Database and Direct Response Marketing Chapter 11

Chapter Objectives How can a marketing team match a database program with an IMC program? What is meant by “database-driven marketing communications?” Name the ways a company’s database can be used to create permission marketing, frequency marketing, and customer relationship management programs. Which direct response marketing programs are most effective and least effective?

Overview of Integrating Marketing Communications REGULATIONS & ETHICS EVALUATION DATABASE & DIRECT RESPONSE SALES PROMOTIONS PUBLIC RELATIONS AND SPONSORSHIPS TRADITIONAL MEDIA E-ACTIVE MARKETING ALTERNATIVE CHANNELS ADVERTISING MANAGEMENT ADVERTISING DESIGN THEORY AND APPEALS ADVERTISING DESIGN MESSAGES AND FRAMEWORKS CORPORATE IMAGE BRAND MANAGEMENT BUYERS BEHAVIORS PROMOTIONS OPPORTUNITY ANALYSIS Integration Tools Promotional Tools IMC Media Tools Recap… IMC FOUNDATION: First section of the class focus on corporate image and brand management elements. - Who are we, and what message are we trying to send Buyers behavior – Steps in the consumer purchasing process. How do consumers make buying decisions and choices and how to design a program that influences these decisions. Promotions opportunity analysis – identifying target markets. Who are you going to talk to. ADVERTISING TOOLS The second section of the class is devoted to Advertising issues: Management Design and theories and various advertising appeals (sex, fear, humor) Creative effective messages IMC MEDIA TOOLS Third section provides information on traditional and cutting edge ideas about how to reach potential customers. TV, Radio, Print, DM, Internet, blogs, etc. PROMOTIONAL TOOLS The next level adds database and direct response marketing programs, trade promotions, consumer promotions, pr efforts and sponsorship programs. Advertising Tools IMC Foundation

Database Marketing The secret to developing Loyalty Recognition Relationships Reward Programs Three Key Data-Driven marketing programs are: Permission Marketing Frequency Programs Customer Relationship Management

Database Marketing Collecting and utilizing customer data for the purposes of enhancing interactions with customers and developing customer loyalty. Successful database marketing involves identifying customers and building relationships.

Data Warehouse Holds all customer data Customer information Purchasing patterns Purchase history Preferences

Good Data Warehouse Should include: E-mail and Internet Data Purchase and Communication Histories Personal Preference Profiles Customer Information Companies Geocoding E-mail and Internet Data Whenever possible, collect consumer e-mail addresses and utilize cookies to record Web visit patterns. Purchase and Communication Histories Both histories are important to a database program; what customers bought and a record of other interactions with the company (complaints, inquiries, compliments). Personal Preference Profiles The goal is to record what works and what does not in terms of marketing efforts directed at specific consumers. Customer Information Companies Information may be provided by outside firms, such as Knowledge Base Marketing, Donnelly, Dialog, and Claritas.   Geocoding Geocoding is the process of adding geographic codes to each customer record so the person can be located on a map.

The 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 Customer survey results Preferences and profiles supplied by the customer Response history from marketing campaigns Appended data Database coding through customer analyses Appended demographic and psychographic data from other sources E-mail and Internet Data Whenever possible, collect consumer e-mail addresses and utilize cookies to record Web visit patterns. Purchase and Communication Histories Both histories are important to a database program; what customers bought and a record of other interactions with the company (complaints, inquiries, compliments). Personal Preference Profiles The goal is to record what works and what does not in terms of marketing efforts directed at specific consumers. Customer Information Companies Information may be provided by outside firms, such as Knowledge Base Marketing, Donnelly, Dialog, and Claritas. Geocoding Geocoding is the process of adding geographic codes to each customer record so the person can be located on a map. Helps with placement of retail outlets and direct marketing to specific areas. Selecting Media. (billboards, newspapers, etc) CACI Coder Plus is a commonly-used software to record customer activity.

