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Direct Marketing 101: Workshop 2

Direct Marketing 101: Workshop 2



This is the second in a series of five presentations aimed at providing an introduction to direct marketing.

This is the second in a series of five presentations aimed at providing an introduction to direct marketing.



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  • SUMMARY To sum up, effective direct marketing plan creation affects your profit more than any other single factor. Consequently, your organization must force itself to provide adequate time, money, and personnel to develop thorough, written direct marketing plans by means of the task method. Top management should establish criteria governing how the plan is to be created, and then insure that each specialist on the planning group (which is always to be headed by an experienced direct marketing generalist) be made aware of the ground rules for plan development. The plan, throughout its development and also when complete, is to be subjected to predictive yield analysis in order to identify the risk quotient. The completed, written plan is to be critiqued by all planning team members, as well as knowledgeable third parties. Once this group has met and frozen the plan, major changes can be made only by reconvening the planning group to analyze the impact of those changes, and approve changes. During implementation, marketing plan specifications govern the program.
  • Collect and organize from a marketing perspective all the background data as you can. Background There is no such thing as too much background data-only too little. All information available, whether or not it appears to have immediate relevance, is gathered and organized from a marketing perspective. This includes, where possible: Customer profile(s)/buying history Buying process Product/service description, benefits, positioning Market position/sales history/competitive situation Marketing / advertising history Distribution and sales methods Manufacturing / marketing margins P & L history / potential
  • Objectives Expressing objectives in specific, meaningful terms is a difficult but critical part of marketing plan development. Generalizations such as "increase profitability," "add sales dollars," "obtain leads,“ "build retail traffic," are not specific enough for direct marketing plan purposes. Initial meetings should result in (1) making objectives more specific or precise, (2) quantifying objectives too generally stated, or (3) identifying additional objectives. Some practical examples . . . Industrial mail order-Eliminate 10% of current field sales calls by direct sale of low ticket product accessories to current customer base. Fund raising-Upgrade previous donor contributions by $10 per donor. Business/Trade-Achieve 7% penetration of the existing national dealer network. Consumer/Retail-Obtain a minimum of 21,000 cases of 'first trial' sales for a new discount product during a 4-day introduction period at seven area stores.
  • Obstacles Sometimes major obstacles are readily apparent, sometimes they are more obscure. The importance of identifying and relating all major obstacles that could block achievement of each stated specific objective cannot be over-emphasized. Continuing, the previous examples . . . Industrial mail order-Individual buying influences at current customer site locations have not been isolated, identified, and computerized. Fund raising-Previous donors do not now perceive the real effect of their donation in terms of its amount. Business Trade-The wholesaler network between manufacturing and dealer is dominated by a strongly entrenched competitor. Consumer/Retail-Current customer traffic automatically conceives of low price as synonymous with poor quality.
  • Strategy Creation of the right strategy requires skillful decisions on: - Program scope-test rollout of full program - Basic offer product, incentives and premiums - Concept and theme - Versioning and/or personalization Media selection: Cost effective for the product and situation Conceptual strategy (once developed with reference to all obstacles related to each objective) must be stated in simple, specific language. Examples: Industrial mail order-create "Preferred Customer Status" category and associated benefits; communicate benefits and incentives to the manager in each current customer site in such a way that he will respond by giving names, titles, and functions of all buying influences at the site. Fund raising-Create unique, high-quality solicitation package for previous donors detailing emphatically what each $10 segment of their total donation can result in for donation recipients. Business/Trade-Bypass existing wholesaler network with direct solicitation to dealers emphasizing extraordinary benefit of direct-from-manufacturer relationship. Consumer Retail-Establish product quality with six day intensive multi-media saturation within 20 mile radius of each store during introduction. Augment with display materials and samples in stores.
  • Tactics Specific tactics should only be addressed after background, objectives, obstacles, and strategic decisions have been made. Then details and specifications are developed as follows: Packaging: concept, components, copy, graphics Media Mix: direct mail, telephone, Internet, direct response space or broadcast, collateral, or a multi-media combination. Implementation specifications and procedures Timing/Scheduling Cost Estimates
  • Financial Analysis All strategic and tactical decisions must be analyzed in terms of cost effectiveness, both before and after program implementation. To this end the marketing plan details: Breakeven calculations: Programs and life cycle Yield potentials: acquisition and life cycle at various response levels Specifications for response tracking, analysis, yield reports.
  • These are questions that need to be addressed and answered before launching a new campaign or a campaign into new markets. The broker and his wide range of friends and industry contacts is the best person to help the client answer these questions.
