Kestnbaum & Company Andrew Hamada Daniel Tait Melia Widjaja H.E.L.P. A DIRECT MARKETING CASE STUDY

OVERVIEW 1. Financial Problems 2. Operational Problems 3. Financial Objectives 4. Catalog Scenarios 5. Market Opportunities 6. Gains Chart Analysis 7. Direct Marketing Opportunities FINANCES OPERATIONS OBJECTIVES SCENARIOS MARKET GAINS OPPORTUNITIES

FINANCIAL ANALYSIS FINANCES OPERATIONS OBJECTIVES SCENARIOS MARKET GAINS OPPORTUNITIES Financial Problems Rate of increase in profits has been declining. Rate of increase in sales dramatically outpaces rate of increase in profits

FINANCIAL ANALYSIS Over 6 years, sales increased 170%, while profit increased only 66% Customer acquisition costs are rising at a higher rate than gross revenue, likely stemming from H.E.L.P’s ordinary acquisition channels peaking PRIOR YEAR 6CURRENT YEAR Sales: E$10MM Profit: E$3MM, 30% of sales Sales: E$27MM Profit: E$5MM, 18.5% of sales FINANCES OPERATIONS OBJECTIVES SCENARIOS MARKET GAINS OPPORTUNITIES

Operational Problems Processing standards are subpar. Management sometimes fails to meet standards. Extensive customer information database is not being used properly. No connection between customers and merchandise picks. Only two segmentation models: age and profitability. Desired segmentation model to include: purchasing power, behavior (four kinds of buyers) OPERATIONAL ANALYSIS FINANCES OPERATIONS OBJECTIVES SCENARIOS MARKET GAINS OPPORTUNITIES

OPERATIONAL ANALYSIS FINANCES OPERATIONS OBJECTIVES SCENARIOS MARKET GAINS OPPORTUNITIES Customer Age / Gender Geograph ic Location Date / amount of Purchase( s) Items Purchase d Promotion History No behavioral segments (high-value deal seeker, habitual shoppers, etc.) Not testing customer segments Only modest improvement from creative variations

FINANCIAL OBJECTIVES FINANCES OPERATIONS OBJECTIVES SCENARIOS MARKET GAINS OPPORTUNITIES Financial 1. Increase sales by 203MM over the next 5 years 2. Increase average profit per customer from $15.21 to $20.21 over next 5 years  $16.21 per customer per year in year 1  $20.21 per customer per year in year 5 Five-year schedule ($MM) Year12345Total Sales Profit

1. Additional Catalog R Additional mailing to the top deciles each season. 2. Increase List Rental Increase customer acquisition mailings to lists 3. Larger Catalog Add an 8 page signature in each of the next 4 seasonal catalogs CATALOG SCENARIOS FINANCES OPERATIONS OBJECTIVES SCENARIOS MARKET GAINS OPPORTUNITIES HELP has developed three possible catalog modifications to address their financial problems.

Largest increase in buyers over 5 year period Largest increase in net sales over 5 year period Proportion of increase in net sales to increase in buyers is highest CATALOG SCENARIOS FINANCES OPERATIONS OBJECTIVES SCENARIOS MARKET GAINS OPPORTUNITIES Based on our analysis, a larger catalog with a signature insert will have the best effect on sales and profit.

MARKET OPPORTUNITIES FINANCES OPERATIONS OBJECTIVES SCENARIOS MARKET GAINS OPPORTUNITIES HELP can leverage their existing resources in new ways to open new market opportunities. 1. Use customer database to overhaul segmentation model. Current segmentation is based on age alone Analyzing relationships between customer variables will aid HELP in profiling their customers Most profitable customers Underserved, high potential segments A more robust segmentation model will help identify causes for underperformance in the bottom four customer deciles. Reduce circulation expenses Improve product mix

