Direct & Database Marketing

DAY 2
November 23, 2019
Mumbai, India

Dr. Denish Shah

Barbara & Elmer Sunday Professor
Director, Social Media Intelligence Lab
Co-Director, Marketing (CMO) RoundTable
Associate Professor of Marketing & Analytics
Georgia State University, USA.

Direct Marketing Strategies

Customer Customer Customer
Acquisition Retention Communication

Customer Lists Loyalty Programs Content and media

MARKETING TACTICS

channels
POPULAR DIRECT

Example:
• Newsletters
Rewards/Incentives Rewards/Incentives
• Email
• Direct Mail
• Outbound Calling

© Dr. Denish Shah 1

 Major Factors Influencing
a Direct Marketing Strategy

Testing
Helps to minimize the risk of failure
and evaluate different DM media

Direct Marketing Quantitative

Customer Technique
Value Strategy
Helps to segment and
Influences the target customers for
maximum permissible different DM initiatives
marketing dollars to be
spent on a customer
Profiling
Helps to selectively target prospective customers
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Customer Acquisition Strategies

Critical Consideration:
How to Find New Customers?

 Purchase External Customer Data

 Example: Claritas, Axciom, Infobase, Experian, Datalogix

 Tap Internal Customer Data

 For other/new products/services of the firm
 To generate referrals
 Affinity Marketing
 Outsourcing customers

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 Customer Retention Strategies

Critical Consideration:

How to Keep (Manage) Customers?

 Customer Relationship Management

 Loyalty Programs

The Lexus Approach

Founding Philosophy
“Lexus will treat each customer as we would a guest in our home”

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 The Stew Leonard Approach

June 29, 2007:

Sprint fired 1000 customers

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 Customer Valuation
Techniques

Customer Lifetime Value (CLV) Analysis

 Definition: Sum of all future net incomes

expected from a customer, translated into
present-day terms.

 Calculating CLV: To calculate customer lifetime value

accurately, we need three key pieces of information.
These are:
 The number of years a customer buys from a company
 The net income ($) from the customer
 The discount rate

7:26 PM

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 CLV Formula

 Net present value (for year n) = Net income(for year n)

( 1+ DR/100)ⁿ
 Where DR = Discount Rate (indicates the time value of money)

 CLV for 5 years = NPV0+ NPV1+NPV2+NPV3+NPV4

 The CLV amount helps set the ceiling for the

maximum permissible marketing amount to be
spent on a customer without incurring a loss.

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Simple CLV Calculation

 Assume: Database with 1000 customers
 Average Retention Rate: 70% p.a.
 Discount rate = 15%
 Calculate CLV for 5 years based on information given below:
Year
0 1 2 3 4
Relative sales per year ($) 1 0.7 0.49 0.34 0.24

Direct & Indirect income ($) 28 32.50 22.75 15.93 11.1

Direct & Indirect costs ($) 13.5 9.45 6.62 4.63 3.16

Net income ($) 14.5 23.05 16.13 11.3 7.94

Net present value per
14.5 20.1 12.2 7.4 4.5
annum (NPV)
Total lifetime value
58.70
(sum of NPVs) 7:26 PM

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 RFM Scoring

 RFM is a breakdown of behavioral data on

customers into its constituent parts.
 Recency is the date of the most recent purchase.
 Frequency refers to the time elapsed between
purchases.
 Monetary Value is the average value of that customer’s
purchases.

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Calculating RFM

 Points are allocated based on the R,F, and M values

of the customers, for a specific product category

 For example:
 Recency points:
• 24 points purchases in current quarter
• 12 points purchases in last 6 months
• 6 points purchases in last 9 months
• 3 points purchases in last 12 months
 Frequency points:
• No. of points = No. of purchases *4
 Monetary Value points:
• No. of points = 10 per cent of amount purchased, with a
ceiling of 9 points
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 Applying Customer Valuation Techniques

Increasing value
to company One-to-one marketing through
costly DM media

Segment-level
marketing or
mass marketing

Lose/fire unprofitable customers or

reduce marketing resources
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Given a choice, which method would you prefer?

