzing previous results and
projecting future response.
Media’s Role in Direct Marketing
• The “accountable” nature of direct
marketing is the crucial determining
factor used to plan each media campaign.
Historical response analysis is the
foundation and starting point for the
overall planning process.
Media’s Role in Direct Marketing
• Front-end Response
-% response
-Orders per thousand
-Cost per order
Media’s Role in Direct Marketing
• Back-end Response
-The quality of the customer is primarily
measured by total sales (net of bad pay)
per customer, but related measures are
also used such as: conversion %, renewal
rate and upgrade %, cross promotion
sales, credit card usage, and ultimately a
“Lifetime Customer Value” Index.
The Planning Process
• Historical response analysis* is the
foundation for the planning process:
–Front end response
• % response and cost per inquiry
–Back end response
• % quality of customer and lifetime
value
Managing the Buy
Objectives are managed over the length of
the campaign
• Counts are received from the
telemarketing services on a daily basis.
• Exact times are received from the
stations.
• Buyers adjust schedules daily based upon
performance and availability of air time.
Managing the Buy
Responsiveness on a daily basis
• Rates are renegotiated.
• “No-charges” are negotiated.
• Ineffective/inefficient dayparts are
eliminated.
• Spending is increased on well-performing
stations.
• Poor stations are eliminated.
• New stations are recommended.
Managing the Buy
As a result...
• Flight dates are shortened or extended.
• Alternate commercial lengths are tested
and used.
• Creative/product fatigue is assessed.
• Individual station activity is added to,
reduced, or cancelled.
Type of Lists
• Compiled
– Names and addresses derived from
directories, public records, newspapers,
retail sales slips, trade show registrants, etc.,
to identify groups of people who have
something (single identifiable characteristic)
in common.
Type of Lists
• Response
– Names and addresses of consumers or business
executives who ordered and paid for a product or service
through the mail.
• Response Enhanced
– Consumers(purchasers) who have filled out
questionnaires and mailed in those questionnaires which
describe their demographics, psychographics and specific
product buying habits.
• House List
– Purchased or inquired, 5-6 times better results
Development of DM in U.S.
• Substantial mail order activity in existence for more than
100 years
• Originally built to serve needs of a working class, rural
nation
• In 20th century specialty businesses evolved
– Often featured low price but hard-to-find items
– Fostered a “discount” image
– Market mostly middle/lower class
– Pattern of thousands of small, independent mail order
businesses established
1950
Development of DM in U.S. (cont.)
• Starting in 60’s patterns changed markedly
– Rapid growth; faster than retail
– Achieved “in” status, better public image
– Quality, variety, convenience became main
reasons for purchase, not prices
– Market became urban/suburban, upper middle
class
Development of DM in U.S. (cont.)
– Rapid growth in number of, and access to, rented
lists of mail order buyers
– Large companies saw growth opportunitiesbought/started direct marketing activities
– Still thousands of companies, few with sales of
more than $100 million
Development of DM in U.S. (cont.)
• Late 80’s/90’s saw:
– Slower growth of consumer businesses
– Time Poor Consumers: “Cognitive Overload”
– Growth of multi-channel-particularly addition of
retail stores by mail order businesses-much faster
than serious growth of direct marketing by retail
Development of DM in U.S. (cont.)
– Internet growth for ecommerce
– Continued use of database by financial,
transportation, manufacturing sectors
– Relational vs. Transactional databases
– Technology as a facilitator and inhibitor (Privacy)
Development of DM in US (cont.)
• 21st Century
– Real time customer
– Mandatory multi channel-customer choice
– Privacy needs/remedies confused,-self
regulation and gov’t involved
– Fulfillment & database essential skill setsoften not resident at ecommerce companies
– CRM: hot topic! Myth or Reality
Using technology to understand your customer
“Hug Me”
Your customers will shop and purchase as is
convenient/appropriate for them (hint: not
you!)
Set up your systems to capture behavior to get
a complete look at your customer.
Development of DM in U.S. (cont.)
• Business to business sector has grown rapidly, now
about 50% of total sales. Efficient as:
– Prospecting tool
– Way to sell low volume customers or low volume
product
– Information/intelligence gatherer
– Sales!
Trends Favorable to Growth
Demographic and Lifestyles
• For households in which both adults work and for business
customers, convenience and time savings assume great
importance.
– Many U.S. consumers have more discretionary money than time.
– Or when they are managing to less discretionary money, info and
choices are readily available through multiple DM means.
– Businesses are seeking higher productivity.
• Higher educational levels – particularly with the “baby
boom” generation - produce more shoppers with selfconfidence to permit purchase decisions based on written
materials.
Trends Favorable to Growth
Demographic and Lifestyles (cont.)
• Retail shopping less often provides an enriching or
self-gratifying experience.
• Individual consumer’s values/needs can be
recognized in personalized or interactive direct
marketing communications that replace the physical
one to one contact that is no longer affordable.