Database Marketing Database Database analytics Identify customers Build relationships Rewarding loyal customers Database analytics Data-driven programs Data-driven communications Direct response marketing Database marketing involves collecting and utilizing customer data for the purposes of enhancing interactions with customers and developing customer loyalty.  Successful database marketing involves identifying customers and building relationships. Important to understand the lifetime value of a customer. Especially good, loyal customers. One vital ingredient in making loyal customers is to use data to develop a special relationship with them. The tasks associated with database marketing The number #1 benefit of database marketing is to enhance CUSTOMER LOYALTY The secrets to developing loyalty include recognition, relationships, and rewards

Tasks in Database Marketing Building a data warehouse Database coding and analysis Data mining Data-driven marketing communications Data-driven marketing programs Remember: Database marketing involves collecting and utilizing customer data for the purposes of enhancing interactions with customers and developing customer loyalty. A data warehouse holds all customer data.

1. Building a Data Warehouse A data warehouse holds all customer data. Data warehouses store current and historical data and are used for creating trending reports The data stored in the warehouse is uploaded from the operational systems (such as marketing, sales, etc., shown in the figure to the right).

2. Database Coding & Analysis The goal of this process is to be able to personalize marketing messages to customers based on the data collected.

Lifetime Value A figure that represents the profit revenue of a customer throughout the lifetime of a relationship.

Lifetime Value Analysis Some companies calculate the LTV of an individual customer. Others of a target segment. Where would it make sense to calculate the LTV of an individual customer. (high end purchases) Key figures in calculating the LTV of a consumer or set of consumer are revenues, costs, retention rates, visits or purchases per time period, normally 1 year. Some companies calculate the LTV of an individual customer. Others of a target segment. Where would it make sense to calculate the LTV of an individual customer. (high end purchases) Key figures in calculating the LTV of a consumer or set of consumer are revenues, costs, retention rates, visits or purchases per time period, normally 1 year. Revenue and costs are easy to get. Retention rates and # purchases require

RFM Analysis Recency The date of the last purchase Frequency The number of purchases in a given time period Normally one year Monetary The cumulative monetary expenditures made during that time period RFM Analysis - RFM stands for recency, frequency, and monetary. Recency is the date of the last purchase. Frequency is the number of purchases in a given time period (normally one year). Monetary is the cumulative monetary expenditures made during that time period.  Codes are set per variable on a one to five scale. 555 is the highest possible number, 111 is the lowest.   The codes allow the marketing team to analyze how each customer shops and develop programs that respond to such information.

3 Data Mining Data mining normally involves one of two approaches: Building profiles of customer groups. Preparing models that predict future purchase behaviors based on past purchases. Data Mining   Program used to develop a profile of a firm’s best customers Process of analyzing data from different perspectives and summarizing it into useful information - information that can be used to increase revenue, cuts costs, or both. Data mining software is one of a number of analytical tools for analyzing data. It allows users to analyze data from many different dimensions or angles, categorize it, and summarize the relationships identified. Technically, data mining is the process of finding correlations or patterns among dozens of fields in large relational databases. Involves two approaches: Building profiles of customer groups Preparing models that predict future purchase behaviors based on past purchases Data mining is a program used to develop a profile of a firm's best customers. Data mining normally involves one of two approaches: Building profiles of customer groups. Preparing models that predict future purchase behaviors based on past purchases. Worked for Nike Contact lenses, used data mining to determine who would be the best customer groups to go after. Look at the Nike database to determine items customers purchased together. (sunglasses & tennis racquets). One last word: Data coding and data mining serve two purposes: First, they can be used to develop marketing communications, the marketing team uses the information to choose different types of promotions, media, messaging for different groups. Second, for developing marketing programs.

4. Data Driven Communications Revolutionized data driven messaging: It is the cheapest form of communication. It is available 24/7. Metric analysis reveals that the customer read the message, time it was read, and how much time was spent reading it. Customers are able to access additional information whenever they want. It can build a bond with customers. Database-Driven Marketing Communications   Figure 11.4 details why the Internet is important for customer communications. The reasons include: It is the cheapest form of communication. It is available 24/7. Metric analysis reveals that the customer read the message, time it was read, and how much time was spent reading it. Customers are able to access additional information whenever they want. It can build a bond with customers. The Internet provides instant communications, easy and viable analyses, and messages can be adapted to specific customers.

