Class 21 Marketing 8001: Database Marketing Class 2 Discovering and Utilizing Reliable Patterns in Customer Data

Class 22 Today’s Agenda Reminder Our Class Class 2 Materials Review of Class 1 A Well-Known DBM Example: Credit Risk Management with FICO Score Where is DBM Most Applicable? SAS and SAS Class Exercise Frozen File Variables Next Week (Homework 1 assignment due)

Class 23 Reminder Keep up with readings –LSB –D&D –Missou Media Pack Material in readings and Power Point slides can be on exams, even if not covered in class Bring questions about readings and SAS to class or contact me SAS is the tool we’ll use to do much of what is presented in D&D text Do not wait until Tuesday to do homework, unless you’ve mastered SAS

Class 24 Our Class Some students in our class have taken SAS Certification class...please feel free to help whenever appropriate Reasons For Taking Course –Learn SAS –Learn about quantitative analysis of data, especially marketing data –Learn about database marketing (DBM) –Learn about marketing

Class 25 Class 2 Materials Download Class 2 files to desktop…C:\M8001 –Class 2 PowerPoint => Class2_SP2008.ppt –SAS program for SAS Class Exercise (file with.sas extension) SP2008M8001Class1SASExercise.sas Download datasets to C:\M8001on your desktop HLResponseDataPrimSampleSP2008.txt HLPrimaryFFSampleSP2008Class1.sas7bdat –Word document for SAS data analysis class exercise Class2SASRunQuestionsSP2008.doc

Class 26 Review of Class 1 Gist of Course…Learn how to find and capitalize on reliable patterns in customer data. Database marketers use data to make decisions because data can reduce uncertainty in decisions. This is not something theoretical…testing effectiveness of a marketing treatment almost always involves less risk than guessing.

Class 27 Review of Class 1 One premise of DBM => Data can be used to identify and target best prospects for offers Customer Targeting Exercise in Class 1 –We decided we could… Rent list profitably Promote 50% of best names on list with contribution of $20M, versus promoting all 1.0MM names and losing -$50M

Class 28 Review of Class 1: Review on Your Own SAS –Data step…input and manipulate data –Procedure step (“Procs”)…sorting, printing, statistics, etc. –SAS requires SAS datasets for calculations (.sas7bdat) –Observations in rows, variables in columns…same as Excel! –Variables can be numeric or character…character are difficult –SAS reads entire record into memory, does what you tell it, then goes to next record…after all records, goes to next Data Step or Proc –Remember the semi-colon (;) at end of every SAS statement –Lean SAS by using it –Use “comments” in code and save SAS programs –Remember to back-up critical programs & data SAS online documentation =>

Class 29 A Well-Known DBM Example: Credit Risk Management with FICO Score

Class 210 What Are The Types of Variables in the Model Used to Calculate a Credit Score? Types of VariablesRel. Importance –Amounts Owed30% –Payment History35% –New Credit10% –Types of Credit Used10% –Length of Credit History15% Obviously, credit history drives these models Later in course we will develop predictive models and describe the relative importance of each predictor variable in the models.

Class 211 Where is DBM most applicable? Where customers are different in terms of value to the organization… –For financial companies, this might mean creditworthy customers or current customers with high savings or investment balances –For a travel catalog firm…repeat buyers of men’s and/or women’s clothing and travel accessories –For a statewide telephone company… customers who place many, long distance (high margin) phone calls.

Class 212 Where is DBM most applicable? In organizations with… –Production and logistics flexibility Credit card companies already have a large customer databases Amazon’s and L. L. Bean need to create a comprehensive database –Capability to customize communications with customers Credit card companies, mortgage lenders already communicating with individual customers on monthly basis, catalog marketers send catalogs.

Class 213 Is DBM Appropriate Strategy?

Class 214 Is DBM Appropriate Strategy?

Class 215 Is DBM Appropriate Strategy?

Class 216 Is DBM Appropriate Strategy?

Class 217 Is DBM Appropriate Strategy?

Class 218 DBM Not Just for Profit-Making Firms…Can Be Used by Non-Profits for Donor Marketing Charitable organizations –Nature Conservancy, American Heart Association Educational institutions –Universities…and alumni organizations Arts organizations –Symphonies, Museums Community organizations –Boy Scouts Political Organizations –Democratic and Republican Parties –Political constituencies

Class 219 Potential Benefits of DBM Reduced Costs & Improved Profitability –Customer retention usually less costly than acquisition –Marketing costs lowered –Loyal customers buy more –Improved retention and LTV –Up-selling and cross-selling Improved Customer Satisfaction –Fewer ‘irrelevant’ offers…reduce “junk mail” –More ‘good’ offers –Trust (emotional) and rewards (tangible)

Class 220 SAS and SAS Class Exercise

Class 221 SAS Windows & Icons Open SAS Editor -- Data step and Proc programs Log – Program execution documentation –Always check for errors Output – Display results of Procs SAS Explorer – Remember to look at every SAS dataset Toolbar…be careful not to use the “new” icon by mistake

