Transcript Chapter 11

Customer Relationship
Management
A Databased Approach
V. Kumar
Werner J. Reinartz
Instructor’s Presentation Slides
Chapter 11
Campaign Management
Topics Discussed
• Campaign Management Process
• Campaign Planning and Development
• Campaign Execution
•
Analysis & Control
•
Campaign Feedback
Campaign
• A series of interconnected promotional efforts designed to achieve
precise marketing goals
• Composed of one or more promotions, each of which is an initiative
or a device designed to attract the customers’ interest
• Aimed at prospects or existing customers
• Usually undertaken within a defined timeframe
Campaign Management Stages
•
Planning:
–
–
•
Strategic process by which decisions are taken
Definition of the purposes and objectives of the campaign
Development:
–
•
Tactical process that takes care of creating the offer, choosing the
creating support and design, choosing the media and selecting the
customer names
Execution:
–
•
Operational process of running the campaign in the media chosen and
controlling all related aspects
Analysis:
–
Evaluation process of the campaign results in light of the original
objectives
Campaign Management Process
Campaign Management
Campaign Planning
& Development
Campaign
Execution
Analysis
& Control
Setting objectives &
Strategies
Implementation &
Coordination
Measuring
campaign results
Identifying customer
segments
Monitoring
& fine-tuning
Response
Analysis
Developing communication strategy
Developing the offer
Campaign Budget
Testing
Profile
Analysis
Campaign Planning and Development
• Setting objectives and strategies
– Categories:
• Market penetration (increase usage or market share)
• Market extension (find new user groups or enter new segments)
• Product development (new products or services)
• Diversification (find new markets and products, discover new strategies)
– Examination of different marketing strategies in place:
• Product strategy
• Pricing strategy
• Distribution strategy
• Promotion strategy
Defining the Campaign Strategy
• Who to target?
– Retention strategy: focusing on existing customers
– Acquisition strategy: concentrating on getting new customers
– Mixed strategy between retention-acquisition: targeting existing and
new customers at the same time
– Ideally the company should target its most profitable customers (often
done through LTV and/or RFM analysis)
Retention Strategy
• Develop loyalty from the existing customers, via a
strong relationship or via superior quality or service
• Develop tailor made products for the needs of existing customer
profiles
• Sell additional products to existing customers (cross-selling)
• Sell a superior product (with more features or additional services) to
customers who already use similar products (up-selling)
• Merchandise different brands from different categories to the same
customer (cross-merchandising)
Customer Acquisition Strategy
• If company wants to sell the same product to new customers: target
“prospects” based on the profile and behavior model of existing
customers
• If company wants to offer different products to new customers:
develop new markets
Customer Retention and Acquisition Strategies
Allocate resources between existing and new customers
Retention Strategy:
Acquisition Strategy:
Keep existing customers
Attract new customers
Market decisions:
-Segment your customers by
lifetime value
-Retain your best customers
-Develop one-to-one marketing
Product/Service decisions:
-Develop relationship marketing
-Retain your clients with superior
quality service
-Develop tailor-made products
-Cross-sell and up-sell
-Cross-merchandise
Market decisions:
-Target the customers based on
the model of existing customers
-Develop new markets
Product decisions:
-Highlight your price/ product offer
-Have a clear positioning on the
market
-Develop attractive branding
-Give incentives to add initial
value to the new customer
Identifying Customer Segments
•
Customer segments: Homogenous groups of individuals that have similar
tastes, want and needs with respect to the company’s products or services
•
Groups: Existing customers, prospects and defectors
•
Identification by:
– Purchase behavior
• Recorded in the CRM database
• Allows the marketer to segment by product need and by Life Time Value
– Profile data
• Relate the individual customer to his or her response to past campaigns
• Allows implementation of a ROI-driven marketing
• Identifies tastes, needs and preferences of customer
• Can be used to target new customers accurately
Developing the Communication Strategy
• Marketing communications (marcom): Targeted interactions between
company and its customers and prospects, using one or more media
• Can use a single approach (e.g. a direct mail) or combine several
approaches (e.g. direct mail with advertising in television, radio and
newspapers)
• Integrated marketing communications (IMC): management and
organization of all marketing communication tools (media, messages,
promotions and channels)
• CRM database system: stores information about customer and
prospect preferences, allows firm to focus marketing activities toward
specific targets - effective use of IMC
Communication Strategies
Strategy
Description
Generic strategy
No distinction between brands. Emphasis on category need rather than brand
awareness (example: Promotions for a product category)
Pre-emptive strategy
A generic claim is made about the superiority of the company’s brand
Unique selling
proposition (USP)
Emphasizes superiority of the brand based on a unique feature or benefit.
