Evolution of Multi-Channel CRM at BMG Direct US · Evolution of Multi-Channel CRM at BMG Direct US ... significance, these datamarts are ... The telemarketing program was able to

SEUGI Dublin June 21 2000 Jeff LeSueur, BMG Direct Page 1

Evolution of Multi-Channel CRMat BMG Direct US

Jeff LeSueur,Sr. Director, Database Marketing,

BMG Direct


Evolution of Multi-Channel CRMOverview

Data

Warehouse

EMAIL

PAPER

Data MartsPromotions

TELEMKTG

WEBSITE

The

Customer


BMG Direct

• BMG Direct operates the world’s largestgroup of CD Clubs: 11,000,000+ members– BMG Music Service– Encore– BMG Jazz Club– Sound & Spirit– Ritmo y Pasión– www.BMGMusicService.com


“12 CDs for the price of 1,Nothing More to Buy Ever !”


BMG Direct 1994: Full Color magazines, special theme flyers


BMG Direct 1994 - 1998• More Marketing Channels: Internet,

Telemarketing• Increased Customer Segmentation

– Promotion Channel and Frequency– Life Cycle: Young, Old, Dormant, Active

• Considerable Testing• Larger Marketing Department• Net Effect: Much Higher Demand for

Information


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1 0

1 2

1 4

S a m p le Da ta F ull F ile

J ob E xecu tion T im es , H our s

E xe c u tionL oa d T im eQ ue ue T im e

Analytical System 1998 - MainframeTape

Tape based data: 20 * 2 GB per tape =40GB ‘Active’

Serious Impediment to Analysis/DatabaseMarketing


1998/99 Response: Data Warehouse

• Project Scoped Summer of 1998• BMG / SAS / IBM Benchmark Test Oct 1998• System Installed January 4 1999• Warehouse available February 1999• Dramatic increase in analytical productivity

– More Reports, Faster Turnaround• Intangible impact on Margin


Evolution of Multi-channel CRM :1st Stage

Data

Warehouse

TheCustomerAd Hoc Batched

Promotions

Telemarketing

Email


Turning Point May 1999

• Fiscal Targets in Jeopardy• More aggressive efforts required• Modeling showed untapped potential in

Telemarketing– Clear Response differences

• ‘Trial Selection’ approved– Production, Vendor Integration Issues


Results• 110,000 Top Potential Accounts Selected• Tangible P&L Impact: $250,000 Profit

110,000 Leads

159%61% Sales

74% Good Contacts

63% Complete Calls

Return on Promotion Cost


Extended Results: Credibility

• From September forward:– Bi-Monthly Selection 125,000 Accounts– Telematching, Multiple vendors– Full Year Targets achieved April ($4 MM+)– ROI 800% over Warehouse Investment


Evolution: 2nd Stage

Data

Warehouse

TELEMKTG

Data Mart

TelemarketingProgram The

Customer

Response Loop


BMG DIRECT 2000: Direct Mail, Telemarketing, Internet, E-Mail


Evolution: 3rd Stage

PAPER

EMAIL

TELEMKTG

Data Marts

Data

Warehouse

TheCustomer

Response Loop


Email: Interaction Management

EMAIL

Data

WarehouseWeb Site

Opened / Not Opened, Click Thru / No Click Thru,

Purchase / No Purchase, White Mail Response, Survey Response

Response Information


Evolution: 4th Stage Internet Website


Internet Website: Customer Activity

Data

Warehouse

MASSIVEDATA

VOLUMESValue:

WhoWhat Action

When


Internet Website: Site Activity

MASSIVEDATA

VOLUMES

Data

Warehouse

DailyActivity

MASSIVEDATA

VOLUME


Evolution Stage 5:Multi-Channel Management

EMAIL

PAPER


TELEMKTG

WEBSITE

TheCustomer

Data

Warehouse

Data

Warehouse


BMG DIRECT 2000: Direct Mail, Telemarketing, Internet, E-Mail

Multi-Dimensional Web Based DSS provides enterprisewide access to Multi-Channel Business Information

Evolution of Multi-Channel CRM atBMG Direct US

Jeff LeSueur, Sr. Director, Database Marketing,BMG Direct

ABSTRACTAs the world’s largest record club, BMG Direct marketsCDs and music related products to over 11MM members inthe US. As a direct marketer, BMG’s success depends onthe ability to communicate appropriate, appealingpromotions to members and prospective members, throughseveral channels: traditional direct mail, in the form of 16 to64 page magazines mailed up to 20 times per year, throughthe more expensive channel of telemarketing, through itsweb site (www.bmgmusicservice.com), and through thenewer medium of ‘direct email’.

