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MARK2038 Data Base Marketing Strategies II. Week 1 Instructor: Santo Ligotti Email: Today’s Agenda. Introductions Housekeeping Course outline, evaluation Lecture Direct & Database Marketing-Review List Management Handout Assignment #1.

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MARK2038 Data Base Marketing Strategies II

Week 1

Instructor: Santo Ligotti


today s agenda
Today’s Agenda
  • Introductions
  • Housekeeping
    • Course outline, evaluation
  • Lecture
    • Direct & Database Marketing-Review
    • List Management
    • Handout Assignment #1

Learning Objectives

  • To review what direct marketing is and how it differs from mass marketing;
  • To understand its importance in contemporary marketing.
this week
This week
  • DM review
  • Compare DM to advertising
  • DM agencies, suppliers and associations
  • Review customer segmentation, targeting, positioning
  • Assignment 1 handout
direct marketing
Direct Marketing
  • “Any direct communication to a consumer or business recipient, that is designed to generate a response in the form of an order (direct order), a request for further information (lead generation), and/or a visit to a store or other place of business for purchase of a specific product(s) or service(s) (traffic generation).”

The Direct Marketing Association (DMA)

alternate definition stone


with customers

use of


Alternate Definition (Stone)

The interactive use of advertising media, to stimulate an immediate behaviour that can be tracked, recorded, analyzed and stored on a database for future retrieval and use.

stored on a




in other words


In Other Words…
  • The purpose of direct marketing is to communicate with customers in a way that elicits response, which ultimately adds to…
direct marketing1



use of






with customers

stored on a


Direct Marketing




database marketing
Database Marketing
  • Database Marketing:the discipline of continuously aggregating, interpreting, analyzing, and applying information about customers and prospects to achieve business objectives.
          • OR
  • Direct marketing is a way of acquiring and keeping customers by providing a framework for three activities:
    • analysis of individual customer information
    • strategy formation
    • implementation such that customers respond directly
  • In this course, the terms “direct marketing” and “database marketing” are interchangeable
it began with mass marketing
It began with Mass Marketing...

Mass Marketing: A method of reaching millions of people to tell them about available products and services.

  • predominated from 1950 to 1980
  • growth of television created mass audiences for national advertising
  • mass marketing makes mass production possible: lower prices, improved quality, higher disposable incomes
  • mass marketing losing effectiveness for some products
    • most people have the basics
    • media fragmentation
database marketing enables a 2 way dialogue with one consumer
Database marketing enables a 2-way dialogue with one consumer

Database Marketing

Mass Marketing

Targeting to ‘One’

Targeting to Many


key differences mass vs direct marketing

Directed at many via mass media

Generic communications

Highly visible to competition

In general, no clear action communicated: designed to drive awareness, change attitudes, behaviour

Effectiveness tough to measure

“Noise” reduces effectiveness


Targeted to individual, valuable customers via direct marketing

Customized communications

Less visible to the competition

Clear ‘call-to-action’ requested

Results are measurable

Almost “noise-free”

Key Differences - Mass vs. Direct Marketing

Do you think mass marketing will eventually “cease to exist”?

key differences mass vs direct marketing1
Key Differences - Mass vs. Direct Marketing
  • Mass marketing
    • build a brand and advertise it
    • distribution to retail
    • customer initiates buying
  • Direct marketing
    • get to know customer because you start recording your transactions with them
    • maybe distribute direct
    • company initiates contact
why use database marketing
Why use Database Marketing?

Five typical applications:

  • Use profiles to find more loyal and responsive prospects
  • Increase customer retention rate, or repurchase rate
  • Increase referrals
  • Increase cross-selling and up-selling
  • Decrease marketing costs
questions that dbm can answer
Questions that DBM can answer:
  • Which customers are profitable now?
  • Which customers could be more profitable over time?
  • Why are my customers leaving?
  • What channels do customers prefer to buy through?
  • How do I know when and what products to up-sell / cross-sell?
three levels of direct marketing
Three levels of Direct Marketing
  • Direct marketing drives the business: “stand alone”
    • E.g. ING DIRECT, BELAIRdirect
  • Direct marketing drives part or all of the marketing strategy: integrated
    • E.g. traditional banks
  • Direct marketing is used within the communications mix
    • Peripheral
    • E.g. mailing lists of small retailers
three levels of direct marketing1
Three levels of Direct Marketing


