What is Database Marketing? Arthur Middleton Hughes VP Solutions Architect KnowledgeBase Marketing

What KnowledgeBase Marketing Does

Selected List of Clients

Marketing Database Data Access And Analysis Software Customer Transactions Marketing Staff Inputs from Retail, Phone, Web How a modern database system works Appended Data Mail, , Phone Updated several times per day Access on the web

Compared with newcomers, Long term customers: Buy more per year Buy higher priced options Buy more often Are less price sensitive Are less costly to serve Are more loyal Have a higher lifetime value

Retention is the way to measure loyalty

Retention pays better than acquisition

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!

What doesn’t work: Treating all customers alike This 28% lost 22% of the bank’s profits! Bank Customers by Profitability

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 Marketing to Customer Segments

Examples of Profitable Strategies Newsletters Surveys and Responses Loyalty Programs Customer and Technical Services Friendly, interesting interactive web site Event Driven Communications

Manufacturer of building products Catalog sent to 45,000 contractors Previous policy: wait for the orders Test: pick 1,200 customers, split into test of 600 and control of 600 Two person pilot program build relationship with test customers to see the results Credit: Hunter Business Direct What proves that relationship building works?

What did they offer? Follow up on bids and quotes Schedule product training Ask about customer needs New Product information They did not offer discounts

Change in the number of orders

Change in the Average Order Size

Total revenue gain: $2.6 million dollars

This stuff works! Building a relationship with customers can be highly profitable Using a database to recreate the old family grocer is a winning strategy Business to business relationship marketing is the way to go

What is lifetime value? Net present value of the profit to be realized on the average new customer during a given number of years. Lifetime value is “Good Will.” To compute it, you must be able to track customers from year to year. Main use: To evaluate strategy.

Lets look at a retail operation Before and after a loyalty program Lets begin with a loyalty building communication

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 $ 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) to let me know which you’d prefer. Sincerely yours, Robin Baumgartner Robin Baumgartner, Store Manager Ridgeway Fashions Leesburg, VA 22069

LTV Before New Strategies

 Provide all customers with a card or register their credit cards  Birthday Club  Communicate with them  Give them premiums if they shop a lot  Lets see what could happen New Retention Strategies

With New Strategies

Effect of adoption of new strategies

Increase the retention rate Increase the referral rate Increase the spending rate Decrease the direct costs Decrease the marketing costs Five Ways to Boost LTV with DB Strategies

Who is going to defect? Besides LTV, you can develop a model that predicts which customers are most likely to leave. Putting that model with LTV you can refocus your entire retention strategy You create a Risk Revenue Matrix

Focus on A and B: 44% of your customers.

Comprehensive Data on over 230 Million People in the U.S. Compiled on an Individual Level Updated Every 6 Weeks Sources include Drivers License, Voter Registration, multiple purchase transactions, i.e. shopping behavior, Telephone Sources, Children’s Data, Tax Assessor/Property Deeds, Occupational Licenses, Internet Data, Product Registration, Survey Data, Summarized Credit Statistics and Multiple Lifestyle Sources AmeriLINK

58% Mail Order Buyers 34% Multiple Mail Order Buyers 57% Homeowners 65% with Bankcards, 30% with Multiple Bankcards 2000 Census Data Currently Available Quantifiable Verification – 57% Last 12 Months 25% Known On-Line Households AmeriLINK

Web Accessible 100 % Exact Age Available 50% Females by First Name 40% Coded with Lifestyle Data from Surveys 100% Coded with Terrestrial Attitudinal Clusters – LWA and MindBase 54% Coded with Internet Behavioral Clusters – Digital Neighborhoods

Address Coverage on AmeriLink

Digital Neighborhoods A unique segmentation solution Digital Neighborhoods(SM), a unique segmentation scheme developed jointly by KnowledgeBase Marketing® and its parent company, Wunderman, segments consumers by e- involvement, which measures consumer presence online, relationships with sites and transaction activity. When you understand consumers’ link to the Internet, you can optimize your marketing efforts by customizing and personalizing your offers and messaging.

Digital Neighborhoods

Direct Sale Cycle Step 3 Step 1 to Prospect or Customer Design and Create campaign Step 4 Pre Qualification Of Prospects Step 2 Welcome Arthur to Prudential. To get information on an LTC policy click here. Bob Winslow, Agent Prudential Agent Prudential Marketing Staff Real Time Reports on Campaign Progress Micro-Site

Prizm Cluster Codes 01Blue Blood Estates1.18%ElitePrivileged Super Rich Families 02Winner's Circle2.15%WealthyExecutive Suburban Families 03Executive Suites1.32%AffluentUpscale White-Collar Couples 04Pools & Patios1.85%AffluentEstablished Empty Nesters 05Kids & Cul-de-Sacs2.93%AffluentUpscale Suburban Families 06Urban Gold Coast0.59%AffluentProfessional Urban Singles & Couples 07Money & Brains1.12%AffluentSophisticated Townhouse Couples 08Young Literati0.94%Upper MiddleUpscale Urban Couples & Singles 09American Dreams1.40%Upper MiddleEstablished Urban Immigrant Families 10Bohemian Mix1.48%MiddleBohemian Singles & Couples 11Second City Elite1.89%AffluentUpscale Executive Families 12Upward Bound1.83%Upper MiddleYoung Upscale White-Collar Families