Managing these channels separately and collectivelyrepresents an operational and infrastructure challenge for ITand marketing CRM managers. BMG is evolving a solutionto these challenges which hinges upon effective use of anenterprise data warehouse to drive channel specificdatamarts for member and message segmentation. Of moresignificance, these datamarts are intelligently constructedand deployed to ensure that the combined channels and totalmessage content is consistent with an overall marketingstrategy aimed at improving Customer RelationshipManagement.

Marketing , IT and business managers should gain insightinto the opportunities which multi-channel promotionalcommunication represents, as well as an appreciation of thespecific problems and potential solutions available to ensurethe channels separately and combined exploit suchopportunities successfully.

BACKGROUNDBMG Direct evolved from the RCA Record Club, whichwas established decades ago. The past several years havebeen extremely challenging as marketing and operationsconfronted the opportunities presented by the developmentof new promotion channels - telemarketing, the internet, andnow email - while strengthening its traditional direct mailchannel.

In direct mail, BMG currently produces over 18 differentmagazines, delivered as often as 20 times per year to 11+million club members. In addition, unique and appealingflyers, focusing on specific genres and unique promotions,are produced to augment the 600 or so titles represented inthe primary magazine. These magazines and flyers aredivided among five primary clubs: BMG Music Service(Pop Music), Encore (Classical), BMG Jazz Club, Sound &Spirit (Christian), and the latest addition, Ritmo y Pasión,

representing Latin listening interests. 18 magazines, 20times per year, cumulates to nearly 5,000 unique pages peryear.

Even with this strong a presence in the US mail, most peoplein the US are likely to recognize the ubiquitous new memberacquisition promotions, “12 CDs for the price of 1,Nothing More to Buy Ever!”.

Between 1994 and 1998, the period when most of the newlistening preferences were added and the magazine was

converted to 4 color, two additional promotional channelswere initiated: Telemarketing programs were established,focused on members whose response had declined recently,and the first internet website was turned on. Additionalrelationship marketing efforts were also begun, focusing onpromotion frequency, life time purchase activity, and lifecycle promotion optimization. As part of these efforts,marketing test activity expanded and the marketingdepartment grew considerably. The net effect was asignificant increase in the demand for information,information to drive decisions relative to the many newprograms.

At the time, the analytical system which provided suchinformation was a legacy system: mainframe based, withdata residing on 2GB tapes. The production masterfile wasrich in detail, accurate, but very large, based on 16 tapes,which has grown to nearly 30 today. Being tape based, onlyone job could access the tape at any one time, and analyticaljobs were given small time slices; a typical full file readrequired six to twelve or more hours, subject to productionpriorities. Even a small 5% sample file, also housed on tape,could not be processed in less than two to three hours.

The throughput restrictions impacted the ability to developeffective marketing campaigns aimed at improving sales andmember satisfaction. A fast, disc based data warehouse wasan obvious solution. BMG Direct engaged SAS Systemsexpertise in the Spring of 1998 in scoping hardware andsoftware requirements. The design effort culminated inbenchmark testing at the IBM RS6000 Benchmark Center,located outside Dallas, Texas. This critical stage indevelopment was generously arranged and facilitatedthrough SAS vendor relations with IBM. Benchmark testingproved performance would be nearly 50% better thanexpectations. The hardware was installed in early January,and production data housed in a SAS database whichbecame available for use in mid February of 1999.

