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Direct Marketing 101  Workshop 4 Direct Marketing  Database, Analytics & Testing (651) 315-7588 Direct Marketing 101 - Dat...
Database Marketing The key to direct marketing success is relevance. The key to achieving relevance is having information ...
What is It? <ul><li>It’s the most sophisticated selling process in the world today. </li></ul><ul><li>It’s the foundation ...
Types of Database Marketing <ul><li>Conquest marketing – targeting exactly the right market </li></ul><ul><li>Up-sell and ...
A Database Marketing Effort <ul><li>Clearly defined prospects </li></ul><ul><li>Product story that requires space for demo...
What is a Marketing Database? A marketing database is a collection of information which helps you to spend your marketing ...
What it Enables <ul><li>More relevant customer communications </li></ul><ul><li>Better targeting of prospects </li></ul><u...
Building Customer Relationships <ul><li>You can communicate in private to your customers without your competitors seeing w...
Information Typically Found in a  Marketing Database <ul><li>Customer names and addresses </li></ul><ul><li>Details on the...
Examples of Consumer Data (651) 315-7588 Direct Marketing 101 - Database, Analytics & Testing Data Type Uses Where From? N...
Examples of Business Data (651) 315-7588 Direct Marketing 101 - Database, Analytics & Testing Data Type Uses Where From? C...
Data Quality <ul><li>Capture it properly in the first place. </li></ul><ul><li>Give your customers frequent opportunities ...
Analytics (651) 315-7588 Direct Marketing 101 - Database, Analytics & Testing
Campaign Evaluation <ul><li>Which aspects of the campaign are most useful to you to measure? </li></ul><ul><ul><li>Conside...
Sales Campaign What to Analyze? <ul><li>Total number of people mailed </li></ul><ul><li>Total number of orders </li></ul><...
Lead Generation Campaign What to Analyze? <ul><li>Total circulation </li></ul><ul><li>Total inquiries </li></ul><ul><li>Un...
Economics That Affect  the Bottom Line (651) 315-7588 Direct Marketing 101 - Database, Analytics & Testing Costs Advertisi...
More Economic Considerations <ul><li>Conversion Rates </li></ul><ul><li>Renewal Rates </li></ul><ul><li>Attrition (or Rete...
DM Mathematics <ul><li>CPR, CPI, CPO, CPC calculations </li></ul><ul><li>Response analysis </li></ul><ul><li>Basic breakev...
The Basics Cost per Response (CPR) Promotional Cost  ÷ Responses  = Cost Per Response (651) 315-7588 Direct Marketing 101 ...
The Basic Promotional P&L Income – (Cost + Advertising) = Profit Or Allowable Margin (AM) Income – Cost = Advertising + Pr...
The Basic Breakeven Response Necessary To Achieve Income – Cost = Advertising Expense Or Orders to BE  =   Net Sales/M    ...
Direct Response Formulas (651) 315-7588 Direct Marketing 101 - Database, Analytics & Testing Marketing Income  % = (( Marg...
Geometric Leverage: Effect of CPO on Profit (651) 315-7588 Direct Marketing 101 - Database, Analytics & Testing Example: $...
Effect of Response on Profits (651) 315-7588 Direct Marketing 101 - Database, Analytics & Testing Plan + 20% sales + 20% s...
Cost of Acquisition One Step Direct Sale Space Ad (651) 315-7588 Direct Marketing 101 - Database, Analytics & Testing V ar...
2-Step Conversion (651) 315-7588 Direct Marketing 101 - Database, Analytics & Testing V ariable  Costs E xample 1 E xample...
Test vs. Rollout Costs (651) 315-7588 Direct Marketing 101 - Database, Analytics & Testing The only difference is the adve...
Developing your financial plan <ul><li>Response curves / lag patterns </li></ul><ul><li>Order / Lead flow planning </li></...
Order/Lead Flow Planning <ul><li>Average Rates of Response By Media </li></ul><ul><ul><li>Chart </li></ul></ul><ul><li>Res...
Typical Response Curve (651) 315-7588 Direct Marketing 101 - Database, Analytics & Testing
Typical Response Curve (651) 315-7588 Direct Marketing 101 - Database, Analytics & Testing
Elements of a Financial Plan <ul><li>Media description </li></ul><ul><li>Mail quantity/circ </li></ul><ul><li>Percent resp...