Brand image strategy
Relies on development of mental or psychological associations through the
use of signs, symbols and images.
Resonance Strategy
Attempts to recall events or feelings by evoking meanings, experiences,
thoughts or aspirations that are relevant to target audiences
Affective or emotional
strategy
Attempts to invoke involvement and emotion, with a powerful message.
Informational strategy
Based on the view that an important element of the creative theme is to
convey info
Push Promotional
strategy
Focus a promotional effort in manufacturers of goods and services to
encourage the trade channel members to stock, promote and sell its products
Pull promotional
strategy
Focus in encouraging end customers and consumers to demand goods and
services
Communication Strategies (contd.)
Positioning
strategies
Positioning by attribute,
product characteristic or
consumer benefit
Brand is perceived to be better than others
in features emphasized by Marketing
communications
Positioning by price/quality
Positioning can be sought in high price/high
quality, prestige positions, low
price/acceptable quality positions
Positioning by use or
application
Segmentation and targeting can be carried
out based on usage occasion
Positioning by product user
Focuses on the requirements of target
customers and consumers
Positioning with respect to
product category
Rather than competing with another brand,
a brand or product category might be
positioned against another product
category. The competitive focus is placed
on substitutes
Positioning against a
competitor
Brands promoted with understanding of
relative competitive position for the target
audience
Cultural positioning
Positioning by cultural reference, where the
brand is clearly associated with a particular
culture, country, religion, ethnic group or
sense of heritage or tradition
Source: “Pickton David, Broderick Amanda, “Integrated Marketing Communications”, Financial Times/Prentice-Hall, 2001
Retention and Acquisition Media
Retention Media
Direct Mail:
Mailings:
-
Acquisition Media
TV:
- Single-product
- Multi-product
- Miscellaneous
- Birthday cards
- Thank-you notes
- Invitations
Enclosures:
-
Statements
Parcels
-
Outbound
Inbound
Telemarketing:
Catalogues
Newspapers / bulletins
Radio:
-
Direct response TV (DRTV)
TV spots
Home shopping channels
Digital TV
Direct response radio (DRR)
Radio spots
Telemarketing:
- Outbound
Inbound
Print Media :
- Press / newspapers
- Magazines
- Insert
Direct mail :
- Mailings
Inserts
Internet
Exhibitions / field marketing
Minicase: Pro-Mark- Example of Media-mix for an
Acquisition and Retention Strategy
•
$10-million drumstick maker in Houston; developed database with info. on
end-users by pursuing print media strategy in different specialized magazines
•
Advertising/marketing campaign strategies:
– Recruiting test-marketers:
• Ad offering free product samples in return for customer feedback
• Respondents' names entered into a database, each received a catalog with
sample
• Achieved 100% response rate
– Profiling end users
• Ran a simple black-and-white ad asking readers to nominate them to be
selected as the "Not Yet Famous Drummer”
• Contest doubled Pro-Mark's database of names.
– Promoting new products
• To promote new autographed drumsticks, coupon allowing readers to buy them
for $5 and enter a contest to win a chance to meet Abbruzzese in person
Developing the Offer
•
Offering the customer some kind of incentive that will induce him/her to buy
or to ask the company for more information
•
Ranges from a free product sample to price-related incentives or an item
providing information on the firm
•
Objectives should be to attract new customers or members, obtain repeated
business from existing customers, reactivate lapsed customers, produce
sales leads or acquire new customers
•
Record estimate of campaign costs and profitability in the CRM system used as a “model” to fine-tune the campaign results
Developing the Offer (contd.)
• Questions on campaign costs and profitability:
– What is the product positioning?
– What is the price?
– What is the length of commitment?
– What are the payment terms?
– What are the risk reduction mechanisms?
– How much can they afford to spend on the incentive?
– Which promotion type should be used as an incentive?
– What should be the promotional package?
– Which promotional media should be used?
– Does it involve one-stage or several stages?
