Alterian June 2009 Webinar Addressing Retail Trends Through An Integrated Approach By Merkle

Proprietary – Shared under NDA Addressing Retail Trends Through An Integrated Approach June 18, 2009

Agenda
Corporate Overview 5 minutes
Trends in Retail Industry 5 minutes
Key Aspects of Merkle’s Retail Solution 20 minutes
Summary 5 minutes

Merkle’s Focus on Retail
Merkle is a leader in the database marketing space servicing large scale clients across complex industries such as financial services, insurance, and travel & entertainment.
Merkle entered the retail space, recognizing that the industry is underserved and that there was an opportunity to bring industry best practices to the retail vertical.
We have recruited significant talent from the retail space across all key areas, including Interactive, Database Technology, Analytics, and Strategy
To date, we have developed our core retail technology solutions, incorporating not only the most advanced technology tools and processes but also specific retail modules embedded in our solution.

Merkle’s Engagement Perspective
Our Differentiation
Merkle’s engagement is to support the existing business to hit key metrics and short term priorities while also laying a foundation for future initiative and long term growth
Change the Business Merkle uses a framework driven approach to systematically help clients identify opportunities to optimize FUTURE growth Run the Business Merkle provides analytical and strategic support to maximize our partners’ CURRENT marketing efforts Strategy & Analytics Marketing Strategy Develop a retail strategy roadmap consisting of an array of integrated marketing programs that will maximize business impact Analytics Provide the quantitative support to bring to life the initiatives outlined in the retail strategy roadmap across offline and online activities Marketing Technology Build the right infrastructure and processes that support data integration, campaign, and business intelligence needs going forward Loyalty Loyalty efforts are enabled through a technology platform but designed to drive long term customer value and retention, capturing greater share Interactive Provide thought leadership and vision around advancing interactive and emerging technologies that are relevant to the customer

Database Marketing Agency Structure Strategic Consulting (Boardroom) Database Technology (Power Plant) Data Content (Fuel) Delivery Production & Media (Factory) Creative & Messaging (Studio) Analytics & Insight (Lab)

Implementation Gap – Why does it exist? Implementation Gap Marketing Strategy Marketing Execution Over abundance of data, inability to fully utilize Lack of understanding, business intelligence and infrastructure/process High cost and investment of time to implement Lack of clear ROI metrics Organizational silos Abundance of Ideas Available Capacity Lack of Action Surplus of Data Available Infrastructure Lack of Ability

Agenda
Summary 5 minutes

Retail Industry Perspective
Retailers have grown their business over the last 10 years by brick and mortar expansion, while traffic to existing stores has steadily declined
To offset for the decrease in traffic retailers have increased price points over the last three years, but have reached a "boiling point" due to the recent economic crises
eTailing has been recognized as a growth opportunity, and both budget and talent has been shifted to eCommerce

Retail Industry Perspective
As a result most retailers offer multi channel of purchases included brick and mortar, call center and eCommerce and have began to adopt new CRM practices to manage their customers.
Today many retailers have expanded their push media including:
In-store promotions
Kiosks
POS messaging
Direct mail, catalog
Email and mobile messaging
As well as their pull media including:
SEO
Affiliate Networks
Social Networks
Banner advertising
The retail industry has faced challenges integrating the CRM practice across these channels of purchases and new media vehicles
Merkle’s primary objective in the retail space is to help retailers manage these complex multi-channel and media challenges and become more relevant to their current customers and prospects

Agenda
Framework for integrated strategy, analytics and database
Technology approach
Multi-Channel Retail Analytics
Allocation Schemes
Interactive
Summary 5 minutes

