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

University of Washington EMBA Program

Marketing Management

“Direct Marketing”

Instructor: Elizabeth Stearns

Marketing Plan Review

Analysis of promotional program situation

Analysis of the communication process

Budget Determination

Develop integrated marketing communications program

Advertising Direct Marketing Sales Promotion PR/ Publicity Personal 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

Communications Stream/Response

Person

Mail

Phone

Fax

email

Web

TV

Radio

Outdoors

POS

Person Mail Phone Fax email Web

How

Cos

. Com

mu

nic

ate

How Customers Respond

Dr. Gary Bridge, IBM

Wireless

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

Direct Marketing

• Seeking to produce a lead or an order

• Measurable in its costs and results

• Improvable through testing and analysis

• Expandable with confidence

Functions of Direct Marketing

• Make a sale

• Generate a lead

• Qualify a lead

• Relationship building

• Database enhancing

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”

Direct Marketing Update 2000• Total Sales Revenue: US$ 1.7 trillion

Catalogue US$ 110.6 billion

Internet US$ 24.2 billion

• Jobs: 15.6 million11.6 % US Employment

• DR Advertising : US$ 191.6 billion(56.5% total adv. $)

Mail alone US $33 billion

Source: WEFA/DMA

Image Response

• Connectivity between all communications

• Maximizing budgets

• Not distruptive of other efforts

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

Available Media

• Package and bag stuffers

• Take-ones

• Cereal boxes, egg and milk cartons, matchbooks, etc.

• Interactive cable

• Worldwide Web/Internet

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.

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.

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.


• Front-end Response

-% response

-Orders per thousand

-Cost per order


• 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.

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

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.

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.

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.

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.

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

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

1950

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


– 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


• 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


– Internet growth for ecommerce

– Continued use of database by financial,

transportation, manufacturing sectors

– Relational vs. Transactional databases

– Technology as a facilitator and inhibitor (Privacy)

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

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.


• 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!

Trends Favorable to GrowthDemographic 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.

Trends Favorable to GrowthDemographic 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.

Trends Favorable to GrowthMarketing 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.

Trends Favorable to GrowthMarketing 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.

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?

• 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 DefinitionRFM is a behavioral segmentation technique

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

RFM Elements

Segmentation Concept

Behavioral Question

Data Element/ Measurement

Recency When did they last buy?

Date of last purchase

Process:

•Sort by date

•Create groups by date range

Frequency How 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

RFM / Customer Treatment

RFM segmentation can be used to manage customer treatment across functions

Functional Dimension Treatment Implication

Customer Service Service Level

Billing Adjustment Practices

Collections Minor delinquency action

Credit Over limit action

Marketing Incentives/Premiums

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.

Ruth Owades Sensitivity AnalysisAssumptionsGross margin 55%Fulfillment and O.H. 15%Inventory Writedown 4%Catalog Expense =$50K+$25K/200K catalogs

Mailing Size 100,000 200,000 400,000 600,000 800,000Average Order Size 30 30 30 30 30Response Rates 1.4% 1.4% 1.4% 1.4% 1.4%Sales 42.0$ 84.0$ 168.0$ 252.0$ 336.0$ Gross Margin 23.1$ 46.2$ 92.4$ 138.6$ 184.8$ Catalog Expense 62.5$ 75.0$ 100.0$ 125.0$ 150.0$ Fulfillment and Overhead 6.3$ 12.6$ 25.2$ 37.8$ 50.4$ Writedown of Inventory 1.7$ 3.4$ 6.7$ 10.1$ 13.4$ Contribution (47.4)$ (44.8)$ (39.5)$ (34.3)$ (29.0)$

(47.4)$ 20 25 30 35 40 45 50Response Rate 1.0% (55.30) (53.50) (51.70) (49.90) (48.10) (46.30) (44.50)

1.5% (51.70) (49.00) (46.30) (43.60) (40.90) (38.20) (35.50)2.0% (48.10) (44.50) (40.90) (37.30) (33.70) (30.10) (26.50)2.5% (44.50) (40.00) (35.50) (31.00) (26.50) (22.00) (17.50)3.0% (40.90) (35.50) (30.10) (24.70) (19.30) (13.90) (8.50)3.5% (37.30) (31.00) (24.70) (18.40) (12.10) (5.80) 0.504.0% (33.70) (26.50) (19.30) (12.10) (4.90) 2.30 9.504.5% (30.10) (22.00) (13.90) (5.80) 2.30 10.40 18.50

(44.8)$ 20 25 30 35 40 45 50Response Rate 1.0% (60.60) (57.00) (53.40) (49.80) (46.20) (42.60) (39.00)