Immediately of course there was a gratifyingly dramaticincrease in analytical productivity. 5% Sample files couldbe processed in minutes, a full file read completed in severalhours. Report development time shrunk to reasonable andimpressive times: many marketing requests could be met ona same day basis!

However, the impact on margin was less tangible. Thepotential offered by improved segmentation and more rapidprogram development times was still just a potential.Efforts to develop warehouse based revenue and costsavings programs were frustrated by legacy impediments:new developments required co-ordination and testing againstcobol based legacy production programs, some programsdating back to the 1980’s.

The turning point came in May of 1999. Half way throughthe month it was clear that fiscal targets would not beachieved in the remaining two weeks, which in turn cast aquestion on the ability to make June’s numbers. June wasthe fiscal year end, full year fiscal targets were in jeopardy.

More aggressive efforts to recover the year were beingactively solicited. Prior modeling of telemarketing resultshad demonstrated clear response differentiation. A trialselection of 110,000 top potential accounts was approved.Within three days time, these accounts were selected,integrated with production promotion requirements,telematched and being actively called from an outsidevendor. By the end of June most calls were complete andresults were positive: response had doubled over priorprograms, the volume of ‘bad numbers’ significantlyreduced, and the program had netted $250,000 incrementalmargin.

The extended results were of even greater value. Thedemonstrated benefit and use of a warehouse basedmodeling program established a high level of credibility.The telemarketing program was able to evolve from amainframe based, massive quarterly list effort to a moretimely, flexible and responsive bi-monthly selection of125,000 accounts. While initial response rates declined ascalling extended deeper into the population, all metricsimproved significantly over the quarterly batch approach.As a result, Full Year targets established in September 1999were achieved by end of April 2000. Over $4MMincremental margin has been generated to date. Against thewarehouse total investment in software and hardware, thisrepresented an 800% ROI.

The process and data structures which BMG established tobuild and maintain the telemarketing program now forms thebasis for how BMG will in turn cope with the incremental

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Job Execution Times, Hours

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challenges of today’s E promotion environment; the websiteand email represent both challenges and opportunities forpursuing more effective promotion campaigns andimproving customer relationships.

As shown below, the process is viewed as an informationloop: data from the warehouse is used to establish adatamart, tailored to telemarketing, to support list selectionand program response analysis. This information is in turnused to develop bi-monthly telemarketing lists which areforwarded to vendors for execution. The vendors in turnprovide response files which include both sales and non-response information. This content is updated to thewarehouse which in turn can update the datamart.

Information in the datamart includes prior telemarketinghistory by member account, to ensure that members are notover-whelmed with phone calls, and to provide historicalinformation on response by vendor and response accordingto differences in scripting the calls themselves. Ideally, thedatamart should be reduced to a SAS/MDDB™ tableaccessible via the intranet website and SAS/WebEIS™ tomarketers , to avoid the need for all analysis to be performedby more skilled hands. This step is currently in a queue forimplementation.

EMAIL PROGRAM DEVELOPMENTFollowing successful implementation of the telemarketingprogram, marketing was more confident of results andplanning moved to Email promotions. The inherent benefitsof email - flexibility and low cost – make it an almost idealcustomer relationship management vehicle.

Email shares many of the characteristics of traditional directmail promotions, with many potential benefits and someweaknesses. Similar to hard copy letter shopping, email canbe tailored with the member name and address,consideration for member differences can be made, priorpurchase decisions can be included in the selection criteriaand the copy itself. Increasing customization has a cost,particularly if outside vendors are used for production anddelivery, which is quite common at this early stage indevelopment: not every company hosts the robust mailservers and programming teams necessary for tailoring anddelivering millions of pieces on a regular basis. Perhaps thegreatest weakness is the lack of formalized Change ofAddress or CHADD processing: email addresses aregenerally acquired voluntarily, are subject to resulting

typographical errors, and perhaps worst of all, peoplechange ISP services far more frequently than their homeaddress.