The Objective Connecting Customers & Products Across Channels

Retail Enterprise: Customer-Centric View Promo Calendar Optimization - Event Specific - Seasonal/Product Category Contact Strategy - Media - Channel of Purchase - Offer - Cadence - Seasonality Lifecycle CRM - New To-File - Active customers - Lapsed/Inactive Media Mix Optimization Category Mix Optimization - Store/Regional Levels - Key Items/Category Basket Analysis - Cross/Up Sells - Category Affinity Product Driven Segmentation - Customer Profile/Segment - Category Consumption - Segment Value Pricing Strategy Full Price vs. Outlet - Site Selection/Trade Areas - Expansion vs. Cannibalization Performance Classifications Clienteling Customers Locations Products Marketing Merchandising Store Operations

Multi-Channel Retail Marketing Programs: Purchase
Merkle evaluates the marketing calendar and considers adding the following programs utilizing all data, targeting and media platforms to influence shopping behavior
Loyalty / Rewards Best Customers Proprietary Card Events In-Store Activity Programs Media
Acquire new members
Migrate Loyalty Tiers
Point Balances
Redemption Balances
Loyalty Extra Points Promotions
Acquire new cards
Monthly Balances
Card Promotions
Private Sales
Exclusive Products
Exclusive benefits
Special Gifts
Show new lines
Meet with..
Store Openings
Store Events
Private Sale
New Mover Programs
Holiday
Valentines’ Day
Mothers’ Day
Back to School
Graduations

Multi-Channel Retail Marketing Programs: Purchase Gift With Purchase (GWP) Friends & Family New-to-File
On-boarding
Circulate early merch categories to determine product interests
Different value
GWP by customer segment
Referral Programs
Tie-In offers
Gift Cards
GC purchases
GC balances & redemptions
Bouncebacks
Bounceback offers upon purchases
Bounceback reminders
Bounceback redemptions
Abandoned Carts
Programs Media

Merkle Loyalty Approach
Loyalty Currency
Loyalty Tiers
Surprise & Delight Benefits
Loyalty promotions
P&L
Profile customers by tier
Identify tiers cutoffs
Assign customers to tiers
Target customers based on Loyalty parameters
Measure migration patterns
Currency Accumulation
Redemption
Track other benefit transactions
Cost
Data exchange
Updates
Marketing Database Loyalty System of Record Analytics & Research Program Development

Strategic Planning Merkle recommends an initial strategic engagement to define key goals and prioritize resulting initiatives accordingly. The strategic engagement would answer the following:

Strategic Engagement Process Merkle’s Strategic Engagement Process (SEP) is designed to identify the key areas that need focus via the discovery, assessment and gap process. Once determined, detailed recommended roadmaps and project plans are then constructed.

Agenda
Technology approach
Allocation Schemes
Interactive
Summary 5 minutes

Our Approach to Technology Usability How it will be used Functionality What capabilities are needed Technology TCO Business Driven Approach Best Approach

KnowledgeCenter Schematic Offline Channels Content Management Customer SKU Transaction Demographic Email Interactions Data Management : KnowledgeLink  ETL  Data Hygiene  Address Standardization  Matching  Update Process Database Marketing Strategy & Analytics Cross - Sell / Up - sell Acquisition Sequential Survey ( Profiling ) Notifications / Service - oriented Modeling Triggered Messaging Creative Library Deployment Engine Campaign Management : Alterian  Segmentation  Suppressions  List Sizing  List Selection Knowledge Warehouse : MS SQL Sever POS Promotion Web Analytic Online Channels : Dynamic Messenger WEB Loyalty : Merkle’s Solution  Data Management  Reporting  Member Management Reporting :  Standard  Ad Hoc  Dashboards

Customer Data Warehouse Key Customer Data Elements Associative Membership Household & Residence Individual Basic Attributes & ID Links to all other tables Communication Channels Location / District Email Text Communication Preferences Opt Outs & Suppressions Transactional Attributes SKUs Payments Discounts Tender Transactional History Purchases Returns Derived Attributes Model Scores Derived Variables Promotional History Campaigns & Segmentation Criteria