1.5% (53.40) (48.00) (42.60) (37.20) (31.80) (26.40) (21.00)2.0% (46.20) (39.00) (31.80) (24.60) (17.40) (10.20) (3.00)2.5% (39.00) (30.00) (21.00) (12.00) (3.00) 6.00 15.003.0% (31.80) (21.00) (10.20) 0.60 11.40 22.20 33.003.5% (24.60) (12.00) 0.60 13.20 25.80 38.40 51.004.0% (17.40) (3.00) 11.40 25.80 40.20 54.60 69.004.5% (10.20) 6.00 22.20 38.40 54.60 70.80 87.00

100,000 Catalogs Mailed Average Order Size


(39.5)$ 20 25 30 35 40 45 50Response Rate 1.0% (71.20) (64.00) (56.80) (49.60) (42.40) (35.20) (28.00)

1.5% (56.80) (46.00) (35.20) (24.40) (13.60) (2.80) 8.002.0% (42.40) (28.00) (13.60) 0.80 15.20 29.60 44.002.5% (28.00) (10.00) 8.00 26.00 44.00 62.00 80.003.0% (13.60) 8.00 29.60 51.20 72.80 94.40 116.003.5% 0.80 26.00 51.20 76.40 101.60 126.80 152.004.0% 15.20 44.00 72.80 101.60 130.40 159.20 188.004.5% 29.60 62.00 94.40 126.80 159.20 191.60 224.00

(34.3)$ 20 25 30 35 40 45 50Response Rate 1.0% (81.80) (71.00) (60.20) (49.40) (38.60) (27.80) (17.00)

1.5% (60.20) (44.00) (27.80) (11.60) 4.60 20.80 37.002.0% (38.60) (17.00) 4.60 26.20 47.80 69.40 91.002.5% (17.00) 10.00 37.00 64.00 91.00 118.00 145.003.0% 4.60 37.00 69.40 101.80 134.20 166.60 199.003.5% 26.20 64.00 101.80 139.60 177.40 215.20 253.004.0% 47.80 91.00 134.20 177.40 220.60 263.80 307.004.5% 69.40 118.00 166.60 215.20 263.80 312.40 361.00

(29.0)$ 20 25 30 35 40 45 50Response Rate 1.0% (92.40) (78.00) (63.60) (49.20) (34.80) (20.40) (6.00)

1.5% (63.60) (42.00) (20.40) 1.20 22.80 44.40 66.002.0% (34.80) (6.00) 22.80 51.60 80.40 109.20 138.002.5% (6.00) 30.00 66.00 102.00 138.00 174.00 210.003.0% 22.80 66.00 109.20 152.40 195.60 238.80 282.003.5% 51.60 102.00 152.40 202.80 253.20 303.60 354.004.0% 80.40 138.00 195.60 253.20 310.80 368.40 426.004.5% 109.20 174.00 238.80 303.60 368.40 433.20 498.00




Gains Chart for Responsiveness

Decile Qty. Mailed (000)

Number Resp. (#)

Percent Resp. (%)

Resp. Gain Index*

Revenue Generated (000)

Mailing Cost (000)

Total Profit (000)

1 600 20,250 3.37% 225 $506 $240 $266

2 1,200 34,200 2.85 190 855 480 375

3 1,800 48,330 2.68 179 1,208 720 488

4 2,400 60,840 2.53 169 1,521 960 561

5 3,000 67,500 2.25 150 1,687 1,200 487

6 3,600 76,680 2.13 142 1,917 1,440 477

7 4,200 81,900 1.95 130 2,047 1,680 367

8 4,800 84,960 1.77 118 2,124 1,920 204

9 5,400 87,480 1.62 108 2,187 2,160 27

10 6,000 90,000 1.50 100 2,250 2,400 -150

Mailing Cost: $400/thousand Revenue: $25/response*Index of Relative Responsiveness; Universe Indexed to 100.Source: Direct Marketing, November 1988

Customer Data

CustomerCharacteristics•Demographics•Psychographics•Household Composition

BehaviorChange Drivers

Key BehaviorEvents

Performance Metrics•Recency•Frequency•Monetary Value

Marketing ManagementInformation

Contact History

Response History

Promotion History

Customers/Prospects

Customer-Level View

SelectionSystem

Program Streams

Pre-Purchase ProgramsRetention Programs

ReportingAnd Analysis

SystemReports/

Evaluation

CATALOG

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

HistoryIraq3000 B.C.

Europe

15th/ 16th 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

Thank You!

Documents

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