Transcript Club and Continuity Businesses

University of Washington MBA Program
Managing Customer Relationships
through Direct Marketing
Database Intro/Targeting
Instructor: Elizabeth Stearns
The Database Marketing Environment
• Over the past few years, database marketing
has been a very hot topic, and
understandably so.
–The cost of computer performance has
rapidly decreased, and the functionality
of software has increased
The Database Marketing Environment
–Knowledge of how to apply statistics to
direct marketing has grown
–Today, systems are being used to target
prospects, profile customers, manager
customer relationships, model behavior
and measure risk
What is Database Marketing?
Ex: Children’s Negative Option Book Club
Customer: Lisa Dougherty
Prior Promoted Books
Cat in the Hat
Berenstein Bears
Wocket in My Pocket
Smurfs
Put Me In The Zoo
One Fish, Two Fish
Magic Castle Reader
Would demographics help?
Purchased (Y/N)
Y
N
Y
Y
Y
Y
N
What is Database Marketing?
Example: Record Club: Three Free Choices
Customer No. 1 Choices
Motley Crüe
Guns and Roses
Anthrax
Customer No. 2 Choices
Led Zeppelin
Black Crows
Jethro Tull
Who is the better credit risk?
Who has the higher lifetime value?
CEO’s Brain
Right Side
Quality First
Customer Focus
Customer First
Service Quality
Customer Satisfaction
Left Side
Costs
Revenues
Market Share
Budgets
Incentives
Compensation
Strategic Plans
Profits
Market Value
Why Customer-Focused Marketing?
• The information “shift”
• Strong customer relationships = Loyalty=Profit:
the economics
• Technology as an enabler
Strong relationships=
loyalty=profits
• 65% of business comes from existing satisfied
customers (AMA)
• Loyal customers buy, spend, try, and refer more
(TARP)
• Acquisition is 6 times more expensive than
retention (AMA)
• 5% increase in retention can boost profits from
25% - 125% (Bain)
Relationship Attributes
•
•
•
•
Evolutionary process, not an event
Experience-based, not transaction-based
Mutually beneficial, two way
Emotional and/or logical appeals
Brand relevance to direct marketing
“To enhance customer loyalty, a company must
strengthen the relationship with the brand”
“A focus on loyalty segmentation provides strategic
and tactical insights that assist in building strong
brands”
David Aaker, “Building Strong Brands”
Relationship Process
Measurement
On-going Dialogue
Database Support
Communication Objectives
Customer Segmentation
Brand Equity / Promise
?????????
MARKETING DATABASE
DATABASE MARKETING
Two Kinds of Database People
• Constructors
People who build databases
Merge/Purge, Hardware, Software
• Creators
People who understand strategy
Build loyalty and repeat sales
• You need both kinds!
Arthur Hughes’ Chrysler Story
Letter to Lee Iacocca
 Eastern Region (Baltimore) Sales Manager
“Mr Hughes, I have your letter here to Mr
Iacocca. Now Mr Hughes, I want to assure you
that we do have a database. I’ve looked you up,
and you’re on it!”

Arthur Hughes’ Chrysler Story
db Marketing Conference/Chrysler Exec/
25 million names

