The future of Direct The future of Direct Marketing in Canada ...

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The future of Direct The future of Direct Marketing in Canada ...

  1. 1. The future of Direct Marketing in Canada Richard McLaughlin Canada Post Borderfree Direct Summit April 18, 2006 Toronto, ON
  2. 2. Agenda The risk and reality of government intervention The Marketing Mix - trends and implications Segmentation and client centricity Maximizing ROI – product versus client The overall implications for marketers
  3. 3. The Risk & Reality of Government Intervention in Canada CRTC ruling on Telemarketing and the creation of a national do-not-call list expected fall of 2007 or later CRTC review of the Canadian television sector Concern over Canadian content Emerging technology (PVRs and TV over the web) Revenue splitting amongst the interested parties
  4. 4. The Risk & Reality of Government Intervention in Canada • Mandatory five-year review of federal privacy law 2006 -- formal review of legislation Expectations: Increased scrutiny around consent and secondary marketing practices Call for more transparency
  5. 5. The Risk & Reality of Government Intervention in Canada Mandatory five-year review of federal privacy law (continued) Biggest threat: loss of implied/opt-out consent Potential for stronger enforcement regime: Giving Privacy Commissioner order-making power Fines and penalties “Naming of names”
  6. 6. The Risk & Reality of Government Intervention in Canada Privacy in Canada Canadian Privacy Commissioner’s personal cell phone bill was purchased from a US information broker and published on the front page of national news magazine (MacLean’s Magazine – Nov/05) Recent article in the Montreal Gazette quotes Ms. Stoddard as suggesting that marketers are being less than ethical with their collection of personal information through loyalty programs
  7. 7. What’s Ahead – longer term Growing concern by the Privacy Commissioner over the use of RFID – Radio Frequency Identification the small size of the tags and the ability to uniquely identify an object – pose potential threats to individual privacy
  8. 8. The Risk & Reality of Government Intervention in Canada The implications for marketers? The rules are likely to get more restrictive The penalties are likely to be more severe Tougher privacy legislation will favour companies with large existing customer bases and established brands A national DNC list will forever alter the telemarketing industry if it is enforced and will also favour large established companies
  9. 9. The Marketing Mix - trends and implications Increasing pressure from the CFO/CEO on revenue/profit generation and proof of ROI Marketers never seem to have enough Particular pressure on non-direct budgets
  10. 10. ROI – the best that most can do Budget # new Revenue Profit ROI customers Television $3.0mm Print $0.8mm Radio $0.5mm Catalogue $0.5mm Direct Mail $2.5mm E-marketing $0.2mm Telemarketing $2.0mm Other $0.5mm
  11. 11. ROI – what the CFO expects Budget # new Revenue Profit ROI customers Television $3.0mm Print $0.8mm Radio $0.5mm Catalogue $0.5mm Direct Mail $2.5mm E-marketing $0.2mm Telemarketing $2.0mm Other $0.5mm
  12. 12. The changing Marketing Mix 100% 90% 80% 70% 60% Other Direct Mail 50% Print 40% TV/Radio 30% 20% 10% 0% 2000 200? Extrapolation of compiled data
  13. 13. The Marketing Mix - trends and implications The 30 second ad will continue a slow painful death over the next 5 years due to: The continued erosion of the broadcast TV audience to other forms of electronic entertainment like cable television, DVDs, the Internet and electronic gaming An increasingly empowered consumer through new technologies like the Personal Video Recorder (PVR) that allows users to skip ads Source: In-Stat/MDR
  14. 14. The Marketing Mix - trends and implications Replace the 30 second ad exposure with: Movement to “random” length ads Product placement in television/movies Corporate Sponsorship of television and movie production
  15. 15. The Marketing Mix - trends and implications Proliferation of media fragmentation Increasing ability to target more in line with direct Complexity of measuring what worked and what didn’t increases Lack of a track record
  16. 16. Specialty Magazines
  17. 17. The Marketing Mix - trends and implications Continuous emergence of new technologies Web, cell phone and PDA TV Wireless broadband Increasingly sophisticated PDAs and integrated devices (phone, camera, MP3, etc.)
  18. 18. The Marketing Mix - trends and implications High volume mail and telemarketing focuses on “I’ve got a product to sell, let’s find some buyers” Response rates are stable or declining particularly in high volume categories (credit cards) where everyone is buying the same external lists E-mail showing mixed results with a misconception that its “free” and is hampered by increasingly sophisticated “spam” filters offered by ISPs
  19. 19. The Marketing Mix - trends and implications Leads to sales people using propensity models and/or event trigger decision engines increasing in popularity Other technology dependent alternatives (search engine optimization, podcasts, blogs, etc.) starting to become more mainstream but are still in the early stages