  • Determine your Objectives -- What do you want to achieve? Be very clear why you are running your campaign. What do you wish to achieve? For example, do you want to: Generate enquiries from new prospects Generate immediate sales? Qualify sales leads? Simply pass on information or raise awareness? If you are not clear at this stage about exactly what you want your campaign to do, then you will find it difficult to convince your prospects to do it! How many new customers do you need? Do you want to make profit now or later? In other words, are you aiming to make profits from your initial campaign or are you prepared to invest in new customers now in the expectation of them becoming profitable over time? Objectives need to be numerically quantifiable, measurable and realistic! Determining the answers to questions like these will help you to understand the nature of your task, the sort of strategy you might employ and the amount of money you are prepared to spend to get a customer on board.
  • 2. Develop your Communications Strategy – What do you want to communicate and to whom? This may seem obvious, but even if you know (for example) that you are going to use direct mail to recruit new customers there are still many questions that you should consider. Who are your target audience? What sort of people are likely to be interested in your proposition? Where will you find them? Are they already known to you or will you have to obtain a list? How much do you understand about the way they buy? What they like and dislike? Are they buying what you think you are selling? Is timing an issue? Sometimes this is obvious. Christmas cards do not sell well in March. Sometimes you might need to carry out some basic research with your target market. What extra information would help you? What about your positioning? Are you at the prime end of your market, perhaps "reassuringly expensive"? Are you "bargain basement“ or somewhere in between? This will play a big part in determining the style and tone of your communication. What pattern of contact will you follow? Perhaps you are planning a single hit at your prospects with an "all or bust" mailing. But would several points of attack be more effective? You might send a "teaser" out before the main communication, re-mail non responders, or telephone prospects after a mailing. The decision will vary with each campaign. It is, however, generally true that a combination of contacts will yield better response levels than a single contact.
  • Forecasting, costing and budgeting. How much can you afford to spend both overall and per new customer? You can calculate your allowable marketing cost with a simple profit and loss account sheet. What do you expect in return? Leads? Orders? Do the numbers work out? What response do you expect? What do you need to get in order to reach breakeven point? How can you calculate break even? Do you have a contingency plan in case your results are below expectations?
  • This is only a representative list.
  • Points to consider when you’re setting your plan to do post campaign analysis. 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 "look-alikes" next time Best offers for different segments of your audience.
  • For example, Country Journal readers are avid coupon clippers; National Geographic readers traditionally are not. How can you determine in advance which publications are best for coupon response? There's no foolproof way, of course, but you can begin by asking your peers what their experiences have been. You can take a look at the publication, itself, to see how many coupon ads it carries and--this is important--how many are repeated in subsequent issues. And you can make your own judgment as to how "coffee-table" the publication is; i.e., is it slick, likely to be saved and displayed, unlikely to be mutilated, or coupon-clipped, by its owner.
  • These are the major criteria for selecting your media. It is a fact that combinations of media can increase response quite significantly. A well tested successful combination is direct mail with a telephone follow-up. Many companies run what are known as "Integrated campaigns" in which several media are used in combination over a number of contact stages. For example, national TV, press and Internet advertising in combination can increase awareness.
  • Direct Mail Once thought extinct, it’s growing (both regular dm promotions and catalogs being used by the companies that foretold its demise. It’s personal. It can be targeted. The availability of lists is nearly endless. It lends itself to the widest range of testing. Segmentation and targeting of offers is possible within the same campaign. Bill Inserts and Package Inserts Most obvious advantage is their low costs compared to other media. These types of promotional pieces can ride along with compatible offers and products.
  • Television reaches huge audiences. According to the A.C. Nielsen Co., the average American watches more than 4 hours of TV each day (or 28 hours/week, or 2 months of nonstop TV-watching per year). In a 65-year life, that person will have spent 9 years glued to the tube. 99% of American households have one.