5. Data-Driven Marketing Programs Permission marketing Frequency/loyalty programs Customer relationship management

Permission Marketing The company only sends promotional information to customers who give permission Advantages: Response rates are often higher Marketing costs are reduced, because people who are not interested in the products do not receive marketing materials Customers can be reached by telephone, mail, or e-mail Permission marketing is the privilege (not the right) of delivering anticipated, personal and relevant messages to people who actually want to get them. It recognizes the new power of the best consumers to ignore marketing. It realizes that treating people with respect is the best way to earn their attention. – Steve Godin

Steps in Permission Marketing Obtain permission Offer a curriculum over time Reinforce incentives to continue the relationship. Increase level of permission. Leverage the permission to benefit both parties. In a permission marketing program, the company only sends promotional information to customers who give permission. The advantage is that: Response rates are often higher Marketing costs are reduced, because people who are not interested in the products do not receive marketing materials Customers can be reached by telephone, mail, or e-mail Figure 11.6 lists the steps of permission marketing, as follows: Obtain the permission of the consumer. Once the consumer has consented, the marketer is then ready to offer the consumer a full curriculum of information. Reinforce the incentives by giving new ones. Increase the permission level from the consumer to include information about the consumer’s family, life, hobbies, interests, attitudes, and opinions. Leverage the information gathered in step four to provide for the needs of the customer more effectively.

Reason Customers Opt-in: • Sweepstakes or chance to win (41%) • Found site randomly (37%) • E-mail required to access content (38%) • Already a customer (40%) • Friends recommended (24%) Stay Loyal Interesting content (36%) Account status updates (35%) Price Bargains (34%) Entertainment (27%)

Successful Permission Marketing Ensure recipients have granted permission Make e-mails/social media relevant Customize program Track member activity Empowerment 7 lists reasons customers consumers opt-in to permissions marketing programs: Sweepstakes or chance to win (41%) Found site randomly (37%) E-mail required to access content (38%) Already a customer (40%) Friends recommended (24%)   Figure 11.8 provides reasons consumers remain loyal to a permissions marketing program: Interesting content (36%) Account status update (35%) Contests and sweepstakes (34%) Price bargains (34%) Entertaining (27%) Permission is like dating. You don't start by asking for the sale at first impression. You earn the right, over time, bit by bit. - Steve Godin

Frequency Programs A frequency program is an incentive plan designed to cause customers to make repeat purchases. Companies develop frequency programs for two primary reasons: 1. To develop loyalty in customers. 2. To match or preempt the competition.

Frequency Programs 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. Frequency Programs   A frequency program is an incentive plan designed to cause customers to make repeat purchases. Companies develop frequency programs for two primary reasons: To develop loyalty in customers. To match or preempt the competition.

Principle in Building Frequency Programs 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 motivation. Principles   Building a frequency or loyalty program involves the three principles: Design the program to enhance the value of the product. Calculate the full cost of the program. Design a frequency program that maximizes a customer’s motivation to make the next purchase. Frequency programs were first developed as a method to differentiate one brand from its competition. Unfortunately, the differentiation soon disappeared as competitors responded with their own frequency programs. The best target for a frequency program is the group in the middle, neither low nor heavy users. Incentives can encourage this group to continue to buy, because they often will make enough purchases in order to redeem incentives. The key to successful frequency programs is the development of a database that allows for accumulation of purchase and personal data.