  20. 20. Segmentation & Client Centricity Smarter Segmentation of customers and prospects Reversing the marketing paradigm
  21. 21. Why Segment? $5,000 $4,000 $3,000 $2,000 $1,000 $0 -$1,000 Decile Decile Decile Decile Decile 1 3 5 7 9 Client Profitability
  22. 22. Why Segment? Product centric marketing to an external prospect list will result in a distribution of clients across most/all deciles even when using a propensity model Overall ROI is a poor measure of success
  23. 23. Why Segment? It is difficult to establish and maintain a long term sustainable advantage based on product alone Product innovation is now copied within months if not weeks
  24. 24. Segmentation Most common forms of segmentation are: Revenue, Profit or LTV Lifestyle or Lifestage Demographics Psychographics/Attitudes/Behaviours Product or Service Ethnicity Size of company and industry vertical (B2B)
  25. 25. Smarter Segmentation Push beyond the lifestage or customer value based segmentation Segments should be small enough to have unique characteristics in common, while large enough to have a financial impact
  26. 26. Smarter Segmentation Allow your data to tell you what those groups are in your company/industry For many companies a high potential group will be business owners with a need for integrated business and personal products and/or services
  27. 27. Reverse the marketing paradigm Instead of “I’ve got a product, how many people can I find to sell it to” how about, “I’ve discovered a deep customer need that I am in a unique position to help solve” It doesn’t apply to you because you’re too broad-based in your appeal? Think harder.
  28. 28. Kraft CRM program Kraft has historically faced: No direct relationship or contact with their end consumers Continually held hostage by retailers to increase trade funds at the expense of brand building Structured in tradition, powerful product silos Therefore marketing programs historically followed the “Let’s find as many people to buy my product” path
  29. 29. Kraft CRM Program Began to build a database full of customers through contests, special offers, etc. They established a magazine with recipes That transformed into a recipe magazine that was both personalized and customized
  30. 30. Kraft CRM program Then they added the capability to send personalized and customized e- mails to provide busy families with easy to prepare, nutritious meals for the week
  31. 31. Maximizing ROI The typical product centric approach would be to rent a list, use a propensity model and market with volume But your competitors are doing the same thing with the same list and similar models Assuming there is a finite level of demand for your product(s) then a declining response rate and ROI is inevitable
  32. 32. Average profitability of a client $5,000 $4,000 $3,000 $2,000 $1,000 $0 -$1,000 Decile Decile Decile Decile Decile 1 3 5 7 9 Client Profitability
  33. 33. Product Centric Campaign ROI Assume $1 million budget per year with a response rate that declines over time – 1.5%, 1%, 0.5%, 0.25% At 1.5% response rate, that translates to a requirement of 20,000 new customers for the campaign With an average profitability of $250 per new customer, your ROI will decline (400%, 230%, 70%, -17% respectively) until it is negative
  34. 34. Client Centric Campaign ROI $5,000 $4,000 $3,000 $2,000 $1,000 $0 -$1,000 Decile Decile Decile Decile Decile 1 3 5 7 9 Client Profitability
  35. 35. Client Centric Campaign ROI A blended product and service offering Uniquely designed to appeal to a high value segment Same $1 million budget Spend it equally between Existing customers whom the model has identified are similar to our target segment Prospects from the outside that we have identified have similar characteristics to our target segment
  36. 36. Client Centric Campaign ROI Existing Customers $500,000 spent moving 800 customers from the average profitability ($250) to Decile 1 would generate a 520% ROI New Customers $500,000 spent converting 600 prospects to customers would generate a 400% ROI You have also established a long term sustainable position in the market place with a highly profitable segment
  37. 37. Implications for marketers Impact on skill requirements for future marketers Far greater focus on general business skills and financial acumen Far greater analytical skills given the increased complexity of choices and challenge Ability to impact and influence across the organization to engineer the right customer experience
  38. 38. Implications for marketers Requirement to work in several different cultures and languages cost effectively and with cultural sensitivity while properly managing the overall impact on the brand
  39. 39. Implications for marketers Find profitable sub-segments of customers and use that information to find prospects Understand the engineering of the customer experience and re-engineer it to best serve the high potential sub-segments you identify
  40. 40. Richard McLaughlin Canada Post Borderfree Direct Summit April 18, 2006 Toronto, ON richmclaughlin@rogers.com

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