  • A List Broker is a specialist who makes all the necessary arrangements for a mailer. Their services usually include: research, selection, recommendations, evaluations and purchasing. A List Manager is a firm who acts as the outside agent for a list owner and is responsible for the use, by others of the specific list. They generally provide: list maintenance, list promoting and marketing, list clearance and record keeping, billing and accounting. A List Compiler is one who develops lists of names and addresses from directories, warranty cards, newspapers, public records, sales slips, etc. They have full control over maintenance, scheduling, promotion, etc., of that list. Some suppliers can provide two or all of these services. A Service Bureau can provide a range of data and data maintenance and enhancement services. They also tend to specialize. Services range from updating and maintaining names and addresses, merge/purge, carrier route coding, zip coding, statistical reporting, zip code correction, the checking of files against nixie banks, renewal upgrading techniques for the fund raiser to computer letter production and word processing. The priority number 1 service is file maintenance. The mailer is the starting point. He or she has got something to sell and has recognized direct mail as at least one of 'the means by which to sell it. The people who respond to the mailer's offers, become his customers or prospects (depending on the offer), and the mailer becomes a list owner, as well. The list owner in effect "owns" the names of his or her customers - to re-mail a follow-up offer, to renew, to rent to another mailer, or to exchange for another list owner's names. The mailer 'may hire a list broker, a direct response ad agency and a data processing service bureau. As a list owner, he or she might hire a list manager to help market his list and a service bureau to handle list order fulfillment. Ad Agency: The Direct Response Ad Agency is simply an agency specializing in direct marketing. Most direct response agencies are now part of major general advertising agencies. For the most part, the agency is responsible for developing marketing strategy and the creative product. Few agencies get very involved in list research or analysis. But that is also changing as list selection becomes more widely recognized as the critical factor between the success and failure of a direct mailing. Just as it is important for a list broker to know what's being mailed to the lists he or she recommends, it is vitally important for the agency to know what lists are being mailed.
  • Where to find information on lists: SRDS Direct Mail Lists Rates & Data Directory
  • List selection and Testing The term list selection is used in two ways: To determine which lists you should choose from the wide selection available. To determine which portions of a list should be used. But no matter which list you use or how you segment it, only testing a list will tell you if it will produce the right results for you. That said, there are some basic rules by which you can select lists most likely to work for you. Simply you look for lists with customers very close in profile to your own who have bought products closest to the ones you wish to sell them. The following is a frequently quoted ranking: 1. People who have bought an identical product in the same price range 2. People who have bought a similar product in the same price range 3. People who have bought an identical product in a different price range 4. People who have bought a similar product in a different price range 5. People who have bought a different product in an identical price range 6. People who bought something else by mail order from a similar type of company 7. People who have taken some other action by mail order.
  • October is considered the base and the other months are compared to October.
  • Recency – The more recent the purchase, the more likely this buyer is to make another purchase. These most recent buyers are usually referred to as “hot line buyers.”
  • The list broker needs to know all of these things when you place your order. Most list owners and their list managers will not rent their list until they have seen your sample mailing piece. Most mailing lists are rented for one time usage, however some list can be rented for multiple usages or unlimited usage over a given period of time.
  • If DM is the focusing of resource on the superior opportunity then targeting is the activity which identifies the superior opportunity. In other words, targeting is the technique used to locate the prospects who are most likely to want to buy from you. In this context the term "prospect" means "anyone whom you are trying to get to do or buy what you want in the context of your campaign." In general we are talking about new people or businesses that we do not know, but occasionally we may also mean existing customers to whom we wish to sell something more.
  • Database analysis. This is the best way of all. If you have a database of existing customers and prospects you can use the information that you have about who bought or enquired about a particular product and their buying methods, timing and so on to draw up profiles of your best customers. You can use these to identify good segments of other lists. 2. Testing. Run an advert in a suitable medium or mail a rented list that seems roughly appropriate. Analyze the replies. Profile the respondents, perhaps simply by gender or job title or geographical location or perhaps using more sophisticated criteria. Then next time you can specifically target the sort of people that responded to the first campaign. 3. Research. This is sometimes done by postal questionnaire but more often by telephone. Simply the object is to find out who in a household or business will be interested in the product. The important thing here is to ask someone who will actually know the answers. In the household situation this is fairly simple but in business it can be a little more complex. The receptionist will probably be able to tell you the name of the IT director but would probably not be reliable about the name of the person responsible for laptop computer purchasing for the organization. The best person to ask about the members of a decision making group in this situation would be someone like the Managing Director's PA. 4. Intuition. Assumptions can be dangerous so be sure that any intuitive judgments you make on your targeting are based on fact. Otherwise you are just guessing - which can work out very expensive.
  • Whether we want to sell more to existing customers or find new customers, the best place to start if you have any existing customers, is with them. Understanding these good customers will inform your planning for new business acquisition. You may well want more new customers that look like your best current customers. Start with considering why your customers buy from you. Are they buying the same thing as you think you are selling them? How do they make their buying decisions? Who is involved in those decisions (title, job title, job functions) The decision making group is particularly important in business to business markets. It may consist of several people at different levels of authority with different needs and wants. Who should you mail? Probably all of them as this is the only way you will cover off all their needs and wants. This sounds expensive but the whole point is that you communicate the right message to the right person. And if you stand a better chance of making the sale then the extra cost can be justified.
