Letting Them Come Behind the Counter

Arthur Middleton Hughes

VP Strategic Planning

M\S Database Marketing

www.msdbm.com

DMA 83rd Annual Conference

New Orleans, LA

Saturday Oct 14th 2000 2:30- 3:45 PM

Pre-conference Workshop

Customer Management

Internet ServicesCompetitive Advantage Through Advanced Technology

The Old Corner Grocer

Customers today want:

Recognition Service Information Convenience Helpfulness

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!

Examples of Profitable Strategies

Recognition and Personalization Building relationships Surveys and Responses Loyalty Programs Customer and Technical Services Collaborative Filtering Event Driven Communications

Event driven communication:

Dear Mr. Hughes:

I would like to remind you that your wife Helena’s birthday is coming up in two weeks on November 5th. We have the perfect gift for her in stock.

As you know, she loves Liz Claiborne clothing. We have an absolutely beautiful new suit in blue, her favorite color, in a fourteen, her size, priced at $232.00.

If you like, I can gift wrap the suit at no extra charge and deliver it to you next week, so that you will have it in plenty of time for her birthday. Or, I can put it aside so you can come in to pick it up. Please call me at (703) 754-4470 to let me know which you’d prefer.

Sincerely yours,

Robin Baumgartner Robin Baumgartner, Store Manager

Ridgeway Fashions

Leesburg, VA 22069

Harnish Equipment CompanyDes Moines, IA

Mr. Dudley FoulkeFood Processing DirectorTyler Sausage Company334 Chicago AvenueAlton, IL 66780

Dear Mr. Foulke:

On November 15th the warranties expire on five of your Harnish model 1800food processors. To be sure that these machines perform as well after the warrantyexpires as they are doing now, I would like to send two of our best technicians, EricLamb and Peter Davenport, to provide maintenance for these machines. All of theirwork is covered by the warranty and will be free, of course

While Eric and Peter are there, they will be delighted, also at no cost to you,to provide a service check on any other food processing equipment in operation atyour plant, whether made by Harnish, or by any other company. They will give youa recommendation for needed service on each machine.

As a Harnish Gold customer, Mr. Foulke, you are very important to us. Wethink of ourselves as partners in helping to make Tyler Sausage a leader in the foodprocessing industry. Let me know when it is convenient for Eric and Peter to maketheir service visit.

Sincerely yours,Anne SchwartzAnne Schwartz, Service ManagerHarnish Equipment Company

Marketing to Customer Segments

GOLD Spend Service Dollars Here

Spend Marketing Dollars Here

Reactivate or Archive

Your Best Customers - 80% of Revenue

Your Best Hope for New Gold Customers

Move Up

1% of Total Revenue These may be losers

The Web is the greatest database marketing vehicle ever invented

We can bring back the intimacy of the Old Corner Grocer

Communicating

Screen: Thank you for your order Email: Your order has been received Email: Your order will be shipped Email: Your order was shipped Email: Was everything to your satisfaction?

Cost of all of the above? Nothing!!!

Staples does it well

30 seconds later: Email

Welcome back, Arthur!

Staples has 1.4 million visitors per month

The Office Depot Web Response Form

2002 Online Small Business Market over $100 Billion

Something new: Collaborative Filtering

On-line deciding what a customer is interested in, based on a few known facts

The principal behind collaborative filtering:

Each person has a unique (and changing) view of the world.

In large populations, there are often similar preferences If hundreds of people who like A, G, and X also like W Then if you like A, G and X, you may also like W.

Collaborative Filtering requires sophisticated software

It is possible, on line, to determine the next best product for any customer, based on the customer’s past preferences and those of hundreds of others with similar preference profiles.

While the customer is on the phone, or on line, you can develop a profile and come up with intelligent recommendations.

How Netperceptions used Collaborative Filtering in the UK

GUS is largest cataloger in UK. Gets 20% cross sell on catalog orders.

Installed NetPerceptions system In six weeks got 40% cross sell on catalog orders with

same staff. Very “spooky” results which really worked.