BMG has confronted many of these issues: initial creativedevelopment takes more time as developers gainprogramming expertise, response data for email promotionsis still sparse in supporting segmentation efforts, emailvolumes must be spread across several days time to ensurethe website is not overwhelmed. To date, BMG has focusedon using email to push members to the website, usingprimarily special offers known as “One Day Sales”. Whileas many as ten different email campaigns have beencompleted to date, with delivery of over 15MM pieces(1.7MM in the most recent promotion), these promotionshave not yet been sensitive (with one exception) to theinherent differences among members. Campaigns have beenbased on one creative copy, distributed to all email-able

members, with at best varying promotions for test purposes.At this stage, an email datamart has been establishedcontaining substantive variables for tailoring content, suchas type of music preference, and level of activity (recencyand frequency). The datamart is updated for responseinformation, including “No Delivery”, “HTML”, “Open”,“ClikThru”, and “Purchase”. Delivery rates have variedbetween 70% and 80%, emphasizing the lack of formal “E-CHADD” services. Sales so far have been incremental,reinforcing the importance of “being out there”, remindingthe customer of the many benefits available through the cluband the website.

If one email message can be delivered, why not twodifferent forms of the same email, according to a dimensionof customer characteristics? If one dimension, why not twoor three? Integrating the different messages can beaccomplished via the database management system, the onlylimitations being marketing creativity, database marketingingenuity and technical programming skills in creating andintegrating the requisite HTML forms.

The latter issue, integration of message content, plays a vitalrole in controlling the rate of communication,communication which is consistent and well spaced indelivery time. Imagine the annoyance of receiving severalsmall email messages per week from the same company,each communication uniquely defined, even well tailored forthe recipient, but delivered apparently without coordination.

Evolution: 2nd Stage

Data

Warehouse

TELEMKTG

Data Mart

TelemarketingProgram The

Customer

Response Loop

Evolution: 3rd Stage

PAPER

EMAIL

TELEMKTG

Data Marts

Data

Warehouse

TheCustomer

Response Loop

Worse, imagine a situation where several marketingmanagers, responsible for specific and narrow businessareas, each having free rein over their specific customercommunications. The result would doubtless be a chaotic,apparently frenetic delivery of messages. This type of

approach creates confusion, mixed messages, and risksoverwhelming the recipient with a miscellany ofinformation. “Integration” extends beyond the tailoring ofcontent into the composition of effective, multi-purposecommunications. In practical terms, a single weekly or bi-weekly message can be expected to include informationsuch as account status, new products of interest, shipmentstatus, special sales, upcoming events and other informationof interest. Careful composition of these different messagesand integration into one or two multi-purpose emails moreeffectively conveys a view of the company which isconsistent, purposeful and fully cognizant of who and whatits customers desire in terms of services.

If integration can be managed effectively, the path is clearfor developing the program to another plateau, that ofInteraction Management. After carefully composing anintegrated set of messages/promotions to current orprospective customers, communication should not end witha summary report of “Open”, “Click Thru”, and “Sale” rates.Each of these actions becomes an opportunity for follow-up,through the email channel or, if very well managed, throughalternative phone and direct mail channels, even the websitecan be coded to react to this initial step.

Email campaign management systems are available todayfrom several vendors which enable a company to respond tothe different events following the initial email: follow-upcommunications can be made in reaction to customers whodid or did not click through to the website, a process whichcan be repeated at different levels of depth. This type offollow-up can be extended to include surveys as well,surveys whose response can be integrated into the datawarehouse, with summary reports almost instantly providingrequisite marketing and management feedback. The simpestcase of this is already common: most companies provide an“opt out” or permanent “don’t mail” request as part of eachmessage. These “opt out” options are integrated with theemail source list in order to respect the privacy request ofthe customer.

WEBSITE CHANNEL ACTIVITY INTEGRATIONThe final stage in the evolution of multi-channel customerrelationship management involves integration of websitetraffic information with the data warehouse, and theevaluation of the website activity itself. The generalreaction to website activity data, particularly for heavily

trafficked sites is the challenge of coping with truly massivedata volumes. Similar to other popular sites, BMG’s sitegenerates gigabytes of log file data per day, relentlessly, dayafter day.