Agenda
Technology approach
Allocation Schemes
Interactive
Summary 5 minutes

Segmentation: Becoming Customer-centric Having a customer-centric view of your customers (across the lifecycle) is critical. Segmentation provides the ability to make customer-centric decisions

The Enterprise Segmentation “Funnel”
The Funnel has become the primary framework for marketing efforts
The two permanent segments are the Enterprise Segments (across the funnel) and Lifecycle (down the funnel)
The Funnel data can be selected based on recency and geography via ‘drop down boxes’
Many different metrics can be displayed within the boxes (population % and indices shown to the left)
Segment A Segment B Segment C Segment D Segment E Marketable Universe Active Customers Conversion Rates Conversion Onboarding Lost Customers Retention Rates Development Retention Awareness Consideration Acquisition Rates Inquirers Segment F 12% 55 16% 11% 13% 27% 20% 75 83 99 104 133 137 126 100 97 66 133 111 119 108 67 KEY: % of Lifecycle Bucket Index to Total Market 65 15% 124 79

Using the Database for Insight
Overall Profile
“ I Am”
Personal Information
Name: Kristen Smith
E-Mail: [email_address]
123 Main Street, Manhattan Beach, CA 99989
“ I Wear”
Product Information
Shoe Size: 7
Apparel Sizes: Tops – S, Bottoms – M
Favorite Colors: Black and Pink
“ I am Looking For”
Online Shopping Interests
Black raincoat - Beige handbag
“ I Buy”
Purchase History last 12 months
3 pairs of shoes - 6 Tops - 2 Suites
“ I Like to Shop In”
Channel Preference History
2x in your store in Laguna CA
1x in your store in the Las Vegas Mall
1x over the phone
Promotion History Profile
“ I Like To Receive Emails”
EM Promotion History
To receive emails from time to time but not too many
Opt-in
Low number of clicks
“ I Also Like to Receive Catalogs”
Catalog Requests
Three phone calls to the call center over the last six months
“ I rarely shop online”
No online registrations
Rare website visits
“ Kristen Consumer”

Sample: Strategy Map We use strategy maps to directly link themes and initiatives to desired outcomes. This assures that we work on the right things. Strategic Themes Initiatives Outcomes Develop Merchandise Mix Optimization Customize Retail Specialty and Outlet Targeting by Promotion Optimize Merchandise Mix Cross-Sell Offer Targeting by Segment and Merchandise Mix Targeting and Test Schemes Color and Size Optimization Seasonal Discount Strategy Increase Multi-Channel By 20% New-to-File Strategy Support Store Openings & Closings Trigger Program Engine Custom Retail Trade Areas Store and Regional Level Category Model Optimize Circulation Per Promotion 10% Increase Y-O-Y Same Store Sales Cross Channel Models

Agenda
Technology approach
Allocation Schemes
Interactive
Summary 5 minutes

Match Back / Fractional Allocation Customer Insights: Closed Loop Measurement
Lead and sales attribution feeds a closed loop campaign process enabling analytically-driven activities. This feedback loop ultimately influences marketing decisions.
There are a number of ways to attribute leads and sales back to marketing activity supporting both precision marketing (addressable activities like DM or email) and mass and interactive media Best practices to support various levels of attribution across media are outlined in the following slides and incorporate the analytic and technical components of the process. All methods can be leveraged to assess historical data.

The goal of the attribution processes is to understand the impact of different marketing interventions at a point in time or over time. These measurements can be relative to one another, absolute, and may take into account other factors including brand and retail presence Match Back / Fractional Allocation Metrics And Attribution

There is no single, ‘correct’ method of attributing responses.
Different methodologies can produce different conclusions.
Different approaches fulfill different needs.
Sophisticated marketers use a combination of attribution approaches, leveraging the strengths of each approach to assess appropriate aspects of program performance.
Merkle’s strategic experience and technology supports the following attribution approaches.
Direct Attribution
Indirect Attribution
Fractional Attribution
Probabilistic Attribution
Match Back / Fractional Allocation Merkle Solution

