1. University of Washington EMBA Program Marketing Management “Direct Marketing” Instructor: Elizabeth Stearns

2. Marketing Plan Review Analysis of promotional program situation Analysis of the communication process Budget Determination Develop integrated marketing communications program AdvertisingDirect Marketing Sales Promotion PR/ PublicityPersonal Selling Create Awareness Develop Attitudes Change Attitudes Inform Persuade Generate a Sale Generate a Lead Qualify a Lead Enhance a db Relationship Building Create Excitement Stimulate demand/sales(short term) Support sales force/trade/customer (selling and buying) Fostering Goodwill between co. and publics Brand Awareness Build Attitudes Encourage purchase behavior Influence purchase needs Educate consumers Provide Product usage/marketing assistance/ After sale service and support

4. Communications Stream/Response Person Mail Phone Fax email Web TV Radio Outdoors POS Person Mail Phone Fax email Web How Cos. Communicate How Customers Respond Dr. Gary Bridge, IBM Wireless

5. Direct Marketing An organized and planned system of contacts Using a variety of media Supported by general advertising in print and broadcast media, if appropriate Aimed at selected prospects and customers INTRODUCTION

6. Direct Marketing Seeking to produce a lead or an order Measurable in its costs and results Improvable through testing and analysis Expandable with confidence

7. Functions of Direct Marketing Make a sale Generate a lead Qualify a lead Relationship building Database enhancing

8. Definition of Direct Marketing “Direct marketing is an interactive system of marketing which uses one or more advertising media to effect a measurable response and/or transaction at any location”

11. Direct Marketing Update 2000 Total Sales Revenue:US$ 1.7 trillion CatalogueUS$ 110.6 billion InternetUS$ 24.2 billion Jobs:15.6 million 11.6 % US Employment DR Advertising:US$ 191.6 billion (56.5% total adv. $) Mail aloneUS $33 billion Source: WEFA/DMA

12. Image Response Connectivity between all communications Maximizing budgets Not distruptive of other efforts

13. Available Media Brochures or catalogs sent by mail Radio and TV ads Television Shopping Networks/Programs Telephone Newspaper and magazine ads, preprints, bind-ins, etc. Statement inserts Cooperative mailings

14. Available Media Package and bag stuffers Take-ones Cereal boxes, egg and milk cartons, matchbooks, etc. Interactive cable Worldwide Web/Internet

15. The Role of Media Media planning is concerned with how to use advertising time and space most effectively (and efficiently) to contribute to the achievement of marketing objectives.

16. The Role of Media Media provides a bridge that delivers the right message (and offer) to the right target. In this respect, media decisions that deliver both image/awareness are the same for direct response efforts. Media planning that is involved with generating a direct response, goes steps further in analyzing previous results and projecting future response.

17. Media’s Role in Direct Marketing The “accountable” nature of direct marketing is the crucial determining factor used to plan each media campaign. Historical response analysis is the foundation and starting point for the overall planning process.

18. Media’s Role in Direct Marketing Front-end Response -% response -Orders per thousand -Cost per order

19. Media’s Role in Direct Marketing Back-end Response -The quality of the customer is primarily measured by total sales (net of bad pay) per customer, but related measures are also used such as: conversion %, renewal rate and upgrade %, cross promotion sales, credit card usage, and ultimately a “Lifetime Customer Value” Index.

20. The Planning Process Historical response analysis* is the foundation for the planning process: –Front end response % response and cost per inquiry –Back end response % quality of customer and lifetime value

21. Managing the Buy Objectives are managed over the length of the campaign Counts are received from the telemarketing services on a daily basis. Exact times are received from the stations. Buyers adjust schedules daily based upon performance and availability of air time.

22. Managing the Buy Responsiveness on a daily basis Rates are renegotiated. “No-charges” are negotiated. Ineffective/inefficient dayparts are eliminated. Spending is increased on well-performing stations. Poor stations are eliminated. New stations are recommended.

23. Managing the Buy As a result... Flight dates are shortened or extended. Alternate commercial lengths are tested and used. Creative/product fatigue is assessed. Individual station activity is added to, reduced, or cancelled.

24. Type of Lists Compiled –Names and addresses derived from directories, public records, newspapers, retail sales slips, trade show registrants, etc., to identify groups of people who have something (single identifiable characteristic) in common.

25. Type of Lists Response –Names and addresses of consumers or business executives who ordered and paid for a product or service through the mail. Response Enhanced –Consumers(purchasers) who have filled out questionnaires and mailed in those questionnaires which describe their demographics, psychographics and specific product buying habits. House List –Purchased or inquired, 5-6 times better results

26. Development of DM in U.S. Substantial mail order activity in existence for more than 100 years Originally built to serve needs of a working class, rural nation In 20th century specialty businesses evolved –Often featured low price but hard-to-find items –Fostered a “discount” image –Market mostly middle/lower class –Pattern of thousands of small, independent mail order businesses established

27. 1950

28. Development of DM in U.S. (cont.) Starting in 60’s patterns changed markedly –Rapid growth; faster than retail –Achieved “in” status, better public image –Quality, variety, convenience became main reasons for purchase, not prices –Market became urban/suburban, upper middle class

37. Development of DM in U.S. (cont.) –Rapid growth in number of, and access to, rented lists of mail order buyers –Large companies saw growth opportunities- bought/started direct marketing activities –Still thousands of companies, few with sales of more than $100 million

38. Development of DM in U.S. (cont.) Late 80’s/90’s saw: –Slower growth of consumer businesses –Time Poor Consumers: “Cognitive Overload” –Growth of multi-channel-particularly addition of retail stores by mail order businesses-much faster than serious growth of direct marketing by retail

39. Development of DM in U.S. (cont.) –Internet growth for ecommerce –Continued use of database by financial, transportation, manufacturing sectors –Relational vs. Transactional databases –Technology as a facilitator and inhibitor (Privacy)

40. Development of DM in US (cont.) 21st Century –Real time customer –Mandatory multi channel-customer choice –Privacy needs/remedies confused,-self regulation and gov’t involved –Fulfillment & database essential skill sets- often not resident at ecommerce companies –CRM: hot topic! Myth or Reality

43. Using technology to understand your customer “Hug Me” Your customers will shop and purchase as is convenient/appropriate for them (hint: not you!) Set up your systems to capture behavior to get a complete look at your customer.