BMG also has an incremental requirement, made possibleby the membership identification process. The websiterequires formal registration at the beginning of a session,primarily because sales offers and feature selections aredifferentiated by member longevity and music genrepreference (Soft Rock, Hard Rock, etc). The webserversoftware tailors pages accordingly, hence the actual htmlpassed back to the user will in fact differ significantly byuser. Log file analysis in this context is an exceedinglycumbersome approach to identifying relevant pages.

Hence, BMG will be taking a different tact from analysis oflog files. Several companies now offer the ability toselectively store page information, by identifying the htmlcontent as it passes through the webserver, a process knownas ‘sniffing’. As one might guess, ‘escape’ sequences,transparent to html, can be used to signify page informationto the ‘sniffer’. This approach obviates the need to decipherthe page from a collection of URL designations.

Beyond the technical issues of data capture and storage, it isnot expected that all page information will be required forstorage in the data warehouse. The essential information forintegration with channel promotion/response information isstraight forward: who came to the website, when did theyinitiate the session, and what did they do? The latter islimited to “Visit”, “Enroll (new member)”, “Browse”,“Search”, “Buy”. The production warehouse databasealready contains essential information for purchases from allchannels, including the internet.

Email: Interaction Management

EMAIL

Data

WarehouseWeb Site

Opened / Not Opened, Click Thru / No Click Thru,

Purchase / No Purchase, White Mail Response, Survey Response

Response Information

There is however an aspect to website performance whereadvanced functionality and large data volumes areunavoidable. This information has to do with what peopledo while on the site, how they interact and react to the manypages and promotions available. Path analysis still requiresanalysis of all click throughs in a session and their relevantpages to determine the most common routes taken for sales,elimination of dead pages and dead ends.

MANAGING CHANNEL INTEGRATIONIntegration – in fact choice - of different communicationchannels now becomes a significant challenge, a challengewhich BMG has been evaluating fore several months. Witheffective direct mail and telemarketing programs already inplace, email creates a third channel of choice forcommunication. The lower cost of email introduces abreakeven consideration for determining choice, howeverthe customer’s own activity and the actual results of eachchannel play significant roles. Some members have shownclear preferences for electronic communication, however,half of the sales generated by website users still comesthrough the “paper” channel. BMG has learned for examplethat paper communications – traditional direct mail – has“longer legs” than email. Paper is more tangible, complex,larger and less easily discarded. Email response weakensconsiderably within a week of delivery, so much so that“repeat” offers made one week following the initialpromotion have been found to be very effective.

The datamarts developed to drive the channels individuallyinclude relevant information on the totality of memberresponse. This includes relevant fields summarizingpromotions and responses to all channels. Because all of thedata on member performance and business promotions arehoused in a warehouse, it is relatively straightforward toprepare datamarts which reflect this activity for all channelsin combination. Because all models are developed along thesame basis, where response by channel is a subset of totalresponse, use of individual channels will still be consistentwith overall promotion goals.

As noted above, enthusiastic adoption of email risks anoverly enthusiastic flurry of communication. More so withthe recognition and use of multiple communicationchannels, particularly if each channel is managed by specificmarketing managers. This can only result in the bestmembers being assaulted by an avalanche of paper, phoneand email communications, as most direct mail managerspursue buyers to the point of saturation. BMG’s approach isto focus responsibility for communication within the CRMarea, and to adopt interim ”business rules” to control thefrequency of various communications. For example,telemarketing is spaced at three to six month intervals, emailto date has been spaced at similar intervals, only rarelyincreased (primarily for short term sales impact).

This is managed through effective data organization.Information on all channels is or will be maintained in thedatamarts being used to drive individual channelcommunications. It is unavoidable that individual marketingmanagers will be responsible for campaigns, however thedatamarts are designed with the total communication goals

in mind. For example, business rules are established toensure that response potential for dormant communicationsrespect the breakeven cost criteria of the different channels.Phone is used only for the best customers, due to highercost. Direct Mail is used for less responsive members.Finally email is planned to be used for re-inforcing the directmail communications and for the very least responsivemembers. That is not to say though that these are mutually

exclusive actions: the existing production environment isbeing modified to provide the capability to communicatesimultaneously using both Paper and Email, and thereinforcing impact of email remains to be confirmed.