  • You can view all the people on your database as standing at various points on an escalator that is moving upwards. At the very bottom are people that may not even be aware of your products and services. A little further up are those who you know have a likely interest but do not know much about what you can offer. At the top are your best customers. In between are the trialists or the occasional buyers. At various points along the way are exit platforms at which people leave you. For targeting your existing contacts consider where they stand on that relationship escalator. Are they at the bottom, completely unaware? Are they about to jump off? Are they longstanding regular customers or are they inquirers? Once you know where they are then you need to talk to them relevantly. The level of information each step on the escalator needs from you is different. Start simply by communicating differently to enquirers, customers and lapsed customers. Direct marketing is about more than simply personalizing your communication. Personalization can make you look extremely silly if you treat an old customer like a brand new one.
  • It costs big bucks to acquire new customers, which is the reason that businesses are so focused on trying to keep the customers they have. There are really two phases to the relationship – in direct marketing terms the front end and all the related activities which include acquisition and conversion. The second phase is the backend which includes all marketing activities related to keeping a customer an active buyer and advocate for the company and it’s products/services. It involves all retention and reactivation activities. Unfortunately, all customers go through this life cycle. Some never make it past acquisition, some fall out after being good buyers for sometime and then we’re forced to spend dollars on activities designed to reactivate the customer. Most companies don’t make money on a customer until they have become a backend customer. It is possible to build a business model where you can make money simply by acquiring a customer name, examples would be directories which become mailing lists which become a marketable commodity in the list rental arena.
  • The escalator technique is a simple form of segmentation. Segmentation means breaking down your customer and prospect database into smaller groups or segments. There are two main reasons for doing this: You can target the segments most likely to be interested in a particular offer. You can tailor products, services and offers better to the recipients. Segmentation permits selectivity. Selectivity makes DM, and especially Direct Mail a very cost effective way of doing business. You can only achieve selectivity if you have information about people and their situations.
  • Basic media segmentation - In the most elementary form of segmentation analysis, direct marketers evaluate individual lists, publications, or stations, but not entire campaigns. In any campaign, some media will do better than others, some will breakeven, some won’t. Some will hit sales objectives, some won’t. The analysis is often done using CPR or CPL and then the programs are ranked in order of CPR. Those with the lowest CPR are listed at the top and those with the highest at the bottom. Internal segmentation involves analyzing a list or media by its inherent characteristics, such as geo in the case of publications or any of the characteristics that a mailing list may be segmented on, like sex, RFM, etc. Direct mail is especially response to internal segmentation. With both house lists and rented lists is possible to break down results into a wide variety of segments. Any available characteristics can be analyzed. External segmentation: this refers to the analysis of external characteristics that are not intrinsic attributes of the media. The simplest one is identification of geographic areas of a market area that produce significant variations in response. The most scientific application of this approach is cluster analysis popularized by Claritas. All the obvious demographic characteristics available from the US Census can be applied as well as other enhancements added by Claritas and others. Deciles Analysis is a refinement of segmentation analysis and it is the practice of statistically analyzing the responsiveness of each segment of a mailing program. You divide the segments into 10 groups, each representing 10% of the total. You then list them in descending order of profitability. Dimensional Segmentation: is the practice of taking the docile groups and breaking them down even further into a third dimension which might involve geography for example. It’s most often combined with geographic analysis. It’s theoretically possible to refine mailing list results on a three dimensional base. For example comparing and weighting results for the list based on demographics and other factors such as size of market or weather. House files can be refined based on R, F, M (Recency, Frequency, Monetary). Regression Analysis: this process compares the known characteristics of your customers with the characteristics of other mailing lists. Mathematically, the matches are noted, counted and compiled. The result is a “penetration analysis”—a ranking of those characteristics that were matched most frequently and the other list which shared them.
  • Segmentation works on the theory that parts of a list have more sales potential for a particular product or service than other parts of it. You get more sales from customers by matching offers to customer buying preferences. How much segmentation you can do, depends on the size of your lists. Why do it? Because you want to know the answers to these questions.
  • These are the most common methods. The behavioral are listed on the next slide.