What’s a Customer Worth (LTV)? <ul><li>The first step in developing a pro forma for a new program is answering,  “How much...
Campaign Economics <ul><li>New Customer Acquisition </li></ul><ul><li>Customer Retention </li></ul><ul><li>Customer Reacti...
Testing “ Testing is the heart of direct response and it’s the element of the medium that makes it potentially the most ef...
What to Test <ul><li>Product or Services </li></ul><ul><li>Media (list, print, broadcast, electronic) </li></ul><ul><li>Of...
Basic Testing Rules <ul><li>Test the big things first:  </li></ul><ul><ul><li>media, offer, format/package, copy. </li></u...
Statistically Valid Sample Sizes <ul><li>Have some idea of the level of response you expect or need. </li></ul><ul><li>Dec...
Sample Test Matrix (651) 315-7588 Direct Marketing 101 - Database, Analytics & Testing List Control  Group Creative Format...
Top 10 Test Ideas in Direct Mail <ul><li>Add the word “FREE” to your outer envelope teaser copy.  </li></ul><ul><li>Put ad...
End of DM 101 Workshop 4 See Workshop 5 to Continue Our complete Direct Marketing 101 Workshop series can be conducted via...
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Direct Marketing 101 Workshop 4

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Part 4 in a series of 5 presentations providing an overview of direct marketing.

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  • To be effective, a database marketing effort should include these components
  • Having a database allows you to analyze the behavior of your customers and identify their key characteristics. This enables you to: Communicate more relevantly with your existing customers and make more profitable sales to them over time. Use your knowledge of the &amp;quot;profiles&amp;quot; of your existing customers to finesse your targeting of new prospects. Increase the productivity of your marketing budget through better targeting and less waste. Improve your forecasting and measurement making all your marketing activities more accountable. Provide accurate business reports. Improve the effectiveness of all contact with customers by giving access to data to employees who are interacting directly with customers. This improves customer service and helps keep customers loyal. Develop more relevant products and services through dialogue with your customers. A marketing database is a collection of information which helps you to spend your marketing budgets more efficiently. It allows you to focus your resource upon the superior opportunities and helps you to develop longer more profitable relationships with your customers. It can also play a big part in other functions such as sales management, branch planning, risk evaluation and customer care. A database is more than just a source of names for direct mail. There are real benefits to consolidating data and distributing it round the business.
  • In direct marketing, the database helps you build your customer relationships…
  • How do databases work? A database is like a sophisticated filing cabinet. It does not hold an individual file for each customer as you would with a normal filing cabinet. Each of the files (or &amp;quot;tables&amp;quot;) contains a different type of information such as…see slide. The advantage of this structure is that any record in any file can be linked to any other relevant record in any other file. (This kind of structure is known as a &amp;quot;relational database&amp;quot; and is the most usual way of building databases. All of this information is tied together by giving each customer record a unique reference number (URN) which is held in every file
  • Garbage in, is garbage out and accurately capturing and maintaining data is the biggest problem in direct marketing and using a database for marketing purposes. There is nothing worse than mailing a letter to a prospect with the wrong salutation or wrong name. Data also ages. To minimize these kinds of problems with data, you need to…see slide.
  • Points to consider in measuring the effectiveness of a campaign. If the campaign was designed to sell then the key success criteria is likely to be profitability . To calculate this at a general level you simply subtract the total costs of the campaign from the revenue generated. But this is only part of the picture. It does not tell you who responded and why. The best way to achieve this information is to have coded the response device with a code relating to the list the respondent came from, or the pack or offer thy received - or even simply, which campaign they are responding to! This means that the performance of each campaign, list, pack or offer can be measured. Codes like this tell you things such as: The most productive list (not necessarily the most responsive!) Profiles of your ideal respondent so that you can find &amp;quot;look-alikes&amp;quot; next time Best offers for different segments of your audience.
  • CPI (Cost Per Inquiry) CPL (Cost Per Lead)
  • Name Value: is the value of a customer name based on future sales as part of the company’s customer list and / or the value it makes as a contributor to list rental income. Time Value: Not used very much, but it is the value of money tied up in advertising and premium investments that could be earning income if it were invested.