CLV or RFM

Assume both customers are making the same amount of $ purchase

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 DIRECT MARKETING
MEDIA

Forms of Direct Marketing

Face-to-face
selling

Email Direct-mail
Marketing marketing

New media Customers Catalog

(Digital/Social/ and marketing
Mobile) prospects

Kiosk Telemarketing
marketing
Direct-
response
television
marketing

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 Forms of Direct Marketing

 Direct-mail marketing:
 Involves sending an
offer, announcement,
reminder, or other item
to a person at a
particular
address.

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Direct-Mail Marketing

 Largest direct marketing medium.

 Well-suited for one-to-one communication:
 Permits high target-market selectivity
 Can be personalized, and is flexible
 Easy to measure results
 Although CPM is higher than mass media, direct
mail yields better response
 New methods and approaches are being
constantly developed

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 Using Credit Card Statements for DM

The leaders in the Indian Credit Card Market

Banks Size ($ in Million)

ICICI 3.7
Citi 1.9
Standard Chartered 1.8
HDFC 1.5

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Using Credit Card Statements for DM

 Inserts in monthly billing statements enable
advertisers to access growing markets of credit-worthy
customers who have the immediate means to order
and pay
The Current Playing Filed (to name a few)
Mobile Oil
Banks Retail Stores
Companies Companies
Citi Bank Shoppers’ Stop Airtel BPCL
Standard Chartered Globus Hutch HPCL
HSBC In Style BPL
American Express West Side Reliance
HDFC Pantaloons
ICICI
SBI
Canada Bank
(Source: RDM)
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 Pamphlet/Flyer Distribution

o Newspapers are the most well known media of distribution.

o Pamphlet insertion and distribution companies collect the promotional

materials from their customers and distribute them on the specified
dates within the specified location
o This is one of the cheap media of reaching a target audience segment
o Recently, a big budgeted film like Gangs of Wasseypur 2 made use of
newspaper inserts for promotion. It circulated over 2 lakhs newspaper
inserts as a part of its marketing initiative
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Source: www.pamphletinsertioninmumbai.com

Mumbai Dabbawala as
DM channel

https://www.youtube.com/watch?v=l3qr7YE4dzQ
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 Mumbai Dabbawala

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https://www.youtube.com/watch?v=j3FZs2sebCo

Catalog

Direct marketing through print, video, or digital

catalogs that are mailed to select customers,
made available in stores, or presented online.

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 Catalog Marketing Trends

 More and more catalogs are going digital:

 Minimizes costs and space is unlimited
 Allows real-time merchandising
 Print catalogs are still the primary medium.
 Can create an emotional connection to the
consumer
 Expected catalog sales in 2019 = $220 billion.

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Telemarketing

 Telephone marketing:
 Used in both consumer and B2B markets.
 Marketers use outbound and inbound
calls.
• Outbound: Sell directly to consumer.
• Inbound: Toll free ordering or order faxing.
 Do-not-call legislation has impacted
the telemarketing industry.
• The National Do Not Call List Registry:
https://www.donotcall.gov/

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 Inbound Telephone Marketing

Toll-free 1-800 phone

numbers are used by
marketers to receive
orders from TV and print
ads, direct mail, or
catalogs. Good ads
include a call to action,
such as, “Don’t wait
another day, Call now to
place an order or
request a catalog.”

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Telemarketing

Guidelines for Telemarketers

http://www.nccptrai.gov.in/nccpregistry/Guidelines_for_telemarketers.pdf

Telecom regulator Trai has disconnected 14 lakh phones and blacklisted 1.8
lakh unregistered telemarketers for two years for sending pesky
communications.