Who uses collaborative filtering:

Bass Pro Shops Mattel Toys Home Box Office Petsmart.com Kraft Foods

Proctor & Gamble Publisher’s Clearing

House Shop at Home

network Time Warner

How the Web is changing Database Marketing

Recognition Reaching out Customer service Supplier Relationships Information Ordering parts and replacements Building personal relationships

Reaching out: How Web Ads Differ

Traditional Media Web AdvertisingSurrogate MeasurementsDirect MeasurementsHigh cost of waste Low cost of wasteSingle messages Multiple MessagesDelayed feedback Immediate FeedbackHard to adjust Real time testing & tuning

Four steps in web response

Impression: your banner appears on a viewer’s screen: $6 per thousand.

Response: Viewer clicks on your banner and sees your web site

Lead: viewer gives you her name and email address Sale: she buys something.

Three categories of Web Ad Space

Run of Network (RON) from $4 to $6 CPM. Very good values here.

Affinity Group Space (Sports, business, travel) $10 to $20 CPM Can be productive

Branded Space (Yahoo, Excite, AOL) Very expensive $30 to $70 Often has very low response rate.

Three categories of web ad space

Where should we put this ad?

0 0.5 1 1.5 2 2.5 3

Entertainment

Games

Automotive

Shopping

News

Health

Business

Sports

Travel

Technology

Women

AVERAGE

In three days we discover that travel sites work best for Casio

Result of One Week's RON Test by Site Top Eleven out of 780 Sites

Site Impress. Clicks Rate Leads Lead Rate Cost Lead CostEyegive 14,091 1,384 9.82% 23 1.66% $85 $3.68LotteryUSA 43,112 132 0.31% 12 9.09% $259 $21.56The onion 126,732 263 0.21% 10 3.80% $760 $76.04The Huddle 62,722 49 0.08% 6 12.24% $376 $62.72123Greetings 361,345 673 0.19% 4 0.59% $2,168 $542.023DFiles 56,600 57 0.10% 4 7.02% $340 $84.90Rogue Market 14,932 10 0.07% 3 30.00% $90 $29.86Netsurfer Digest 23,333 29 0.12% 3 10.34% $140 $46.67Nordic Music 28,397 34 0.12% 3 8.82% $170 $56.79ShowBiz 5,063 6 0.12% 3 50.00% $30 $10.13People-Talk 37,028 103 0.28% 3 2.91% $222 $74.06

2,166,196 6,495 0.30% 105 1.62% $12,997 $123.78

Which sites work best for E*Trade?

Site Category Impr. Clicks Resp. Leads Conv. Cost LeadMarketPlayer Business & Finance 555 4 0.72% 1 25.00% $3 $3.33Igive Charity 14,091 1,384 9.82% 23 1.66% $85 $3.68StockInvestor Business & Finance 1,145 8 0.70% 1 12.50% $7 $6.87ShowBiz Business to Business 5,063 6 0.12% 3 50.00% $30 $10.13Regent Commerce Business & Finance 2,037 37 1.82% 1 2.70% $12 $12.22CyberInvest Business & Finance 2,442 13 0.53% 1 7.69% $15 $14.65Critical Path Automotive 3,520 7 0.20% 1 14.29% $21 $21.12I-Escrow Business & Finance 7,051 15 0.21% 2 13.33% $42 $21.15Lottery USA News & Information 43,112 132 0.31% 12 9.09% $259 $21.56Rogue Market Entertainment & Movies 14,932 10 0.07% 3 30.00% $90 $29.86ezines Database Automotive 6,014 18 0.30% 1 5.56% $36 $36.08Netsurfer Digest Consumer Technology 23,333 29 0.12% 3 10.34% $140 $46.67Nordic Music Consumer Technology 28,397 34 0.12% 3 8.82% $170 $56.79Your New House Learning 19,591 61 0.31% 2 3.28% $118 $58.77TheHuddle Sports & Outdoors 62,722 49 0.08% 6 12.24% $376 $62.72People-Talk Business & Finance 37,028 103 0.28% 3 2.91% $222 $74.06

Total 817,123 3,108 0.38% 95 3.06% $4,903 $51.61

Results Optimized by Cost Per Lead – after one week!