  • CPR (Cost Per Response) CPI (Cost Per Inquiry) CPO (Cost Per Order) CPC (Cost Per Click) ROI (Return on Investment) ROAI (Return on Advertising Investment)
  • CPR can refer to cost per lead, cost per member, cost per subscriber, cost per click-through or any variation that is relevant for a particular business. You’ll also see CPO, cost per order and CPL, cost per lead, but the basic formula is always the same.
  • The Allowable Margin is a common short-cut used in direct-marketing. It’s shorthand for the figure that includes profit and advertising expense.
  • Increasing or decreasing the response rate can affect the profitability of a program. It is important to be aware that the impact of increasing or decreasing response rates—and the inverse relationship on cost per response—produces a geometric impact, not a linear one, on the bottom line.
  • Definitions %M.I. = Marketing Income (Gross Profit) Percent M = Margin Dollars per Order P = Response Rate or Pull A = Advertising Cost per Thousand Circulation = Labor + Components + Postage P.O = Payout = Average Order Value + Shipping &amp; Handling Charge m/M = Marketing Income per Thousand Mailings m/O = Marketing Income per Order
  • Example: $5 margin and $50,000 advertising expense. Notice how a modest change in the CPO makes a dramatic difference in profitability. This is why it pays to seek better response rates. The use of “margin” (allowable for advertising and profit, or sale price after deducting all expenses except advertising) simplifies marketing calculations. The geometric leverage of direct marketing has a simple explanation. As results improve, you not only get more profit per order but you get more orders. This is why it pays to test packages. An expensive one may actually do much better.
  • The direct expense is 50% cost of goods plus 1,000, increasing or decreasing as a function of sales. In actual practice, the decrease in sales may also result in unsold inventory, not reflected in this example. Source: Direct Marketing by Edward Nash
  • Chart shows the effect of changing response rates and average order values.
  • The cost of acquiring a customer – two-step conversion.
  • This curve would be similar for orders or leads from a direct mail campaign.
  • Try to focus on the average unit sold, and break up all the revenue and cost components that comprise the unit. Once you get to a profit / unit, just multiply by units sold to a customer over the &amp;quot;lifetime,&amp;quot; minus overhead and promotional costs, and you get LTV. Average price, cost of goods sold, gross margin...should be easy to find. To get customer service costs, look at how many units you move annually, and divide by annual customer service cost. Do the same thing for returns, and so on, until you know the costs / unit sold of all the elements going into a sale. Don&apos;t forget credit processing, after sale support, etc.  For example: Net Profit per Unit Analysis: Average Sale Price $40.00 100% Cost of Goods Sold  (36.00) (90%) Gross Margin  4.00 10% Credit Clearing   (.80) (2%) Revenue Ship &amp; Handle  6.00 15% Cost of Ship &amp; Handle  (4.00) (10%) Call Center  (1 call every 5 sales)  ( .80)  (2%) Returns and Processing (5% of Sales)  (2.00)  (5%) Fraud / Merchandise Loss (1% of Sales)  ( .40)  (1%) Promotional Costs /Discounts / Ads  ( .80)  (2%)    Net Profit per Unit  $1.20  3% LTV Calculation and Customer Acquisition Cost Calculations: Say the average customer buys for 2 years, then stops for at least 1 year.  Therefore, we define the Lifetime of a customer as 2 years. Over 2 years, the average customer makes 16 purchases. 16 x $1.20 Profit per Unit = $19.20 LTV of the average customer The average customer recruits 3 other customers.  The maximum acquisition cost of a new customer should be 4 x $19.20 = $76.80 to breakeven.  
  • A discussion of the different cost factors and changes in cost that affect these campaigns.