- The Economic Times: Feb 7, 2014

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 Forms of Direct Marketing

 Direct-response TV marketing:
 Direct-response television advertising
(DRTV):
• TV spots that are 60 or 120 seconds long.
 Infomercials:
• A 30 minute or longer advertising program for a
single product.
 Home shopping channels:
• Entire cable channels dedicated to selling
multiple brands, items, and services.

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Examples

 Dell: QVC once sold $65 million in Dell computers in a 24 hour span.
 When Michael Dell later appeared on the network, QVC generated
$48,000 in sales for every minute he chatted on air.

 Home Shopping Network: http://www.hsn.com/

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 DRTV – Direct Response Television

India's first 24-hour Home Shopping TV channel

http://www.homeshop18.com/tv-products.html?it_category=AP&it_action=TV-HSLOGO&it_label=AP-
HSLOGO-140609131400-PR-TV-OT-MR-HS18_HomeShop18Logo&it_value=0

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Forms of Direct Marketing

 Kiosk marketing:
 Information and ordering machines
generally found in stores, airports, and other
locations.
 Example:
Redbox Movie
Rentals

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 Face-to-Face Selling

 Involves personal presentation

by the firm’s sales force for the
purpose of making sales
and/or building customer
relationships.
 Example: Amway, Avon
Cosmetics, Tupperware

 Personal selling is more

effective than advertising when
selling a complicated (and
usually high value) product or
a solution
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Technology is enabling
response from
non-direct marketing media

7:26 PM

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 Technology driven Direct Marketing

 How to get direct response from mass media?

 QR Codes

7:26 PM

QR Codes

 Brands such as Del Monte, Godrej,

and Tata Tea use QR Codes on
product packaging to redirect users to
additional information or promotional
offers.

 Brands such as State Bank of India,

LG, DHFL, SimplyMarry, etc. used QR
Codes in their newspaper
advertisements to engage their
readers with their marketing content.

 The Times of India, one of India’s

leading English newspaper, started
using QR Codes to connect readers
from snippets of news in the paper to
full-length articles online.
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 Technology driven Direct Marketing

 Interactive TV (ITV) & TV-Web

Convergence

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The Television is ‘Channeling’ You

Cablevision System Corp. has rolled out different commercials, in real

time, to different households tuned to the same program

The market for “addressable ads” =

$12 Billion in 2015

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 Technology driven Direct Marketing

7:26 PM

Comparison of Response Rates

Response by Selected DM Media

15%
Response Rate

10% 9.5%

5%
3.7%

0.1% 0.1% 0.1% 0.2%

0%
Direct Social Media Email Telephone Display Paid
Mail Ad Search

Source: DMA Response Rate Report, 2015

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 Comparison of ROI

ROI by Selected DM Media

25%
22.0%

20% 19.5%

16.0% 16.0%
15%
ROI

9.5%
10%
6.0%
5%

0%
Direct Social Media Email Telephone Display Paid
Mail Ad Search

Source: DMA Response Rate Report, 2015.

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Rewards/Incentives/Sales Promotions

Existing Customers
APPLICATION: OR
New Customers?

Non-Direct Marketing
EXECUTION: OR
Direct Marketing?

Typically accounts for 20% of marketing budgets

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 Rewards/Incentives/Sales Promotions

Overarching Objective: Maximize the desired ‘response’

1. To attract new customers and to induce ‘trial’. New

customers may be:
 Users of another brand in the same category
 Users in different categories
 Non-users
2. To increase sales among existing customers, by:
 Increasing repurchase rates of occasional users
 Trading up to higher value goods within the category
 Cross-selling

3. To reward loyal customers (for past purchases)

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Types of Sales Promotions Relevant to

Direct Marketing
 Price-related incentives
 Free samples/product trials
 Coupons: cash off the purchase of a particular brand
 Premiums or gifts, either unrelated to product or related to
product
 Competitions
 Free prize draws
 Loyalty program rewards
 Product warranties
 Third-party offers: affinity offers
 Finance offers: 0% APR
 Mail-in Rebates
 Mail-in Discounts
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 Potential Problems with
Rewards/Incentives/Promotions