“So, you are in charge of the Chrysler database?”
“Yes, I am.”
“Well, tell me. What are you doing with your
database?”
“Oh,” he said, “we have it on a UNIX platform.”
!!!!!!!!!!!
Customer Segmentation & Profiling
know thy data, know thy customer
Elements of a Marketing Database
External Overlays
(Adverbs)
Marketing Mgmt Info
(Adjectives)
Performance Metrics
(Verbs)
Customer Definition
(Nouns)
Psychographic
Overlays
Response
History
Recency
Geodemographic
Overlays
Promotional
History
Frequency
Customer/Prospect
Contact
History
Monetary
Value
How a modern database system works
Customer
Transactions
Marketing
Database
Data Access
And Analysis
Software
Marketing
Staff -Access
By Web
Model
Inputs from Retail,
Phone, Web
Website
Appended
Data
Marketing Databases and
Operational Databases
Daily updating permits greater customer
contact and service
Relationship Marketing
interactions need an engine!
Outbound: Days
“I have an offer …”
offer
$
Inbound:
“I have
a person
Milliseconds
…”
$$ $$$ $
$$
“Let me find the best offer
for
this person.”
offer
offer
offer
offer
$$
$
What doesn’t work:
Treating all customers alike
79.67%
This 28% lost 22% of the
bank’s profits!
80.00%
60.00%
24.82%
40.00%
15.83%
1.52%
20.00%
0.00%
-20.00%
Bank Customers by Profitability
-21.83%
-40.00%
5%
11%
28%
28%
28%
Marketing to Customer Segments
Your Best Customers 80% of Revenue
Your Best Hope for
New Gold Customers
1% of Total
Revenue
GOLD
Move Up
These may be losers
Spend Service
Dollars Here
Spend Marketing
Dollars Here
Reactivate or
Archive
Examples of Profitable Strategies
•
•
•
•
•
•
Newsletters
Surveys and Responses
Loyalty Programs
Customer and Technical Services
Friendly, interesting interactive web site
Event Driven Communications
What proves that relationship building works?
•
•
•
•
Manufacturer of building products
Catalog sent to 45,000 contractors
Previous policy: wait for the orders
Test: pick 1,200 customers, split into test of
600 and control of 600
• Two person pilot program build relationship
with test customers to see the results
Credit: Hunter Business Direct
What did they offer?
•
•
•
•
•
Follow up on bids and quotes
Schedule product training
Ask about customer needs
New Product information
They did not offer discounts
Change in the number of orders
112%
120%
82%
100%
Change in
number of
orders
80%
60%
40%
20%
0%
1
2
Control vs Test Groups
Change in the Average Order Size
114%
120%
86%
100%
80%
Change in
average 60%
order size
40%
20%
0%
1
2
Control vs Test Group
Total revenue gain: $2.6 million dollars
127%
140%
120%
100%
Change in
total
revenue
70%
80%
60%
40%
20%
0%
1
2
Control vs Test Group
Lifetime
Value!
IBM and Consensual Database Approach
How IBM generated almost $600 million
through opt-in marketing
BY ERNANROMAN
AND SCOTTHORNSTEIN
THE DMA INSIDER WINTER 2003
Problem ID
Remember: “Mutually beneficial”
Lessons learned
•
•
•
•
Don’t Send Stuff —Send Value
Ask Customers What They Want
In-depth with IBM
Increasing Satisfaction/Decreasing Opt-Out
Results matter: Build a business case!
Market Segmentation Criteria
To customize the persuasion process, customer and
prospect universes may by segmented by:
Business-to-Business
Transaction History
Prior Promotion History
SIC
Sales Volume
Number of Employees
Number of Locations
Type of Location
Sales Trend
Industry Sales Trend
Lifetime Value
Customer Direct
Transaction History
Promotion History
RFM
Demographics
Geodemographics
Lifetime Value
Data Enhancement
• Data enhancement provides insights to your customer
base. External databases may be used to:
– Profile Existing Customers
– Identify Prospects
– Markets in Priority Order
– Select Media
Modeling
• Multivariate statistical analysis may be used to
optimize promotional efforts. Applications include:
– Response
– Profitability
– Risk
– Conversion
Customer Data
• The data on your customer database is your most
valuable asset.
• Key information components include:
– Company/customer name and address
– Contact name/title
– Promotion/response history
– Transaction history
– Demographic data
– Geographic data
Geodemographic Clustering System
• Groupings of geographies based upon
similar census demographics
-Zip Code
-Block Group
-Median Age
-Presence of Children
-Income
-Ethnicity
-Many other
Geodemographic Clustering System
• Inferences are made about similar cluster coded
areas
– Similar Purchasing
– Media Viewing
– Political Beliefs
Needs Analysis
• There are a variety of technical solutions that may be
used to address database marketing requirements.
• Considerations include:
– Applications
– Data Availability-Internal and External
– On-line Access
– Data Retention
Needs Analysis
– Decision Support
– Frequency of Data Changes
– Existing Hardware and Software
– Organization and Personnel
– Security
Books by Arthur Hughes
From McGraw Hill. Order at
www.dbmarketing.com
Arthur: [email protected]
Contact
Why Databases Fail,
Arthur Hughes
The Database Marketing Process
Data
Feed
Stakeholders
Identified
Data
Feed
Data
Feed
Data
Feed
Data
Feed
Stakeholder
Interviews
Data
Feed
Data
Feed
Data
Feed
Prospects
Customers
Resources
& Training
Data Hygiene
& Enhancement
DBM
Experience
Needs
Identified
User
Interviews
Success
Metrics
Readiness
Assessment
Corporate
Objectives
Supporting
Analytics
Marketing
Objectives
Segmentation
Schema
Follow-Up
To Sale
Needs
Analysis
Consolidation
& Householding
Field
Disposition
Field
Notification
Data
Strategy
Information
Convergence
Fulfillment
MARKETING
DATABASE
Technology
Strategy
RESPONSES
Modeling &
Analytics
Creative
Briefs
Stakeholder
Signoffs
Sourcing
Plan
Available
Technologies
Needs
Identified
Product/Offer
Inventory
Set
Priorities
Campaign
Testing Plan
Measurement
Plan
Segmentation
Plan
Direct Mail
Creative
Platforms
Tactical
Implementation
Interactive
Media
Communication
Matrix
Source: KnowledgeBase Marketing, Inc.
Other
Thank you!!