  • The Top 10 Test Ideas in Direct Mail What are the top 10 test ideas to use in direct mail for better response? Well, it would all depend on your objective, past testing, your offers and any marketing problems you’ve had. That’s according to Pat Friesen – a direct response creative strategist. Here are some of her tried-and-true ideas. 1) Add the word “FREE” to your outer envelope teaser copy or to the subject line of your email sales message. 2) Studies show that ad headlines draw 28 percent more attention when placed in quotation marks. Why? Because it appears more important. 3) Test a phone follow-up to non-respondents (especially within your customer base). 4) Offer a free sample to overcome the “I don’t believe it” objection (i.e. soft as cashmere, look and feel of genuine leather, washable wool that doesn’t shrink). 5) Say “thank you” to gift-buyers with no-strings-attached gift certificate for them to use. 6) Use the unexpected: Transform the flap side of an envelope into the addressing side, print your message on the back of an 8” x 10” photograph, run extra copies of the jacket of a book you’re selling and print your sales letter on the back side, etc. 7) Put your deadline on the outside of your envelope or in the subject of your email – especially when writing to customers. 8) Change the color of the outer envelope of your control mail package (leave everything else the same). 9) Include a deadline in your offer (along with a believable explanation for it). 10) Product photos with a human or human element in them attract more attention and generate more response than those without. ---- Pat Friesen is president of Leawood, Kan.-based Pat Friesen &amp; Company. She has more than 25 years of direct marketing experience.
  • Transcript of "Direct Marketing 101 Workshop 4"

    1. 1. Direct Marketing 101 Workshop 4 Direct Marketing Database, Analytics & Testing (651) 315-7588 Direct Marketing 101 - Database, Analytics & Testing
    2. 2. Database Marketing The key to direct marketing success is relevance. The key to achieving relevance is having information about your customers and prospects. (651) 315-7588 Direct Marketing 101 - Database, Analytics & Testing
    3. 3. What is It? <ul><li>It’s the most sophisticated selling process in the world today. </li></ul><ul><li>It’s the foundation of the highest level of direct marketing – “1 to 1” made truly possible. There’s a catch though </li></ul><ul><li>You start with individuals and then find ways to organize them in groups. </li></ul>(651) 315-7588 Direct Marketing 101 - Database, Analytics & Testing
    4. 4. Types of Database Marketing <ul><li>Conquest marketing – targeting exactly the right market </li></ul><ul><li>Up-sell and cross-sell marketing </li></ul><ul><li>Frequency and loyalty marketing </li></ul><ul><li>Advocacy marketing – get a friend, member get a member </li></ul>(651) 315-7588 Direct Marketing 101 - Database, Analytics & Testing
    5. 5. A Database Marketing Effort <ul><li>Clearly defined prospects </li></ul><ul><li>Product story that requires space for demo </li></ul><ul><li>Product advantages that if purchased lead to other product purchases </li></ul><ul><li>A substantial “life-time” value to a product user </li></ul><ul><li>a creative approach that is interesting and uses the format effectively </li></ul>(651) 315-7588 Direct Marketing 101 - Database, Analytics & Testing
    6. 6. What is a Marketing Database? A marketing database is a collection of information which helps you to spend your marketing budgets more efficiently. It allows you to focus your resource upon the superior opportunities and helps you to develop longer more profitable relationships with your customers. (651) 315-7588 Direct Marketing 101 - Database, Analytics & Testing
    7. 7. What it Enables <ul><li>More relevant customer communications </li></ul><ul><li>Better targeting of prospects </li></ul><ul><li>More cost effective marketing </li></ul><ul><li>Better forecasting and measurement </li></ul><ul><li>More accurate business reports </li></ul><ul><li>Better customer service </li></ul><ul><li>Development of better products and services </li></ul>(651) 315-7588 Direct Marketing 101 - Database, Analytics & Testing
