Prof. (Dr.) Kao Kveng Hong, PhD, D.Litt11-1

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Chapter-18

Databaseand

Direct Response Marketing

Levi Strauss• 1853, Bavarian immigrant• Four principles

• Empathy• Originality• Integrity• Courage

• Primary brands• Levi’s, Dockers, Levi Strauss Signature

• Dominant brand brand erosion• Database marketing program• 100,000 consumers - questionnaire• Five target groups – promotions

offered• Online shoppers – fashion messages

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Database andDirect Response Marketing

Chapter Overview• Database marketing• Building a data warehouse• Database coding and analysis• Data mining• Database-driven marketing

• Communications• Programs

• Customer relationship management• Direct response marketing

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Developing Loyal Customers

The 3 R’s• Recognition• Relationship• Rewards

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Database Marketing

DatabaseAnalytics

Direct Response Marketing

Database

Identifying customersBuilding relationships

Data-DrivenCommunications

Data-Driven Programs

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Tasks in Database Marketing

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F I G U R E 1 1 . 2

• Building a data warehouse• Database coding and analysis• Data mining• Data-driven marketing

communications• Data-driven marketing programs

Building the DataWarehouse

• Operational database• Customer transactions• Follows accounting rules

• Marketing database• Current customer information• Former customer information• Prospect information

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Marketing Data Warehouse• Customer names and addresses• E-mail addresses• Record of visits to the firm’s Web site• History of every purchase transaction• History of customer interactions

• Inquiries• Complaints• Returns

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Marketing Data Warehouse(continued)

• Customer survey results• Preferences and profiles supplied by the customer• Response history from marketing campaigns• Appended data

• Demographic and psychographic data(Knowledge Base Marketing or Claritas)

• Geocoding(CACI Coder Plus)

• Database coding through customer analyses• Lifetime value• Customer segment cluster• RFM (recency, frequency, monetary) analysis

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Trade Area Draw AnalysisSample CACI Report for a Proposed Store Site

Based on a customer profile presented to CACI, 50% of the firm’s target customers live within 2.32 miles of the proposed retail site. Of the 14,803 customers who live within 2.32 miles, only 985 (or 6.7%) are currently customers of this firm.

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Percentile

25%# of Customers

492Distance

0.99# of Households

1,992Penetration Rate

24.7%50% 985 2.32 14,803 6.7%75% 1,477 4.28 45,390 3.3%90% 1,772 8.48 97,382 1.8%99% 1,949 27.92 3,064,490 0.1%

• Personalized communications• Marketing campaigns• Common forms of coding

• Lifetime value analysis• RFM analysis

Database Coding and Analysis

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Represents the profit revenue of a customer

throughout the lifetime of the relationship

• Individual lifetime value• Customer segment lifetime value• Key figures

• Revenue and costs• Retention rate• Visits or purchases per time period

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Lifetime Value Analysis

Lifetime Value for Lilly Fashions

F I G U R E 1 1 . 3

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Year 1 Year 2 Year 3

Customers 3,200 1,600 960

Retention rate 50% 60% 70%

Visits/Year 4 5 6

Sales/Visit $78.00 $94.00 $110.00

Total Revenue $998,400 $752,000 $633,600

Variable costs % 60% 60% 60%

Variable costs $ $599,040 $451,200 $380,160

Acquisition costs ($72) $230,400

Database costs ($3) $9,600 $4,800 $2,880

Total costs $839,040 $456,000 $383,040

Gross Profit $159,360 $296,000 $250,560

Cumulative Gross Profit $159,360 $455,360 $705,920

Lifetime Value/customer $49.80 $142.30 $220.60

• Recency

• Frequency

• Monetary

RFM AnalysisUsed to predict future customer behaviors.

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• Recency• Divide database into 5 equal parts based on date of

lastpurchase.

• Code 5 to 1 with 5 the last 20% to purchase.

• Frequency• Divide into 5 equal parts.• Code 5 to 1 with 5 being the most frequent

• Monetary• Divide into 5 equal parts• Code 5 to 1 with 5 being the highest expenditures

• Codes range from 555 to 111.

RFM Analysis Procedure

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• Code of 235• 2 indicates has not made a recent purchase• 3 indicates has made an average number of

purchases• 5 indicates the total monetary value of the purchases

were among the top 20% of the firm’s customers

• Recency has most impact on future purchases• Frequency has second most impact• Monetary has least impact

RFM Analysis Results

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Data Mining• Building profiles of customer groups• Preparing models that predict future

purchase behavior• Examples

• First Horizon – profiles best prospects• American Eagle – price markdowns• Goody’s – shopper baskets• Staples – profiles of best customers

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Executives from Unica, a maker of marketing automation software, discuss the importance and use of data mining and management.

Click picture to view video.

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Data Mining and Data Coding• Marketing communications• Marketing programsDrives

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Why the Internet is Important in Customer Communications

• Low cost• Available 24/7.• Metric analysis

• If the message was read• Time it was read• How much time was spent

• Customers access to additional information• Build a bond with customers.

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F I G U R E 1 1 . 4

Why build a data warehouse?Why code data?

Why mine the data?