  • Recency, frequency, monetary Frequency, recency, amount (monetary), type of purchase (coined by Bob Kestenbaum) Frequency, recency, amount (monetary), customer type
  • How should the modern direct marketer approach the challenge of list segmentation? The first task is to select data to be used in the analysis, and it is desirable to consider whatever information is available from the highest priority categories. Highest priority and most useful are data related to direct response transactions. Examples are: Acquisition source or method Type of action: inquiry, order, etc. Date of most recent action Date of first action Frequency of action Monetary value of action Type of product purchased or inquired about Use of credit or credit card Seasonal buying pattern (Christmas only, Spring only) 2. Medium priority and sometimes predictive are nontransaction data describing the particular buyer or prospect. This information is often very difficult to obtain on an accurate and consistent basis. Demographic (age, sex, marital status, family composition, occupations of male and female heads of household, education, family income, home ownership, etc.) Psychological or psychographic (intelligence, personality characteristics, interests, activities, and attitudes) Geographic (location, population density, big city influence, climate, etc.) 3. Lowest priority and generally useful only when other information is not available are data describing the general characteristics of groups to which the individual belongs. These are: Demographic characteristics based on averages for Zip or Census areas Interests based on occupation, job title, etc. Interests based on the assumption that like-minded people tend to live in proximity to one another (i.e. mailing to the next door neighbor or new residents of a house from which a customer has just moved.)
  • Profiling Profiling is the identification of a characteristic, or set of characteristics which appear to be more common than the average amongst customers and prospects. Once identified, these characteristics can be used to select a sub-group of customers or prospects who are most likely to be interested in your proposition. Typically, consumer profiling will relate to the presence of children or not, neighborhood type (Mosaic), geographical location, ownership of products, lifestyle and myriad other things. Business to business is more likely to relate to company size, turnover, industry sector, job function of decision maker, number of locations and countless other possibilities. Think about your business. What factors might help you select the most favorable prospects? Even if you are a brand new business and have no customers to profile you should be able to identify certain characteristics that might indicate a higher than average propensity to buy. If you really have no idea at all then you will need to use direct response advertising in an appropriate newspaper or magazine (preferably more than one) in order to generate enquiries. Once you have enquiries you can analyze them and refine your future targeting based upon what you learn. Intelligent profiling (which does not mean 'complex') is at the heart of all decisions you will make about list rental for direct mail. It will also determine the newspapers, magazines, radio stations and other media that you choose and will drive the tone and content of your copy and creative design .
  • All of the above segmentation methods were using data based on transactional behavior. Further analysis of prospect behavior can be achieved by the use of external data sources. These have been built by a variety of suppliers and fall into four broad categories: Geodemographics - classifying consumers by the neighborhoods in which they live. Geodemographic Profiling tools such as MOSAIC, ACORN, Neighbors and Prospects and the like, are built from data taken from sources such as the UK census, the electoral roll and a variety of specialist data sets. Typically this data is weighted and clustered, producing around 50 - 53 distinct neighborhood classifications which are then applied to every residential UK household. Marketers can then profile their lists and databases by neighborhood type and identify segments of particular importance to them. Lifestyle - A number of organizations use questionnaires on household product usage and lifestyle indicators to collect vast quantities of data on the population. This data is used both as a source of cold lists (for example, people who have expressed the intention of buying a new car in the next twelve months, or cat owners, or whatever) and as a means of matching to other data to define segments on the database. Another source of data for these systems is guarantee cards from the purchase of fridges, televisions etc (white and brown goods). Lifestage - Data relating to age derived chiefly from forenames, combinations of forenames within a household, and in some cases, length of residence at an address. Where date of birth information is absent from a database, these tools, (notably STAGE from Experian) can help identify groups by age in order to assist with the targeting of future mailings. Psychographic / Attitudinal data sources - This data looks at the reasons why people take the actions that they do, and what their attitudes are to key subject areas, such as brands versus own label goods, government, the environment, money and so forth. Understanding what motivates a purchase can be a very powerful discriminator when seeking to understand best prospects. Up until a few years ago, profiling tools built tended to fall compactly and definably into one of the four areas outlined above. Technology has moved on however, and today many of the profiling tools available are a composite of a whole range of data sources, some demographic, some lifestyle, some attitudinal, some financial, and so on. It is possible to take a very complete snapshot of the mailing database - discover the characteristics of your best customers and then request those very characteristics as the selection criteria for cold list mailings. Thus the targeting of cold direct mail campaigns can be finessed in pursuit of better and better responding prospects, often with the corollary of smaller but more profitable mailings. Business to Business Profiling - Business to business profiling is a more exact science than consumer profiling being based on specific data on specific organizations, such as Companies House data. These days there is a wealth of information available to help businesses identify the characteristics of the organizations with whom they do business. Examples include SIC code (Standard Industrial Classification) which defines what a company produces, financial type data, job functions within the organisation, employee numbers, turnover, director information, geographical information and so forth. Selectivity on Business to business lists is quite extensive.

Direct Marketing 101: Workshop 2 Direct Marketing 101: Workshop 2 Presentation Transcript