    8. 8. Building Customer Relationships <ul><li>You can communicate in private to your customers without your competitors seeing what you are doing. </li></ul><ul><li>You can time your communications to fit your customer's needs </li></ul><ul><li>And, you can vary your offers according to the value of the customer. </li></ul>(651) 315-7588 Direct Marketing 101 - Database, Analytics & Testing
    9. 9. Information Typically Found in a Marketing Database <ul><li>Customer names and addresses </li></ul><ul><li>Details on their household or business </li></ul><ul><li>Source code; date acquired </li></ul><ul><li>Order and inquiry details </li></ul><ul><li>Returns / credits history </li></ul><ul><li>Marketing history </li></ul><ul><li>Demographic, psychographic, firmographic information </li></ul><ul><li>Contact history (customer service, complaints, etc.) </li></ul>(651) 315-7588 Direct Marketing 101 - Database, Analytics & Testing
    10. 10. Examples of Consumer Data (651) 315-7588 Direct Marketing 101 - Database, Analytics & Testing Data Type Uses Where From? Name and address Addressing mailings, deduplication Responses from advertising, rented lists, directories Promotional responses – what sent, how responded Targeting and list selection Own response data, rented lists Enquiries – what about? Targeting and list selection, product development Own records, rented lists Purchasing behavior Segmentation, timing and targeting Own records, rented lists Complaints Selection of research groups, no mail – selection, product development Own records Demographic – household composition, etc. Targeting of campaigns, profiling existing customers Electoral roll, lifestyle databases, from Experian and others Lifestyle characteristics: hobbies, buying habits, etc. Targeting and profiling, development of offers and messages Experian and others Neighborhood characteristics: property types, rural/urban, etc. Geodemographics Targeting and profiling, development of offers and messages e.g., MOSAIC from Experian
    11. 11. Examples of Business Data (651) 315-7588 Direct Marketing 101 - Database, Analytics & Testing Data Type Uses Where From? Company name and address, parent company information as well Addressing mailings, deduplication, pricing and service decisions Advertising responses, directories, rented lists, Experian and others Name, title and function of individual Personalization of mailings, targeting of messages and offers Rented lists, Experian and others Buying characteristics: products, quantities, frequency, etc.; buying process, decision making groups Targeting of mailings and offers; segmentation of customers Own records, Experian and others Promotional responses; what sent, how responded? Targeting Own data, rented lists Enquiries – what about? Targeting, product development Own records, rented lists Area characteristics; business sectors (SIC Codes), geographical, urban/rural, density of potential business Targeting of campaigns, sitting of distribution points, sales force management, sales forecasting Own data, sales force feedback; Experian and others Competitor information Research, campaign planning Own research and sales force feedback Complaints Forming groups for customer research, product development Own records Turnover and financial data; year end data Risk prediction, sales predictions, targeting of messages, timing of offers, segmentation Companies, house, Experian and others Number of employees, sites, computers, vehicles, etc. Targeting and segmentation Lists, Experian and others
    12. 12. Data Quality <ul><li>Capture it properly in the first place. </li></ul><ul><li>Give your customers frequent opportunities to tell you if something needs changing. </li></ul><ul><li>Do occasional comparisons against outside databases. </li></ul>(651) 315-7588 Direct Marketing 101 - Database, Analytics & Testing