Trends Favorable to Growth
Marketing Needs of Major Corporations
• Rising costs of marketing and declining price or
many products, requires greater efficiency.
• Narrow/specialized target markets must be dealt
with individually.
Trends Favorable to Growth
Marketing Needs of Major Corporations
• Multiple distribution channels are required. Direct
marketing, as one, is both complementary and
incremental.
• Direct marketing databases and discipline assist
measurement of other channels and of conventional
advertising.
R-F-M
• Recency
– When was the last time they purchased?
• Frequency
– How often do they purchase?
• Monetary Value
– How much money do they spend?
RFM Definition
RFM is a behavioral segmentation technique
• Typically used to select likely profitable customers to
receive direct marketing treatment
• It postulates that the most likely prospects are recent
purchasers who have historically demonstrated more
frequent than average purchase behavior in larger than
average dollar amounts
• It is based on a correlation between RFM and response
• Historically it has proven to be an effective
segmentation technique for many situations
• The variables RFM are frequently influential in many
advanced statistical modeling techniques
RFM Definition (cont’d)
• The variables must be interpreted within the
context of product purchase dynamics
– Durable
– Consumables
– Periodic
• Can be used to manage marketing investment by
selecting target customers
• Can also be used to improve marketing
performance by managing message/offer
components
RFM Elements
Segmentation Behavioral
Concept
Question
Data Element/
Measurement
Recency
When did
Date of last
they last buy? purchase
Process:
•Sort by date
•Create groups by date range
Frequency
How often do # of purchases
they buy?
over time
Options:
Within recency group, months
on file, # times mailed
Monetary
Value
How much
do they
spend?
Options:
Within recency group, months
on file, # times mailed
$ value of
purchases
RFM / Customer Treatment
RFM segmentation can be used to manage customer
treatment across functions
Functional Dimension
Customer Service
Billing
Collections
Credit
Marketing
Treatment Implication
Service Level
Adjustment Practices
Minor delinquency action
Over limit action
Incentives/Premiums
Sensitivity Analysis
• Three variables are often used to develop a picture that gives a range
of possibilities to achieve financial objectives:
– Response Rate (and the cost to achieve this)
– Average Order Size (and requisite merchandise)
– Circulation/Audience Size (and economies for volume)
• These are reviewed to give a reality check on Best/Worst/Most
Likely scenaria, and provide a good basis for a monthly Cash Flow
analysis.
Ruth Owades Sensitivity Analysis
Assumptions
Gross margin
Fulfillment and O.H.
Inventory Writedown
Catalog Expense
Mailing Size
Average Order Size
Response Rates
Sales
Gross Margin
Catalog Expense
Fulfillment and Overhead
Writedown of Inventory
Contribution
55%
15%
4%
=$50K+$25K/200K catalogs
100,000
30
1.4%
$
42.0
$
23.1
$
62.5
$
6.3
$
1.7
$ (47.4)
200,000
30
1.4%
$
84.0
$
46.2
$
75.0
$
12.6
$
3.4
$ (44.8)
$
$
$
$
$
$
400,000
30
1.4%
168.0
92.4
100.0
25.2
6.7
(39.5)
$
$
$
$
$
$
600,000
30
1.4%
252.0
138.6
125.0
37.8
10.1
(34.3)
$
$
$
$
$
$
800,000
30
1.4%
336.0
184.8
150.0
50.4
13.4
(29.0)
$
Response Rate
100,000 Catalogs Mailed
$
Response Rate
Average Order Size
(47.4)
20
25
1.0%
(55.30)
(53.50)
1.5%
(51.70)
(49.00)
2.0%
(48.10)
(44.50)
2.5%
(44.50)
(40.00)
3.0%
(40.90)
(35.50)
3.5%
(37.30)
(31.00)
4.0%
(33.70)
(26.50)
4.5%
(30.10)
(22.00)
30
(51.70)
(46.30)
(40.90)
(35.50)
(30.10)
(24.70)
(19.30)
(13.90)
35
(49.90)
(43.60)
(37.30)
(31.00)
(24.70)
(18.40)
(12.10)
(5.80)
40
(48.10)
(40.90)
(33.70)
(26.50)
(19.30)
(12.10)
(4.90)