Offer Options
Price incentives
Payment options
“You have been specially chosen”
Premiums
Samples
Free trial
Automatic shipment
“Member gets member”
Early bird offer
Contests and sweepstakes
Multiple discount offers
Multiple product offer
Deluxe edition
Bounce-back
Money back guarantee
Campaign Budget Calculation: Methods
Pre-set Budgeting
•
Determine a given year’s marketing expenditure on the basis of what
they spent the year before
Advantages:
– Follow a more or less steady expenditure flow
Disadvantages:
– Last year’s sales not considered, marketing considered as an expense rather
than an investment to boost sales
Budget Calculation
Budgeting for an allowable marketing cost (AMC)
• Determine the amount that can be spent on campaign marketing activities,
while preserving the required profit margin
• Potential expenditure is given priority according to its forecast for return on
investment
• Obtained by subtracting the costs (cost of goods + distribution costs) and
the required profit margin from the total sales value
Advantages:
– No pre-set limit to the campaign budget unless a constraint of cash-flow is
imposed, the company can controls costs
Disadvantages:
– Many activities are hard to accurately forecast and some activities may not
payback in a given year
Budget Calculation
Budgeting with the competitive parity method
•
Equating budget allocation with those of competitors
Advantages:
– Emphasis is on competitor intelligence
Disadvantages:
– Very difficult to be precise as to who the competitors are and what are
their relative sizes
– Different marketing communication strategies for market leaders and for
market followers and budgeting based on parity may not work
– Cannot satisfactorily take into account sudden changes in the competitive
activity or objectives or even the company’s own objectives
Budget Calculation
Budgeting with the objective and task method
•
Determining marketing objectives and the marketing communications tasks
needed to achieve them
•
Budget set by calculating costs of the communication tasks
Advantages:
– Resources expended are limited to the objectives
Disadvantages:
– Implementation difficult because it is not always easy to define the objectives and
to quantify their implementation costs
– Assumes that the relationship between objectives and tasks is
well known and understood
Budget Calculation
Percentage of sales method
•
Fixed percentage of turnover allocated to marketing communications
•
Marketing communication expenditure directly linked to sales level
•
To determine the exact percentage that should be allocated, the company
looks at competitor allocations and industry averages
•
To define the turnover the company can look at historic sales
Advantages:
– Incorporates a series of alternatives and allocates costs to the objectives
Disadvantages
– Difficult to determine the percentage of sales that must be allocated
– Competitors may have a small advertising budget and concentrate their
budgets on the sales force, and this would be a deceiving benchmark
Budgeting with Key Performance Indicators
Performance
Measure
Formula
Definition
Cost per thousand
(CPM)
CPM = (Total promotion expense / Total
quantity) x 1’000
Cost per response
(CPR)
CPR = (Total promotion expense / number
of responses)
Cost per enquiry
(CPE)
CPE = (Total promotion expense / total
orders)
Ratio of total campaign costs
to total enquiries
Cost per sale
(CPS)
CPS = [Total promotion expense / (total
orders- Returns and bad debts)]
Ratio of total costs to enquiries
that were converted into sales,
net of returns and bad debts
Conversion rate
(CR)
CR (%) = (number of buyers / number of
responders) x 100
Calculated by comparing the
number of buyers with number
of responders to the campaign
Return on Investment
(ROI)
ROI = Sales Revenue / Total promotion
expense
Ratio of sales revenue to the
campaign cost
Relates total cost of promotion
with quantity produced.
Ratio of total campaign costs to
number of responses obtained
Key Performance Indicators for an
Email Campaign
Customer Acquisition
Direct Mail to
rented list
Banner
advertising
Customer Retention
Email to
rented list
Direct mail to
house list
Email to house
list
CPM (cost per
thousand)
Production
$462
N/A
N/A
$462
N/A
Media
$118
$15
$200
N/A
N/A
Delivery
$270
$1
N/A*
$270
$5
Total
$850
$16
$200
$686
$5
Click through rate
N/A
0.8%
3.5%
N/A
10%
Purchase Rate
1.2%
2.0%
2.0%
3.9%
2.5%
Cost per sale
$71
$100
$286
$18
$2
Budget Calculation
Lifetime Value
•
•
Allows the company to compare returns on alternative marketing expenditures
Allows comparison of return on expenditure from obtaining business from
existing customers or from new ones
Advantages
– Using CRM database information allows the company to predict cost of the campaign
more accurately
– Allocates resources between strategies because it allows comparison between the
returns of alternative marketing campaigns
Disadvantages
– Difficult to keep track of customer values because most companies lack transactional
data from its customers
– Sometimes the strategy that produces highest ROI does not provide the fastest
return and therefore can be disregarded by faster strategies with lower ROI
Testing
•
Conducting a comparison between different ways of proceeding with a
campaign
•
Test individual campaign elements, other elements remaining constant, and
measure the resultant change in the performance of the campaign
•
Benefits of testing
– Shows real behavior, as it provides a (close to) real environment in which behavior
is validated
– Augments and validates research
– Stimulates creativity
– Protects the company’s greatest asset (the customers): by using only small
samples with each test can give customers the “proven offer”
– Minimizes financial risk and avoids costly errors
– Uncovers ways to reduce costs