    13. 13. Analytics (651) 315-7588 Direct Marketing 101 - Database, Analytics & Testing
    14. 14. Campaign Evaluation <ul><li>Which aspects of the campaign are most useful to you to measure? </li></ul><ul><ul><li>Consider response rate. </li></ul></ul><ul><ul><li>Consider average order value </li></ul></ul><ul><ul><li>Consider selling costs </li></ul></ul><ul><ul><li>Consider cost per lead generated. </li></ul></ul><ul><li>What elements of your campaign have been coded? (Lists, package, etc.) </li></ul>(651) 315-7588 Direct Marketing 101 - Database, Analytics & Testing
    15. 15. Sales Campaign What to Analyze? <ul><li>Total number of people mailed </li></ul><ul><li>Total number of orders </li></ul><ul><li>Total revenue from the mailing </li></ul><ul><li>Average order value </li></ul><ul><li>Unit mailing cost </li></ul><ul><li>Unit response costs </li></ul><ul><li>Individual profit / loss </li></ul><ul><li>Gross profit / loss </li></ul><ul><li>Order lag pattern </li></ul>
    16. 16. Lead Generation Campaign What to Analyze? <ul><li>Total circulation </li></ul><ul><li>Total inquiries </li></ul><ul><li>Unit mailing or promotional costs </li></ul><ul><li>Unit inquiry costs (CPI or CPL) </li></ul><ul><li>Inquiry / lead lag pattern </li></ul><ul><li>Conversion rates </li></ul>(651) 315-7588 Direct Marketing 101 - Database, Analytics & Testing
    17. 17. Economics That Affect the Bottom Line (651) 315-7588 Direct Marketing 101 - Database, Analytics & Testing Costs Advertising Income Fixed Costs Media Buys Sale Price “ Goods Sold” Mailing Lists Shipping Fees Incremental Costs Computer Services Units per Sale Fulfillment Costs Creative / Production Trade-ups Shipping Costs Printing / Mailing Conversion Credit + Returns Postage / Nixies List Rentals
    18. 18. More Economic Considerations <ul><li>Conversion Rates </li></ul><ul><li>Renewal Rates </li></ul><ul><li>Attrition (or Retention) Rates </li></ul><ul><li>Units per Response </li></ul><ul><li>Average Take or Order </li></ul><ul><li>Name Value </li></ul><ul><li>Time Value </li></ul><ul><li>Return on Investment (ROI) or ROAI (Return on Advertising Investment) </li></ul><ul><li>CLV (Customer Lifetime Value) </li></ul>(651) 315-7588 Direct Marketing 101 - Database, Analytics & Testing
    19. 19. DM Mathematics <ul><li>CPR, CPI, CPO, CPC calculations </li></ul><ul><li>Response analysis </li></ul><ul><li>Basic breakevens </li></ul><ul><li>Profit and loss analysis </li></ul><ul><li>DM forecasting/planning tools </li></ul><ul><ul><li>Inquiry conversion </li></ul></ul><ul><ul><li>Lag patterns, Name flow </li></ul></ul><ul><li>Life time value calculations </li></ul><ul><li>ROI / ROAI calculations </li></ul>(651) 315-7588 Direct Marketing 101 - Database, Analytics & Testing
    20. 20. The Basics Cost per Response (CPR) Promotional Cost ÷ Responses = Cost Per Response (651) 315-7588 Direct Marketing 101 - Database, Analytics & Testing
    21. 21. The Basic Promotional P&L Income – (Cost + Advertising) = Profit Or Allowable Margin (AM) Income – Cost = Advertising + Profit (651) 315-7588 Direct Marketing 101 - Database, Analytics & Testing
    22. 22. The Basic Breakeven Response Necessary To Achieve Income – Cost = Advertising Expense Or Orders to BE = Net Sales/M Net Order Contribution (651) 315-7588 Direct Marketing 101 - Database, Analytics & Testing
    23. 23. Direct Response Formulas (651) 315-7588 Direct Marketing 101 - Database, Analytics & Testing Marketing Income % = (( Margin $ ’ s per Order x Response Rate % - Adv $ ’ s per 1 , 000 ) / Response Rate %) / Average Order Value Or M . I .% = M x P – A / P . O . P Marketing Income per 1 , 000 ( m / M ) = M x P – A Marketing Income per Order ( m / O ) = M . I .% x P . O . = m / M P P = A ÷ ( M – ( M . I .% x P . O .))
    24. 24. Geometric Leverage: Effect of CPO on Profit (651) 315-7588 Direct Marketing 101 - Database, Analytics & Testing Example: $5 margin and $50,000 advertising budget CPO ($) Orders Margin Profit 6 8,333 41,665 (8,335) 5 10,000 50,000 0 4 12,500 62,500 12,500 3 16,666 83,330 33,330 2 25,000 125,000 75,000 1 50,000 250,000 200,000