44. Development of DM in U.S. (cont.) Business to business sector has grown rapidly, now about 50% of total sales. Efficient as: –Prospecting tool –Way to sell low volume customers or low volume product –Information/intelligence gatherer –Sales!

45. Trends Favorable to Growth Demographic and Lifestyles For households in which both adults work and for business customers, convenience and time savings assume great importance. –Many U.S. consumers have more discretionary money than time. – Or when they are managing to less discretionary money, info and choices are readily available through multiple DM means. –Businesses are seeking higher productivity. Higher educational levels – particularly with the “baby boom” generation - produce more shoppers with self- confidence to permit purchase decisions based on written materials.

46. Trends Favorable to Growth Demographic and Lifestyles (cont.) Retail shopping less often provides an enriching or self-gratifying experience. Individual consumer’s values/needs can be recognized in personalized or interactive direct marketing communications that replace the physical one to one contact that is no longer affordable.

47. Trends Favorable to Growth Marketing Needs of Major Corporations Rising costs of marketing and declining price or many products, requires greater efficiency. Narrow/specialized target markets must be dealt with individually.

48. Trends Favorable to Growth Marketing Needs of Major Corporations Multiple distribution channels are required. Direct marketing, as one, is both complementary and incremental. Direct marketing databases and discipline assist measurement of other channels and of conventional advertising.

50. R-F-M Recency –When was the last time they purchased? Frequency –How often do they purchase? Monetary Value –How much money do they spend?

51. Typically used to select likely profitable customers to receive direct marketing treatment It postulates that the most likely prospects are recent purchasers who have historically demonstrated more frequent than average purchase behavior in larger than average dollar amounts It is based on a correlation between RFM and response Historically it has proven to be an effective segmentation technique for many situations The variables RFM are frequently influential in many advanced statistical modeling techniques RFM Definition RFM is a behavioral segmentation technique

52. RFM Definition (cont’d) The variables must be interpreted within the context of product purchase dynamics –Durable –Consumables –Periodic Can be used to manage marketing investment by selecting target customers Can also be used to improve marketing performance by managing message/offer components

53. RFM Elements Segmentation Concept Behavioral Question Data Element/ Measurement RecencyWhen did they last buy? Date of last purchase Process: Sort by date Create groups by date range FrequencyHow often do they buy? # of purchases over time Options: Within recency group, months on file, # times mailed Monetary Value How much do they spend? $ value of purchases Options: Within recency group, months on file, # times mailed

54. RFM / Customer Treatment RFM segmentation can be used to manage customer treatment across functions Functional DimensionTreatment Implication Customer ServiceService Level BillingAdjustment Practices CollectionsMinor delinquency action CreditOver limit action MarketingIncentives/Premiums

55. Sensitivity Analysis Three variables are often used to develop a picture that gives a range of possibilities to achieve financial objectives: –Response Rate (and the cost to achieve this) –Average Order Size (and requisite merchandise) –Circulation/Audience Size (and economies for volume) These are reviewed to give a reality check on Best/Worst/Most Likely scenaria, and provide a good basis for a monthly Cash Flow analysis.

56. Ruth Owades Sensitivity Analysis

57. Gains Chart for Responsiveness DecileQty. Mailed (000) Number Resp. (#) Percent Resp. (%) Resp. Gain Index* Revenue Generated (000) Mailing Cost (000) Total Profit (000) 160020,2503.37%225$506$240$266 21,20034,2002.85190855480375 31,80048,3302.681791,208720488 42,40060,8402.531691,521960561 53,00067,5002.251501,6871,200487 63,60076,6802.131421,9171,440477 74,20081,9001.951302,0471,680367 84,80084,9601.771182,1241,920204 95,40087,4801.621082,1872,16027 106,00090,0001.501002,2502,400-150 Mailing Cost: $400/thousandRevenue: $25/response *Index of Relative Responsiveness; Universe Indexed to 100. Source: Direct Marketing, November 1988

58. Customer Data Customer Characteristics Demographics Psychographics Household Composition Behavior Change Drivers Key Behavior Events Performance Metrics Recency Frequency Monetary Value Marketing Management Information Contact History Response History Promotion History Customers/ Prospects Customer-Level View Selection System Program Streams Pre-Purchase ProgramsRetention Programs Reporting And Analysis System Reports/ Evaluation

59. CATALOG A complete enumeration of items arranged systematically with descriptive details – a pamphlet or book that contains such a list.

60. History Iraq 3000 B.C. Europe 15 th / 16 th Century Colonial U.S. 1744 USA 1872 Clay Tablets recording temple accounts and inventories First Trade Catalog Ben Franklin’s Book of Books Montgomery Ward Catalog –Single Sheet listing 163 items –By 1875, catalog was 72 pages Sears J.C. Penney

85. Thank You!