MULTI-CHANNEL INFORMATION MANAGEMENTFinally, multi-channel relationship management requiresmulti-dimensional reporting flexibility. As BMG addedpromotion channels, earlier reporting methodologies quicklybecame overwhelmed, even through web based technologywas in place. Imagine 20 promotions against a populationsegmented along five dimensions, with each dimensionconsisting of at least three or four attributes. The volume ofpages, albeit electronic pages, grows to as many as 5,000.No matter how well laid out the hosting website, or thedocuments themselves, this volume of fixed information isvirtually unusable.

In a multi-channel environment, end users – marketing andanalytical – need to re-organize the information in manydifferent ways: comparisons are made between groups ofpromotions, segments are collected in different

Multi-Dimensional Web Based DSS provides enterprisewide access to Multi-Channel Business Information

EMAIL

PAPER


TELEMKTG

WEBSITE

TheCustomer

Data

Warehouse

Evolution Stage 5: Multi-Channel Management

combinations, information is arranged vertically for rate /volume variance calculations, and linearly for identifyingunderlying trends. While all of the information is containedin one or more tables (SAS datasets), these users are notdatabase literate.

The SAS Institute introduced SAS WebEIS™ at just theright moment for BMG Direct to take full advantage of itsmulti-dimensional web based capabilities. SAS/MDDB™structures were established in November of 1999, hostedthrough SAS WebEIS java modules. The combination ofSAS/MDDB and WebEIS enable marketing and analyticalusers to access information as many as nine layers deep, re-arrange the ‘spreadsheet’ on screen through their browsers,and port the final results to tools such as Microsoft Excel,with which they are comfortable.

More elaborate report formats can also be developed, whileretaining the multi-dimensional flexibility, through SASIntrNet®. For example, bad debt reserves are establishedbased on historical payment performance. The addition ofnew promotional channels throws into question currentreserve rates: will payments and returns improve ordeteriorate? Previous reports containing this informationwere mainframe based and executed quarterly due to systemresource constraints. Adding additional dimensions to breakout the new channels would have been a major undertaking.

However, by summarizing the payment status data in thewarehouse into SAS/MDDB tables, these same reports arenow produced monthly, with the information available froma browser through a webserver running on the warehousecomputer itself. This is performed through a combination ofthe Tabulate procedure (Proc Tabulate), Tabulate HTMLmacro (%tab2htm) and SAS IntrNet, to surface A/Rliquidation rates by music club, promotion channel as wellas sales type. From this report the payment/returnperformance of the new channels can be evaluated monthly.SAS IntrNet provides the end users the flexibility to selectthe requisite dimensions and attributes. In turn the reportdynamically creates the appropriate summary, based on N-Way SAS/MDDB structures.

CONCLUSIONDramatic expansion of web based commerce and emaildistribution capabilities present equally dramatic potential

for improving customer communication. Improvements incommunication can be derived from effective use of welldesigned datamarts and responsive corporate datawarehouses, driving equally well executed creative.Recognition of customer feedback and its timelyincorporation in the appropriate database infrastructure isthe next step in developing interaction management systemsfrom information management systems. By improvingcommunication with customers through appropriatelyselected and managed channels, BMG Direct is evolving itsability to manage and improve customer relationships.

ACKNOWLEDGEMENTSMany thanks to Mark Barry, Mike Marselle, BobSzczerba, Theresa Lautato and Chris Keplar of TheSAS Institute, in supporting BMG Direct’s use of SASInstitute tools and technology with which to managemulti-channel CRM. Their support has beenappreciated in keeping our business abreast of today’stechnology innovations.

CONTACT INFORMATIONJeff LeSueurBMG DIRECT1540 BroadwayNew York, New York [email protected]

Documents

Evolution of Multi-Channel CRM at BMG Direct US · Evolution of Multi-Channel CRM at BMG Direct US ... significance, these datamarts are ... The telemarketing program was able to