    25. 25. Effect of Response on Profits (651) 315-7588 Direct Marketing 101 - Database, Analytics & Testing Plan + 20% sales + 20% sales +20% ad cost - 20 % sales S ales $80MM $ 96MM $ 96MM $ 64MM L ess Promo Cost 20 2 0 2 4 2 0 L ess Direct Expense 41 4 9 4 9 3 3 L ess Fixed Costs 12 1 2 1 2 1 2 T otal Costs $73MM $ 81MM $ 85MM $ 65MM Profit $7MM $15MM $11MM ($1MM) Profit Plan vs. Plan +$18MM +$4MM - $8MM Percent Over Plan +114% +57% - 114%
    26. 26. Cost of Acquisition One Step Direct Sale Space Ad (651) 315-7588 Direct Marketing 101 - Database, Analytics & Testing V ariable Costs E xample 1 E xample 2 E xample 3 T otal Circulation 1 ,000,000 1 ,000,000 1 ,000,000 R esponse Rate 0.1% 0 .05% 0 .05% T otal Responses 1 ,000 5 00 5 00 A verage Order Value $19.95 $ 19. 95 $19.95 G ross Sales $ 19,950 $ 9,975 $ 9,975 M argin Before Advertising 35% $ 6,983 $3,491 $6,991 S pace Ad Cost / 1,000 $ 10 $ 10,000 $ 10,000 $ 10,000 P rofit Contribution ( $3,01 7 ( $6,509) ( $3,009) P rofit Cost per Name ( $3.02) ( $ 13,02) ($ 6.02)
    27. 27. 2-Step Conversion (651) 315-7588 Direct Marketing 101 - Database, Analytics & Testing V ariable Costs E xample 1 E xample 2 E xample 3 S tep 1: Inquiry Ad T otal Circ 1 ,000,000 1 ,000,000 1 ,000,000 R esponse Rate 0.05% 0 .5% 1 % T otal Responses 500 5 ,0 00 1 0 ,000 A dv Cost per 1,000 $10 $ 10,000 $ 10,000 $ 10,000 L oss ($10,00 0 ) ( $10,000) ( $10,000) C ost per Name ( $20) ( $2) ( $1) Step 2: Mailing to Inquiries M ailing to requestors 5 00 5 ,000 1 0,000 Response Rate 1.6% 5% 7.5% Total Responses 8 250 750 Average Order Value $ 75 $75 $75 Gross Sales $600 $18,750 $56,250 Margin $ ’ s Before Adv Costs 35% $210 $6,563 $19,688 Advertising Cost per Mailing $0.50 $250 $2,500 $5,000 Advertising Cost (Inquiry Generation) $10,000 $10,000 $10,000 Profit Contribution ($10,040) ( $5,937) $4,688 Profit per Name ( $ 1,255) ($23. 75) $ 6. 25
    28. 28. Test vs. Rollout Costs (651) 315-7588 Direct Marketing 101 - Database, Analytics & Testing The only difference is the advertising costs per thousand circulation drops because the creative costs are amortized over the larger circulation; and depending on media the production and media cost may also decrease. Package Quantity CPM Response CPO Test Cost 10,0000 $600 4.2% $14.29 Rollout Cost 100,000 $270 4.2% $6.43
    29. 29. Developing your financial plan <ul><li>Response curves / lag patterns </li></ul><ul><li>Order / Lead flow planning </li></ul><ul><li>Elements of financial plan </li></ul>(651) 315-7588 Direct Marketing 101 - Database, Analytics & Testing
    30. 30. Order/Lead Flow Planning <ul><li>Average Rates of Response By Media </li></ul><ul><ul><li>Chart </li></ul></ul><ul><li>Response Curves </li></ul><ul><li>Building the Order/Lead Flow with Response Curves </li></ul>(651) 315-7588 Direct Marketing 101 - Database, Analytics & Testing
    31. 31. Typical Response Curve (651) 315-7588 Direct Marketing 101 - Database, Analytics & Testing
    32. 32. Typical Response Curve (651) 315-7588 Direct Marketing 101 - Database, Analytics & Testing
    33. 33. Elements of a Financial Plan <ul><li>Media description </li></ul><ul><li>Mail quantity/circ </li></ul><ul><li>Percent response </li></ul><ul><li>Conversion rates </li></ul><ul><li>Package / ad cost / M </li></ul><ul><li>List / media cost / M </li></ul><ul><li>Total cost / M </li></ul><ul><li>Projected Orders </li></ul><ul><li>Average Orders </li></ul><ul><li>Projected cancellations </li></ul><ul><li>Projected bad pays </li></ul><ul><li>Percent credit </li></ul><ul><li>Net customers </li></ul><ul><li>Net percent response </li></ul><ul><li>Net cost per order </li></ul><ul><li>Total revenue </li></ul><ul><li>Net revenue </li></ul><ul><li>Net revenue per customer </li></ul>(651) 315-7588 Direct Marketing 101 - Database, Analytics & Testing