Class 222 SAS Files.SAS7BDAT –“SAS dataset” that SAS can read & process –Double-clicking on file name (or right click on file and select “Open with SAS 9.1”) Opens SAS Places SAS file in VIEWTABLE (names in rows, variables in columns) In Viewtable…“Table View” most useful In Viewtable…Can choose Column Labels or Column Names –Non-SAS files (.txt,.xls,.sav,.por, etc,) must be read in data step, imported or Proc Convert

Class 223 SAS Files.SAS –SAS program –Double-clicking on file name (or right click on file and select “Open with SAS 9”) Opens SAS Places SAS code in Editor window

Class 224 SAS Class Exercise Large SAS program with multiple steps When you write SAS code, create a series on smaller steps, not one big program like this! Lots of comments Data steps and Procs are some of the ones we’ll use this semester…copy, paste and adapt. Save this SAS code! Need SAS code from Blackboard SP2008M8001Class1SASExercise.sas

Class 225 SAS Class Exercise Need data from College of Business Server HLResponseDataPrimSampleSP2008.txt HLPrimaryFFSampleSP2008Class1.sas7bdat Need Word document for SAS Class Exercise Class2SASRunQuestions.doc

Class 226 SAS Class Exercise: Background Random sample of Healthy Living Primary names (DM publisher’s primary market segment) was tested with one-shot book title. –Primary segment defined as previous buyers of at least one health book Each tested customer’s masterfile record was written out and saved at the time of selection (before the promotion) called… –Names-saved file (aka “frozen file”)

Class 227 SAS Class Exercise: Background For analysis or modeling with a response variable we need… –Customer data from database saved/written out before the promotion Because most databases are updated frequently –Response data after the promotion For descriptive analysis without a response variable…can create an analysis file by writing out names from the database

Class 228 SAS Class Exercise Let’s execute the SAS code step-by-step together so we can see how SAS works.

Frozen File Variables AGE CORPD12MTOTAL DOLLARS PAID CORPORATE LAST 12 MONTHS CUST_IDHOUSEHOLD ACCOUNT NUMBER FEMALEFEMALE GENDER HLPRIMEHEALTHY LIVING PRIMARY 1-0 FLAG HL_PULLHEALTHY LIVING HISTORICAL PULL HL_QAIREHEALTHY LIVING QUESTIONNAIRE RESPONSE INCOMELE-HOUSEHOLD ESTIMATED INCOME LE_HFOODLE_NATURAL HEALTH FOOD LE_SUBEVLE-SUBSCRIBE EVER TO EXTERNAL HL MAGAZINE MDIVDOLMAGAZINE DIVISION DOLLARS PAID NBDIVRETNUM BOOK DIVISION PRODUCTS RETURNED NHLBKBUYNUM HEALTHY LIVING ONE SHOT BOOKS PURCHASED NOLMAT6MNUM OUTSIDE LIST MATCHES TO FILE LAST 6 MONTHS NOSPPY36NUM ONE SHOT PRODUCTS PAID LAST 36 MONTHS PSLOCORPNUM CORP PROMOTIONS SINCE LAST ORDER TLHLPAYTIME SINCE LAST HEALTHY LIVING PAYMENT TLORCORPTIME SINCE LAST CORP ORDER

NEXT WEEK

Class 231 Homework 1 Need assignment from Blackboard –Homework1_SP2008.doc Need data from Blackboard –HLPrimarySampleForHomework1SP08.sas7bdat Remember, the.sas7bdat extent tells your computer and SAS that the dataset is a “SAS Dataset”

Class 232 How to Calculate Response Rate Indices DBMers focus on types of customers who order and pay or order profitable products –High order rates –High payment rates –Low bad debt rates –Low rates of return –High paid order rates (order and pay) Use testing to identify… –Overall response rate for a list segment of names –Effective promotion package elements

Class 233 How to Calculate Response Rate Indices DBMers use response indices to quantify differences in response rates and other customer actions for names who have different characteristics Response index is response rate for names with a given characteristic divided by the response rate for a comparison group… –For customer characteristics, usually response rate for list segment to which the names belong –For marketing mix factors…control group rate

Class 234 How to Calculate Response Rate Indices: Example Firm tests random sample of 50,000 names. Overall order rate is 2.00% Order rate as a percent => –(Number of customers who ordered / 50,000) * 100 –(1,000 / 50,000) * 100 = 2.00%

Class 235 How to Calculate Response Rate Indices: Example What is Order Index for names that had paid us $100 or more in the past 12 months? –Use data in the sample from the database to identify names that had spent $100 or more in the last 12 months –Calculate their order rate –Divide their order rate by overall order rate Let’s say their order rate was 2.66% Order index = 2.66% / 2.00% = 1.33

Class 236 How to Calculate Response Rate Indices: Example In some firms, indices are multiplied by 100…so, 1.33 become 133 Only way to tell is from the magnitude of the number and presence/absence of a decimal point Indices are used to tell marketers about their best or worst customers.