MARKET OPPORTUNITIES FINANCES OPERATIONS OBJECTIVES SCENARIOS MARKET GAINS OPPORTUNITIES DemographicsGeographicsPsychographicsBehavior Women, 20 – 29Central Europe Habitual ShoppersShops frequently, brand loyal Women, 30 – 39Western Europe High-value deal seekers Wait for limited time sales, trust retailers Women, 40 – 49Eastern Europe Variety-loving shoppers Buy on impulse, shop as entertainment Women, 50 – 64Northern Europe High-involvement shoppers Consider numerous product attributes, sometimes motivated by event

MARKET OPPORTUNITIES FINANCES OPERATIONS OBJECTIVES SCENARIOS MARKET GAINS OPPORTUNITIES HELP can leverage their existing resources in new ways to open new market opportunities. 2.Duplicate business model in a new market. HELP is based in Europe US market is large, wealthy, consumption driven and untapped Entry requires only a US distribution center – use most elements of existing business model New campaign requires cultural research & testing to avoid ethnocentrism

MARKET OPPORTUNITIES FINANCES OPERATIONS OBJECTIVES SCENARIOS MARKET GAINS OPPORTUNITIES US Market Entry Test Plan Offer/BribeProductFormatCreativeMedia Control None European selection Catalog with signature insert European styling Mail 2 None Americanized selection Catalog with signature insert European styling Mail 3 None European selection Catalog with signature insert Americanized styling Mail 4 Free shopping tote with $100+ purchase European selection Catalog with signature insert European styling Mail 5 Free shopping tote with $100+ purchase Americanized selection Catalog with signature insert European styling Mail 6 None Americanized selection Catalog with signature insert Americanized styling Mail

MARKET OPPORTUNITIES FINANCES OPERATIONS OBJECTIVES SCENARIOS MARKET GAINS OPPORTUNITIES HELP can leverage their existing resources in new ways to open new market opportunities. 3.Offer in-house financing to select customers. Analyze database to identify customers amenable to financing Credit card users Low-volume purchasers Can increase sales volume by enabling income-sensitive customers to purchase in larger quantities, more frequent intervals Assuming effective risk management, interest income provides an additional revenue source without higher acquisition costs In-house financing opens many incentive opportunities Low-interest for X periods

MARKET OPPORTUNITIES FINANCES OPERATIONS OBJECTIVES SCENARIOS MARKET GAINS OPPORTUNITIES In-House Financing Test Plan Intro Rate OfferPurchase RateMinimum OrderCopy LocationBribe Control None 2* None29.9%Non -inNone 3* 0%, 3 months29.9%Non -inNone %E$ Mail-inNone 5 0%, 3 months29.9%E$100.00Mail-inNone %NoneCatalog coverNone 7 0%, 3 months29.9%NoneCatalog coverNone %Non -in No interest if paid in full in 12 months 9 None29.9%NoneCatalog cover No interest if paid in full in 12 months *Test is necessarily dyadic or triadic.

GAINS CHART ANALYSIS FINANCES OPERATIONS OBJECTIVES SCENARIOS MARKET GAINS OPPORTUNITIES Line Segmentation Gain Chart DecileSales/000Cum. SalesProfit/000Cum. Profit % % % % % % % % % % % % % % % % % % % % 1. If there are no trends, cease promotion to the bottom four deciles. 2. Otherwise, modify promotion to divert attention to lower cost sales channels.

GAINS CHART ANALYSIS FINANCES OPERATIONS OBJECTIVES SCENARIOS MARKET GAINS OPPORTUNITIES  Habitual Shoppers: Sending new product offers often that will introduce them to similar and relevant products  High-Value Deal Seekers: Emphasizing on promotions and deals more heavily  Variety loving Shoppers: Offering different product recommendations that will satisfy their various interest  High Involvement Shoppers: Focusing on communicating the individual features and benefits involved in using the products

DIRECT MARKETING FINANCES OPERATIONS OBJECTIVES SCENARIOS MARKET GAINS OPPORTUNITIES Customize catalog offerings and bribes (By docile/ age group) Create sub-brands for segments that require highly personalized product/promotion offers Relationship-building with our best customer segments (loyalty program) Incentivize online shopping through a gift program Offer H.E.L.P-exclusive products or product variants

Questions? THANK YOU