    34. 34. What’s a Customer Worth (LTV)? <ul><li>The first step in developing a pro forma for a new program is answering, “How much can you afford to invest in acquiring a new customer?” </li></ul><ul><li>To do that, you need to know the customer lifecycle, the profit generated after advertising costs from an order and the average number of orders purchased by a customer over that lifecycle. </li></ul><ul><li>Multiplying profit times average # of orders = Life Time Value </li></ul><ul><li>You should spend no more to acquire a new customer than their LTV. </li></ul>(651) 315-7588 Direct Marketing 101 - Database, Analytics & Testing
    35. 35. Campaign Economics <ul><li>New Customer Acquisition </li></ul><ul><li>Customer Retention </li></ul><ul><li>Customer Reactivation </li></ul>(651) 315-7588 Direct Marketing 101 - Database, Analytics & Testing
    36. 36. Testing “ Testing is the heart of direct response and it’s the element of the medium that makes it potentially the most effective, most productive, in the world.” - Joel Blattstein, Schein/Blattstein Advertising, Inc., 1979 (651) 315-7588 Direct Marketing 101 - Database, Analytics & Testing
    37. 37. What to Test <ul><li>Product or Services </li></ul><ul><li>Media (list, print, broadcast, electronic) </li></ul><ul><li>Offer (the proposition) </li></ul><ul><li>Package/Format/Creative </li></ul><ul><li>Copy Platform </li></ul><ul><li>Timing of Promotion </li></ul><ul><li>Testing in the different media </li></ul>(651) 315-7588 Direct Marketing 101 - Database, Analytics & Testing
    38. 38. Basic Testing Rules <ul><li>Test the big things first: </li></ul><ul><ul><li>media, offer, format/package, copy. </li></ul></ul><ul><li>Test large enough sample size to read results. </li></ul><ul><li>Test 1 variable at a time or everything. </li></ul><ul><li>When possible always test against a control. </li></ul><ul><li>Test against your control at the same time. </li></ul><ul><li>Make your calculations using roll-out costs. </li></ul><ul><li>Measure your results by net dollars. </li></ul>(651) 315-7588 Direct Marketing 101 - Database, Analytics & Testing
    39. 39. Statistically Valid Sample Sizes <ul><li>Have some idea of the level of response you expect or need. </li></ul><ul><li>Decide what confidence level you will live with in testing. </li></ul><ul><li>Decide what level of variance you can live with in the test generated responses. </li></ul><ul><ul><li>Using the direct mail projection and sample size tables for determining test sample size. </li></ul></ul>(651) 315-7588 Direct Marketing 101 - Database, Analytics & Testing
    40. 40. Sample Test Matrix (651) 315-7588 Direct Marketing 101 - Database, Analytics & Testing List Control Group Creative Format 1 Creative Format 2 No Action Offer A Offer B Offer A Segment Group 1 5K -- -- -- Segment Group 2 -- 5K 5K 5K Segment Group 3 -- 5K -- -- Segment Group 4 -- -- 5K --
    41. 41. Top 10 Test Ideas in Direct Mail <ul><li>Add the word “FREE” to your outer envelope teaser copy. </li></ul><ul><li>Put ad headlines in quotation marks. </li></ul><ul><li>Test a phone follow-up to non-respondents. </li></ul><ul><li>Offer a free sample to overcome the “I don’t believe it” objection. </li></ul><ul><li>Say “thank you” to gift-buyers with no-strings-attached gift certificate for them to use. </li></ul><ul><li>Use the unexpected: </li></ul><ul><ul><li>Transform the flap side of an envelope into the addressing side </li></ul></ul><ul><ul><li>Print your message on the back of an 8” x 10” photograph </li></ul></ul><ul><li>Put your deadline on the outside the envelope. </li></ul><ul><li>Change the color of the outer envelope. </li></ul><ul><li>Include a deadline in your offer. </li></ul><ul><li>Add human or human elements to product photos. </li></ul>(651) 315-7588 Direct Marketing 101 - Database, Analytics & Testing
    42. 42. End of DM 101 Workshop 4 See Workshop 5 to Continue Our complete Direct Marketing 101 Workshop series can be conducted via webcast or in person depending on your preference. For more information about this workshop, others and our consulting services, contact DWS Associates today at (651) 315- 7588 or [email_address] ! (651) 315-7588 Direct Marketing 101 - Database, Analytics & Testing
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