Customer Relationship Management (CRM) Programs designed to build long term loyalty and bonds with customers. Include modifying products to meet individual needs. Built on two primary metrics Lifetime value Share of customer Customer Relationship Management   These programs are designed to build long-term loyalty and bonds with customers. They include modifying products to meet individual needs. The four steps of CRM are: Identify the company’s customers through methods such as a traditional database. Differentiate customers in terms of needs and value to the selling company. The lifetime value is based on the average number of visits per year times the amount of money spent, less selling costs. The share of customer figure is the potential value that could be added to a customer’s lifetime value. Interact with customers in ways that improve cost efficiency and effectiveness of your interaction. Customize some aspect of the products or services being offered. The two primary metrics of CRM are: lifetime value of the customer share of customer

Social Media CRM “Radian6 does social media monitoring. What they do is scour the Web for mentions of a particular brand or a particular key word, surface all of those mentions, and then provide a level of analytics on top of it. An example might be if you are McDonalds, Radian6 would help you to listen to everything that everybody in the world is saying about McDonalds on the social web, tell you the most common key words associated with McDonalds, and help you know what people saying about the Big Mac, or it can allow brands to trial new products and listen for and analyze unstructured feedback associated with it.”

Direct Response Marketing Designed to generate an immediate response from consumers, where each consumer response (and purchase) can be measured, and attributed to individual advertisements. There are no intermediaries such as retailers between the buyer and seller, and therefore the buyer must contact the seller directly to purchase products or services. Direct-response marketing is delivered through a wide variety of media

Direct Response Marketing Direct marketing programs are designed to develop closer relationships with customers through direct contact by: • Mail • Catalogs • Telemarketing • Mass media • Alternative media • Internet • E-mail

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 Direct Mail   The most common form of direct marketing is through the mail. The types of lists include a response list, which consists of customers who have made purchases or responded to direct mail offers in the past. A compiled list provides specific information about customers who meet a specific demographic profile. The primary advantage of direct mail is that it can be targeted to various consumer groups with measurable results. The primary disadvantage of direct mail is clutter. Digital direct-to-press technology can be used to customize direct mail offers.

Catalogs Long-term impact Low-pressure sales tactics First stage in buying cycle Database Specialty catalogs Business-to-business Catalogs   Many consumers tend to be more favorable in their responses to catalogs because they are viewed at one’s leisure. Many consumers save catalogs and pass them along. The key to successful cataloging is an enhanced database. Catalogs are widely used in business-to-business marketing situations.

Television Radio Magazines Newspapers Direct Response Media   The most common forms of mass media used in direct marketing are television, radio, magazines, and newspapers. On television, infomercials can be part of an overall network (Home Shopping) or prepared for more traditional channels.

Internet Direct response to ads Cost-effective Builds relationships Personalization of communication Customization of offer Search engine ads The Internet   The Internet provides a new channel for direct marketing. For most companies, the Internet is a place for consumers and businesses to get more information. Many companies use the Internet to display goods and services customers can order directly. Internet direct marketing programs are not only fast, but can also suggest the goods and services to the consumer that are based on that individual’s past purchasing or click-stream behaviors.

Alternative Media Package insert programs (PIPs) Ride-a-longs Statement stuffers Card packs Alternative Media   The four most common alternative media are: Package insert programs (PIPs), which are direct marketing materials placed in mail-order fulfillment packages. Ride-along programs, which are direct marketing materials that accompany or are placed along with another company’s catalog or direct mail piece. Statement stuffers are direct mail offers placed inside of a statement or bill Card packs, which are decks of 20 to 50 business reply cards, normally 3 by 5 inches, placed in a plastic pack.

Telemarketing Inbound telemarketing Outbound telemarketing Cross-selling Outbound telemarketing Cold calling Database Prospects   Inbound telemarketing occurs when a potential customer calls the company. It can be a solid method for building bonds with customers and others. Outbound telemarketing occurs when the company calls customers. It is not popular and faces some legal restrictions. It is most successful when the database includes those who have previously been in contact with the company.

International Implications Differences in technology Laws and regulations Local customs Infrastructure International Implications   One decision is whether data should be country-specific, especially when two nations share a small geographic space. Direct marketing programs must be adapted to local conditions, technologies, and delivery systems.