More Cluster Codes 13Gray Power2.03%MiddleAffluent Retirees in Sunset Cities 14Country Squires1.33%WealthyElite Exurban Families 15God's Country2.63%AffluentExecutive Exurban Families 16Big Fish, Small Pond1.37%Upper MiddleSmall Town Executive Families 17Greenbelt Families1.48%Upper MiddleYoung Middle-Class Town Families 18Young Influentials1.35%Upper MiddleUpwardly Mobile Singles & Couples 19New Empty Nests2.06%Upper MiddleUpscale Suburban Fringe Couples 20Boomers & Babies1.11%Upper MiddleYoung White-Collar Suburban Families 21Suburban Sprawl1.50%MiddleYoung Suburban Townhouse Couples 22Blue-Chip Blues1.93%MiddleUpscale Blue-Collar Families 23Upstarts & Seniors1.28%MiddleMiddle Income Empty Nesters 24New Beginnings1.19%MiddleYoung Mobile City Singles

Gains From Cluster Coding UniverseGoodBad Clusters Mailing1,005,160460,445544,715 Responses16,083 14,274 1,809 Response Rate1.60%3.10%0.33% Revenue$1,222,275$1,084,808$137,466 Mail Cost$562,890$257,849$305,040 Cluster Cost$30,155 Profit$659,385$796,804-$167,574 Gain$137,419

Recency Frequency Monetary (RFM) Analysis Used for marketing to customers Always improves response and profits Better than any demographic model The most powerful segmentation method for predicting response

How to Apply Recency Codes Put most recent purchase date into every customer record. Sort database by that date - newest to oldest. Divide into five equal parts - quintiles. Assign “5” to top group, “4” next, etc. Put quintile number in customer record.

Response by Recency Quintile 3.49% 1.25% 1.08% 0.63% 0.26% 0.00% 0.50% 1.00% 1.50% 2.00% 2.50% 3.00% 3.50% 4.00% Recency Quintile Response Rate

How to Compute a Frequency Index Keep number of transactions in customer record Sort recency groups from highest to lowest Divide into five equal groups Number groups from 5 to 1 Put quintile number in customer record

Response by Frequency Quintile 1.99% 1.56% 1.31% 0.92% 0.93% 0.00% 0.50% 1.00% 1.50% 2.00% 2.50% Frequency Quintile Response Rate

How to Compute a Monetary Index Store total dollars purchased in each customer record Sort frequency groups from highest to lowest Divide into 5 equal groups (quintiles) Number quintiles 5, 4, 3, 2, 1 Put quintile number in each record

Response by Monetary Quintile 1.61% 1.45% 1.46% 1.22% 1.23% 0.00% 0.20% 0.40% 0.60% 0.80% 1.00% 1.20% 1.40% 1.60% 1.80% 54321

RFM Code Construction F M One Sort Five Sorts Twenty- five sorts Database R

Customer Database Nth Creating an Nth 300,000 Records 30,000 Records For Nth by 10, select every tenth record. Result will be statistical replica of database

Result of Test Mailing to 30,000 #RFMMailedResponseRate % % % % % % % % % % % % % %

Test Response Rate by RFM Cell

Test, Full File & RFM Selects Compared TestFull FileRFM Select Response Rate1.34%1.17%2.76% Responses40223,41215,295 Net Revenue$16,080$936,480$611,800 No. Mailed30,0002,001,056554,182 Mailing Cost$16,500$1,100,581$304,800 Profits($420)($164,101)$307,000

Test Vs Rollout Response Rates

NOT When NOT to Use RFM If you use it all the time, half your customers will never hear from you They will be lost The others will suffer from file fatigue Use it sparingly; When you need a boost Use it to identify your best customers Don’t go hog wild!

A few recent case studies

Modeling to increase response Auto insurance mailed 1.2MM per mo. Model showed how to pick right HH

Isuzu Post Card Direct To sell their trucks, Isuzu developed 24 different postcards, each with a different case study of truck use such as Gardening, Plumbing, Moving. They set up a web site and used direct mail to get dealers to come to the site and order post cards for prospects developed by Isuzu.

Isuzu Results Dealers modeled to determine their likelihood to purchase. The model really worked:

HP On Line Survey Competitive Advantage Through Advanced Technology  Hewlett Packard tested an on line survey to promote their network printers.  Direct mail drove responders to a web site that contained the survey. Responders received $10 in Pizza Hut coupons.  The survey provided a special HP offer for network printing solutions, product links, and e-subscription information.

Universal Music eMarketing Campaign  UMG tested an e-marketing strategy to increase record sales of a new album release for Lucinda Williams  The campaign delivered more than a 960% increase to the Lucinda Williams fan base  Reached nearly 200,000 fans and prospects with communications  Won DMA Gold Echo Award in 2002

What Works: Marketing

Where else can you get these results in 3 days?

Get customers to join a club A company sold sporting goods created a member club. When DB was built they learned that: Club members bought 11 times more than non club members. In two years, 81% of club members became multi-buyers.

Club members conversion

Cataloger Example Miles Kimball sent 20,000 s with three different catalogs, and 20,000 with the three catalogs alone. Those who got the s bought 18% more than those who got the catalogs alone.

Retailer Example Video retailer sent newsletters to 170,000 customers for 6 months. Control group of 14,000 got no s Retail sales to test group was 28% more than to those without s.

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