The big Web winner: Customer Service Hundreds of millions of dollars

being saved today through use of the web

Much bigger than consumer sales

How the Web is changing Customer Service

1980s: toll free numbers Thousands of agents reading

screens Heavy cost: phone call and agents 2000: let the customers get their

own information No cost for phone or for agents Customers like it better!

Letting them come behind the counter

Open your entire company to your customers Let them find what they want themselves It is cheaper for you, and customers like it

better.

How Amazon saves millions

How Fedex Saves Millions

Let’s try it. Let Marriott plan a meeting in Ft. Lauderdale

We want 3 rooms with 50 attendees, golf and pool

Here are the properties. Let’s try the North Marriott

Here are the conference rooms we need

Here is the hotel

And, here is the location. Let’s make a reservation!

The Marriott Web Site:

1,700 Hotels $10 billion revenue Marriott doesn’t own most of the hotels Internet team began in 1997 More interactive, the more business Meeting planners don’t need to visit the sites. All they

want is on the web. Booking a room for a business traveler is very fast

Supplier Relationships

All manufacturers will link to their suppliers through the web

Suppliers will check inventories, and replenish parts automatally

Manufacturers and retailers will buy through the web

The National Semiconductor FedEx Partnership

National Semiconductor handed over its entire logistics management to FedEx

All products from 6 factories shipped to FedEx warehouse in Singapore

National Order center in Santa Clara ships all orders to FedEx in Memphis

FedEx directs shipments to customers from Singapore

How FedEx Manages National Semiconductor Shipments

Order Center in Santa Clara

Shipments

OrdersInventory Mgt.In MemphisSingapore

Warehouse

N

atio

nal F

acto

ries

In

Asi

aOrders from customers

Benefits to

Reduction in customer delivery cycle from four weeks to one week

Reduction in distribution costs from 2.9% of sales to 1.2% of sales

Elimination of seven regional warehouses in the US, Asia and Europe

FedEx – Omaha Steaks

Orders to Omaha simultaneously sent to FedEx and to Omaha warehouse with FedEx tracking numbers.

Both Omaha and Customer given FedEx numbers for tracking.

Omaha is out of the delivery business, and can concentrate on steaks and marketing.

FedEx - Omaha Steaks

CustomerOrdersSteaks

Orders sent to Steak WarehouseAnd to FedEx atThe same time

Steaks deliveredTo FedEx

FedEx Delivers to Customer

Virtual Distributors

Distributors are location bound They cannot stock all products They cannot represent all manufacturers. The web changes all that You can provide access for your customers to

everything that they want

Boeing Spare Parts

Idle airplanes cost $7,000 per hour Quick access to Boeing parts keeps

customers loyal Spare parts are an important revenue Buying Boeing parts keeps quality There are 2,000 Boeing part suppliers Old system: Binders or CDs + phone

+fax

Boeing Spare Parts Website

New Boeing System

Runs 24 hours a day Automatic verify part number Electronic self service Customers order without help Customers know which warehouse

has the parts!

2004 Aerospace Parts & Service 35% on Web

Sales in Non Web WebBillions Share Share

1999 $166 99% 1%2004 $209 65% 35%

ShareNon Web

99%

ShareWeb1%

ShareNon Web

65%

ShareWeb35%

Today

2004

Why customers like the web:My vacuum cleaner problem

We have a Hoover with a MicroFiltration Bag. We wasted an afternoon going to six (yes six) stores

looking for new bags. No luck. So we tried the internet.

Finding Hoover on the Web

Ordering a Micro-Filtration Bag for my Hoover

Summary:Give customers total access

Invite your best customers into your company. Let them rummage through your warehouse. Let them look up technical data themselves Make them a part of your company. You will have them

for life.

10866 Wilshire Blvd., Suite 370Los Angeles, CA 90024-4354

Phone (310) 208-2024Fax (310) 208-5681

http://www.msdbm.com