2.30
45
(46.30)
(38.20)
(30.10)
(22.00)
(13.90)
(5.80)
2.30
10.40
50
(44.50)
(35.50)
(26.50)
(17.50)
(8.50)
0.50
9.50
18.50
$
Response Rate
200,000 Catalogs Mailed
$
Response Rate
Average Order Size
(44.8)
20
25
1.0%
(60.60)
(57.00)
1.5%
(53.40)
(48.00)
2.0%
(46.20)
(39.00)
2.5%
(39.00)
(30.00)
3.0%
(31.80)
(21.00)
3.5%
(24.60)
(12.00)
4.0%
(17.40)
(3.00)
4.5%
(10.20)
6.00
30
(53.40)
(42.60)
(31.80)
(21.00)
(10.20)
0.60
11.40
22.20
35
(49.80)
(37.20)
(24.60)
(12.00)
0.60
13.20
25.80
38.40
40
(46.20)
(31.80)
(17.40)
(3.00)
11.40
25.80
40.20
54.60
45
(42.60)
(26.40)
(10.20)
6.00
22.20
38.40
54.60
70.80
50
(39.00)
(21.00)
(3.00)
15.00
33.00
51.00
69.00
87.00
$
Response Rate
400,000 Catalogs Mailed
Average Order Size
(39.5)
20
25
30
35
1.0%
(71.20)
(64.00)
(56.80)
(49.60)
1.5%
(56.80)
(46.00)
(35.20)
(24.40)
2.0%
(42.40)
(28.00)
(13.60)
0.80
2.5%
(28.00)
(10.00)
8.00
26.00
3.0%
(13.60)
8.00
29.60
51.20
3.5%
0.80
26.00
51.20
76.40
4.0%
15.20
44.00
72.80
101.60
4.5%
29.60
62.00
94.40
126.80
40
(42.40)
(13.60)
15.20
44.00
72.80
101.60
130.40
159.20
45
(35.20)
(2.80)
29.60
62.00
94.40
126.80
159.20
191.60
50
(28.00)
8.00
44.00
80.00
116.00
152.00
188.00
224.00
600,000 Catalogs Mailed
Average Order Size
(34.3)
20
25
30
35
1.0%
(81.80)
(71.00)
(60.20)
(49.40)
1.5%
(60.20)
(44.00)
(27.80)
(11.60)
2.0%
(38.60)
(17.00)
4.60
26.20
2.5%
(17.00)
10.00
37.00
64.00
3.0%
4.60
37.00
69.40
101.80
3.5%
26.20
64.00
101.80
139.60
4.0%
47.80
91.00
134.20
177.40
4.5%
69.40
118.00
166.60
215.20
40
(38.60)
4.60
47.80
91.00
134.20
177.40
220.60
263.80
45
(27.80)
20.80
69.40
118.00
166.60
215.20
263.80
312.40
50
(17.00)
37.00
91.00
145.00
199.00
253.00
307.00
361.00
800,000 Catalogs Mailed
Average Order Size
(29.0)
20
25
30
35
1.0%
(92.40)
(78.00)
(63.60)
(49.20)
1.5%
(63.60)
(42.00)
(20.40)
1.20
2.0%
(34.80)
(6.00)
22.80
51.60
2.5%
(6.00)
30.00
66.00
102.00
3.0%
22.80
66.00
109.20
152.40
3.5%
51.60
102.00
152.40
202.80
4.0%
80.40
138.00
195.60
253.20
4.5%
109.20
174.00
238.80
303.60
40
(34.80)
22.80
80.40
138.00
195.60
253.20
310.80
368.40
45
(20.40)
44.40
109.20
174.00
238.80
303.60
368.40
433.20
50
(6.00)
66.00
138.00
210.00
282.00
354.00
426.00
498.00
Gains Chart for Responsiveness
Decile
Qty.
Mailed
(000)
Number
Resp. (#)
Percent
Resp.
(%)
Resp.
Gain
Index*
Revenue
Generated
(000)
Mailing
Cost
(000)
Total
Profit
(000)
1
600
20,250
3.37%
225
$506
$240
$266
2
1,200
34,200
2.85
190
855
480
375
3
1,800
48,330
2.68
179
1,208
720
488
4
2,400
60,840
2.53
169
1,521
960
561
5
3,000
67,500
2.25
150
1,687
1,200
487
6
3,600
76,680
2.13
142
1,917
1,440
477
7
4,200
81,900
1.95
130
2,047
1,680
367
8
4,800
84,960
1.77
118
2,124
1,920
204
9
5,400
87,480
1.62
108
2,187
2,160
27
10
6,000
90,000
1.50
100
2,250
2,400
-150
Mailing Cost: $400/thousand
*Index of Relative Responsiveness; Universe Indexed to 100.
Source: Direct Marketing, November 1988
Revenue: $25/response
Marketing Management
Information
Customer Data
Customer
Characteristics
Contact History
•Demographics
•Psychographics
•Household Composition
Customers/
Prospects
Behavior
Change Drivers
Response History
Customer-Level View
Promotion History
Key Behavior
Events
Performance Metrics
•Recency
•Frequency
•Monetary Value
Retention Programs
Selection
System
Reporting
And Analysis
System
Program Streams
Reports/
Evaluation
Pre-Purchase Programs
CATALOG
A complete enumeration of items arranged
systematically with descriptive details – a
pamphlet or book that contains such a list.
History
Iraq
3000 B.C.
• Clay Tablets recording temple
accounts and inventories
Europe
15th/ 16th Century
Colonial U.S.
1744
USA
1872
• First Trade Catalog
• Ben Franklin’s Book of Books
• Montgomery Ward Catalog
– Single Sheet listing 163 items
– By 1875, catalog was 72 pages
• Sears
• J.C. Penney
Thank You!