Our attribution approach is to shift away from linking a purchase to one single marketing activity and instead assess how various factors can influence it Attribution is not limited to response and new business
Campaign Specific
(800) number
Unique URL
Key code
Utilizes Media mix models to assess performance by medium and over time
Campaign or medium specific
Compares match-back rates of target vs. hold out groups
Utilizes business rules and logic to assess allocate a portion of “credit” to various factors
Match Back / Fractional Allocation Attribution Point Of View

Top-Down, Quantitative
Media mix modeling
Clear goals and consistent metrics
Considering all options at same time
Bottom-up, Qualitative
Channel/Media specific silos
Specific goals may be unclear
Different metrics
Different planning process/systems
The Marketing Plan
Plans from each media brought together as last step
Little cross-media coordination
Typical Approaches to Marketing Measurement Spot TV budget Corporate Goals and Marketing Budget DM budget Radio budget Online and search budget Regional Focus Channel and daypart mix Weekly buys and flighting Cost/purchase target Audience selection Offer/creative arbitration GRP or cost/M targets Contact strategy Creative targeting/mix Combined marketing plan

Agenda
Technology approach
Allocation Schemes
Interactive
Summary 5 minutes

Marketing dollars are shifting

Most companies have not addressed the marketing data implications Email Site Social Mobile Search Display UGC

Interactive data touch-points provide deep, new insights Customer Value Customer Path Low High Traditional: Online: Acquire Retain Maximize Direct Mail Contact Purchase Website Visit Email Response Online Search Social Participation Call Center Contact
Identify customer behavior cues between buying cycles
Click content in an email or website visit could lead to cross-sell / up-sell opportunities
Develop insights within and across media to drive better informed marketing decisions
Leverage high-performing search keywords by customer segment in email subject lines and content
Enable move from reactive to proactive marketing
Identify dissatisfaction/churn indicators from negative reviews, troubleshooting page visits, unsubscribes, etc
P D D P P W O S O O O O W W W W W W W O O S S S S E E E E E E E E E E E E D P E S W O C C D C P E S W O

The Mobile Opportunity
Over 86% of US population has at least one mobile device
More than half ( 52% ) of mobile subscribers use text messaging regularly
20% of mobile subscribers use web on their phone regularly
Sources: US Census 2008 Estimate Nielsen Mobile Media- December 2008

Email Services Dynamic Messenger Solution Dynamic Messenger APIs Core Deployment Engine Dynamic Messenger User Interface Email Lists Creative Assets Integration of multiple technology and process components to enable design, construction, delivery and analysis of email messages Advanced Analytics & Reporting Content Management Data Management Delivery Optimization Custom Apps & Web Solutions Web Analytics Dynamic Content (DyCE) Subscriber Management

Incorporating Interactive Elements into Consumer Database A phased approach to integrating data Customer Database Social Commerce Web Activity Preference Center Phase 3 Ecommerce Email activity Opt-in Data Offline data Demographics Phase I Program Activity 1 Program Activity 2 Wish lists Online Surveys Events Phase 2

Agenda
Technology approach
Enterprise Segmentation
Allocation Schemes
Interactive
Summary 5 minutes

Why retailers should do this?
Its all about maximizing relevance
Retailers need to decipher today’s shoppers’ preferences, including:
Channels of purchase: Store, call center or web
Push Media of communications:
Offline: catalog/ direct mail
Online: email, txt
Outbound calling
Pull Media of communications:
SEO
Shopping websites
Social Networks
Product mix: primary product categories, size and color
Seasonality of purchase: Holiday, Back-to-School or Spring
Marketers need to use advanced technology and analytical methods to achieve better marketing results and show accountability

Contact Information
Scott Cone
[email_address]
Yoram Greener
[email_address]
Najeeb Uddin
[email_address]

Alterian June 2009 Webinar Addressing Retail Trends Through An Integrated Approach By Merkle

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