 Rewarding customers for purchase who would

have bought anyways
 Wasting resources on brand-switchers
 Making consumers deal-prone
 Diminishing profit margins for the firm

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Hyundai Motors

 Between 2000 to 2005, Hyundai was the fastest growing car

maker in United States
 In the 2007 J.D. Power's Initial Quality Study, Hyundai was ahead
of Toyota and lagged behind only Lexus and Porsche.
 Hyundai had the best line up of standard features

Hyundai’s new crossover

SUV – Veracruz claimed
to be better than Lexus
and priced $10K cheaper

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 Hyundai Motors (cont.)

 Hyundai’s sales growth flattened in 2005 to 2007 while sales of

Toyota soared in the same period.

 Hyundai conducted an experiment with a representative sample of

200 people who were shown the new Veracruz SUV:
Experiment Intent to purchase %

Without the Hyundai logo 71%

With Hyundai logo 52%

With Toyota logo 92%

 Hyundai’s solution to the problem: BRANDING↑, INCENTIVES↓

(Renewed advertisement initiatives worth $400 million in 2008).
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Important Takeaway:

Recurring sales promotions/incentives can hurt a

brand’s value (or brand equity) in the long term.

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 How Much to Reward?

 In general, greater the incentive, greater the customer

response.
 However, beyond a certain point, the returns will
diminish and the rewards will no longer be cost effective

Calculating the optimum budget to spend on incentives

Example: 10,000 prospects

 Cost of mailing & printing 10,000 flyers : $5000
 Incentive 1: $5 generates a 2% response
 Incentive 2: $10 generates a 3 % response
 Product gross margin : $30
 Should the firm use Incentive 1 or 2?

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Rewarding Example (cont.)

 If Incentive 1 is offered:
Number of customers acquired = 2% * 10,000 = 200
Total cost = $5000 + 200 * 5
= $5000 + $1000 = $6000
Total gross margin = (2% * 10,000) 30 = $6000
Profit = Total gross margin – Cost = $6000 - $6000 = $0

 If Incentive 2 is offered:
Number of customers acquired = 3% * 10,000 = 300
Total cost = $5000 + 300 * 10 = $8000
Total gross margin = 300 * 30 = $9000
Profit = $9000 - $8000 = $1000

 Firm should pick Incentive 2

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 The Economist’s Subscription Options

Selection
Web only $59 16%
Print only $125 0%
Print & Web $125 84%

Selection

Web only $59 68%

Print & Web $125 32%

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The Art of Creative

Communication

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 Left vs Right Brain Thinking
THINKING =

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Left vs Right Brain Communication

Left Brain Comm. Right Brain Comm.

 What are the benefits?  Symbols of beliefs and

visions
 USP’s
 Dramatize
 Keep the message
clear - WIFM  Dreams, desires
 Make it easy to  Aim for an emotional
respond response
 Pictures more
important than words

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 The Drivers of Creative Communications
in Direct Marketing
Strategic
Product Market

Positioning Brand

Creative
Comm.

Tactical

Budget Offer

Media

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Key Components of a DM Communication

 Copy
 Particularly important for supporting functional brands
• Benefits can be outlined in a logical way with no resources to
brand symbolism

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 Key Components of a DM Communication

 Illustrations
 Particularly important for supporting symbolic brands

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Stone's 7-Step Formula

for Good Copywriting

1. Promise your biggest benefit in your headline.

2. In the copy, immediately emphasize your most
important benefit.
3. Tell readers specifically what they are going to get.
4. Back up your statements with proof and
endorsements.
5. Tell readers what they might lose if they don’t act.
6. Rephrase your prominent benefits in your closing
offer.
7. Incite action. Now!

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 END OF DAY 2

www.linkedin.com/in/denishshah/

@denishshah

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