Variables for Testing
• Key variable: the target audience - in the form of a list of targeted
customers and prospects
• Offer variables - prices, incentives, proposition
• The format - physical shape, the “feel”, and the size
• The creative element - the appeal, the tone, and the message
• The media and/or the timing
Performance Measures Tested to Predict
Campaign Results
•
Response to the campaign, in percentage
– The number of responses obtained divided by the total number of customers
selected will give the response rate, in percentage
– Response rate serves as an indicator of the success that the particular campaign
being tested can achieve
•
Campaign profitability
– Performance results allows an estimate for the revenues of the real campaign
– Total campaign costs (expenses of preparing the campaign, testing costs plus
cost of running the campaign) deducted from the revenues, gives a prediction for
the profitability of the campaign
Testing in Different Media
• Direct Mail
– Direct marketer controls every aspect of the campaign, including the
timing and the budget
– Testing of all elements possible
• Telemarketing
– In one call session, promotion of a particular product or service,
testing a different script or promotion, etc possible
• Press and Inserts: not as easy and inexpensive as others
– Split-run testing (different versions in different magazines)
– A/B splits (alternative copies in same publications)
– Cross-over test (different elements changed in different messages and
rerun with same audience)
Potential Problems in Testing
• Performing several tests with the same set of customers
• Limited time validity: since customer preferences change over time,
conclusions drawn from tests often short-lived
• Testing the same things all over again
• Optimizing a particular campaign driving the testing rather than
having a successful marketing program
Campaign Execution
• Operational process by which a campaign is implemented
• Implementation and coordination
– The campaign program
– The campaign schedule
– The activity schedule
• Monitoring and fine-tuning
– Revision of planning based on enquiry or orders performance alone.
– Adjustment of the media selection
– Undertaking corrective action if the campaign included a first sequence
of creative and offer testing
Causes of Campaign Failures
•
When marketing planning is undertaken at a functional level and does not
integrate with other functional areas of the company
•
Separating the responsibilities of operational marketing and strategic marketing
planning, leading to a divergence of short and long term objectives
•
Concern over short-term results at the operational level will make the company
less competitive in the long term
•
Top management not taking an active role in marketing planning
•
If the degree of formalization of campaign management is not adapted to the
diversity of operations within the company and its size
Analysis and Control
•
Evaluates campaign results in light of original objectives and determines
campaign level of success or failure
•
Measuring campaign results
– Comparing the CPM, CPS, ROI, and the CR with the budgeted KIP
– Back-end performance analysis
• Direct mailing: statement of profit or loss for the campaign promotion
• For a loyalty program: allowable marketing cost and break-even
• Contribution: Campaign costs deducted from the gross margin and resulting
value divided by the number of new customers
• New customer lifetime value and attrition rate
– Return on Promotion (ROP)
ROP = [(Contribution – Cost per order) / Cost per order] x 100
Analysis and Control (contd.)
• Response analysis
– Calculates the campaign results up-to-date, projects its final results, as
responses, inquiries and leads, and analyzes these results
– Can be performed with customer and market segments, product lines,
campaigns, offers and promotions, media or advertising agencies
– Responses recorded in CRM database should be summarized by time,
i.e., by arrival date
– Results can be analyzed as soon as the first campaign responses are
known and eventually can correct the campaign progression
Profile Analysis
•
Used to define and compare the profile of campaign responders with the
actual profile of the company’s customers and prospects
•
Allows marketers to verify if the initial targeted profile actually corresponds
with the responder’s profiles, i.e., if the customer segments were well
targeted
•
Should be performed at different stages of the campaign
•
Considers the input (generally geographic, demographic or psychographic)
and clusters names into groups with similar tastes and preferences
•
Statistical techniques as automatic interaction detection (AID) and chisquare automatic interaction detection (CHAID) also used in analysis
Campaign Feedback
•
Record all relevant data about campaign planning,
implementation and results
•
Model relationships between data gathered, the controllable
variables and campaign results
•
Apply this knowledge to future campaigns
Summary
•
A successful campaign management process comprises of planning, development,
execution and analysis
•
When pursuing a customer retention strategy, ideally the company should target its
most profitable customers (via LTV and/or RFM analyses)
•
The CRM database plays a central role in customer segmentation process by providing
information on customer behaviors and profiles, channel preferences and brand
awareness
•
Making a campaign budget should be a balance between measurement, financial
calculations, competitive analysis and good judgment
•
Testing can accurately predict performance measures like response to the campaign in
percentage and campaign profitability
•
Campaign analysis can be done using campaign key performance indicators, by using
back end performance analysis, or profile and response analysis