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Database-Driven Communications

• Identification codes• Customer IDs/passwords• Personalized greetings• After-sale communications

• Customer profile information• In-bound telemarketing• Trawling

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F I G U R E 1 1 . 5

Segmenting Customers by Lifetime ValueGold

Silver

Bronze

Mass Customers

Losers11-23

Life

time

Valu

e

Database-DrivenMarketing Programs

• Permission marketing• Frequency/loyalty programs• Customer relationship

management

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• Obtain permission• Offer a curriculum over time• Reinforce incentives to continue the relationship• Increase level of permission• Leverage the permission to benefit both parties

Source: Based on Seth Godin, “Permission Marketing: The Way to Make Advertising Work Again, Direct Marketing, (May 1999), Vol. 62, No. 1, pp. 41-43.

Steps in Building a Permission Marketing Program

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F I G U R E 1 1 . 6

Successful Permission Marketing

• Ensure recipients have granted permission• Make e-mails relevant• Customize program by tracking member activity

Empowerment Reciprocity

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Reasons Consumers Opt into an E-mail Permission Program

F I G U R E 1 1 . 7

24%

Source: Based on Joseph Gatt, “Most Consumers Have Reached Permission E-mail Threshold,” Direct Marketing (December 2003), pp. 1-2.

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40%

38%

37%

41%

0% 5% 10% 15% 20% 25%30%

Percent of Respondents

35% 40%45%

Friend recommended

Already customer

E-mail required to access content

Found site randomly

Sweepstakes or chance to win

Reasons Customers Remain Loyal to a Permissions Relationship

F I G U R E 1 1 . 8

27%

Source: Based on Joseph Gatt, “Most Consumers Have Reached Permission E-mail Threshold,” Direct Marketing (December 2003), pp. 1-2.

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34%

34%

35%

36%

0% 5% 10% 15% 20% 25%

Percent of Respondents

30% 35% 40%

Entertaining

Price bargains

Contests and sweepstakes

Account status updates

Interesting content

Frequency Program Objectives

• Maintain sales, margins, or profits• Increase loyalty of existing customers• Induce cross-selling to existing customers• Differentiate a parity brand• Preempt the entry of a new brand• Preempt or match a competitor’s program

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Source: Grahame R. Dowling and Mark Uncles, “Do Customer Loyalty Programs Really Work?” Sloan Management Review, (Summer 1997), Vol. 38, No. 4, pp. 71-82.

F I G U R E 1 1 . 9

Goals of Frequency Programs

••• Develop customer loyalty

Matching or preempting the competitionTarget higher income households• Incomes of $125,000 plus - 92% enrolled• Incomes below $125,000 – 51% enrolled

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Principles FrequencyPrograms• Design the program to enhance the value of the product.

• Calculate the full cost of the program.• Design a program that maximizes the customer’s

motivationto make the next purchase.

Sent letter to 4,000 offering $5 discount on dinner.

• Average visits increased• From 25 to 42 during promotion• From 25 to 29 after promotion

• Card holders visits increased• Incremental sales increased

•$17,100 during promotion•$4,700 after promotion

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Customer Relationship Management

• Database technology• Customize products• Customize communications

• Many CRM programs failed• Built on two primary metrics

• Lifetime value• Share of customer

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Customer Relationship ManagementSteps to Develop

• Identify the company’s customers• Differentiate customers in terms of

needs and value• Lifetime value• Share of customer

• Interact with customers• Improve cost efficiency• Enhance effectiveness of interaction

• Customize goods or services

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Share of a Customer• Company A - $ 27,000• Company B - $ 18,000• Company C - $ 15,000• Total expenditures -$60,000.• Share of customer

• Company A 45%• Company B 30%• Company C 25%

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Customer Relationship ManagementReasons for Failure

• Implemented before a solid customer strategy is created• Rolling out a CRM program before changing the organization to

match the CRM program• Becoming technology driven rather than customer driven• Customers feel like they are being stalked instead of being

wooed

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Direct Response Marketing

• Direct Marketing Association• Prospecting 60%• Customer retention 40%

• Dell Computers• Catalog• TV and radio ads• FSI ads• Web site

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Methods of Direct MarketingF I G U R E 1 1 . 1 0

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77%73%

0% 10% 20% 30% 40% 50% 60%

% of Companies Using Particular DM Methodology

70% 80% 90%

Source: Based on Richard H. Levy, “Prospects Look Good,” Direct, Vol. 16 (December 1, 2004), pp. 1-5.

Direct mail to

customers Direct mail

to prospects

Statement stuffers

16%

Catalogs 24%Direct response-promotions 21%

Direct response-radio 10%

Direct response-

TV Direct response-

Internet

8% 29%

Search engine marketing 22%

Search engine

optimization E-mail

to customers

17% 55%

E-mail to prospects 46%Inbound telemarketing 16%

Outbound telemarketing 24%

Direct Mail• Most common form of direct marketing• Types of lists

• Response list• Compiled list

• Advantages• Target mailings (consumer, b-to-b)• Measurable• Driver of online sales

• Disadvantages• Clutter• Costs

• Digital direct-to-press

Copyright © 2010 Pearson Education, Inc. publishing as Prentice Hall

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Catalogs• Long-term impact• Low-pressure sales tactics• First stage in buying cycle• Database• Specialty catalogs• Business-to-business

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Direct Response Media

• Television• Radio• Magazines• Newspapers

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Internet• Direct response to ads• Cost-effective• Builds relationships• Personalization of communication• Customization of offer• Search engine ads

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Alternative Media•••• Package insert programs (PIPs)

Ride-a-longsStatement stuffers Card packs

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Telemarketing• Inbound telemarketing

• Cross-selling• Outbound telemarketing

• Cold calling• Database• Prospects

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International Implications

• Differences in technology• Laws and regulations• Local customs• Infrastructure

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