1. ‘Stand alone’

2. Integrated



3. ‘Peripheral

reasons for growth
Reasons for Growth
  • More demanding, time-poor consumers
    • women make up higher % of workforce
    • less time to spend on purchase decisions: DM is personal and targeted so saves time
  • Decline in brand loyalty
    • excessive price reductions, increasing retailer power, brand proliferation
    • with DM, identify best customers and reward loyalty
reasons for growth cont
Reasons for Growth cont.
  • Proliferation of media
    • media fragmentation makes it difficult to reach customers by traditional media
    • growth opportunities for DM because a cost effective means of reaching customers
  • Demand for accountability
    • often easier to measure effectiveness of DM tactics vs. traditional mass marketing tactics
  • Changing technology
    • continuing drop in computer processing costs
    • Internet
core concepts of direct marketing
Core Concepts of Direct Marketing
  • Customer-based, not product-based
  • Individualized: High Customer Involvement
  • Targeted vs. wide reaching
  • Attract Relationship Buyers, Detract Transaction Buyers
  • Focus on Retention vs. Acquisition
  • Focus: Share of ‘Customer’ or ‘Wallet’ vs. Share of ‘Market’
  • Measurability: Test & Learn Approach
  • Information-intensive
  • Long-term oriented
industries that have adopted dm
Industries that have adopted DM
  • Telecommunications / Technology
  • Financial services
  • Automotive
  • Retail
  • Publishing
  • Travel & entertainment
  • Non profit / charities
  • Consumer packaged goods
  • Pharmaceutical

Can you think of some examples from each industry?

what job opportunities exist
What job opportunities exist?
  • Direct Response Ad Agencies
  • Account Executives, Copywriters, Media Planners & Buyers
  • List Brokers, List Compilers
  • Telemarketing , Internet
  • Account Executives, Script Writers, Centre Managers, Trainers
  • Printers
  • Fulfillment
  • Hardware, Software vendors
  • Financial Services Companies including banks, and insurance organizations
  • Retail Services Industries (bricks and mortar stores, on-line stores)
  • Data Analyst Roles
  • Strategy Development
  • Database Management
relationship marketing
Relationship Marketing

Relationship marketing uses customer databases

to record individual characteristics and preferences.

Targets individual customers according to

their specific needs, and building customer loyalty.

Marketers find or create products and experiences tailored

to delight individual customers (rather than the opposite).

relationship marketing1
Relationship Marketing
  • It is the core business strategy that integrates internal processes and functions and external networks to create and deliver value to targeted customers at a profit. It is grounded on high-quality customer data and enabled by information technology
          • F.Buttle, “Customer Relationship Management
the 3 dm variables creative
The 3 DM Variables: Creative
  • Creative: the “packaging” of the offer in terms of:
      • Copy
      • Layout (design)
      • Theme
the 3 dm variables media
The 3 DM Variables: Media

Direct-response mediainclude:

  • Direct mail
  • Telemarketing
  • Print
  • Broadcast
  • Digital media

Some are affinity channels, some are not.

the 3 dm variables offer
The 3 DM Variables: Offer

Offer: the promise of the transaction, communicating the benefits of purchase in terms of:

  • The product or service itself
  • Price
  • Payment terms
  • Guarantee
  • Incentives








Corporate/ BU



Situation Analysis

Competitive Strategy


Target markets

Marketing mix




Where, when and how promotional expenditures will be made

Customer insight






Programs (strategic)



Campaign A

Campaign B

Campaign C

recall setting direct marketing strategy
RECALL: Setting Direct Marketing Strategy


  • What are you trying to achieve?


  • How are you are going to achieve your objectives?
  • Are generally broad statements about the approach you are going to take to your business
  • Strategies provide direction – a set of guidelines which guide your actions


  • Individual campaigns / programs intended to implement the strategy
typical marketing strategies
Create new profit centers

Launch new products

Maximize after-market sales

Lead generation

Drive retail traffic

Develop niche markets

Typical Marketing Strategies
marketing plan
Marketing Plan

Marketing Plan:A document that communicates marketing objectives, activities and resources.

purpose of a marketing plan
Purpose of a marketing plan
  • Sets objectives for sales, profit, market share, new customers, timelines
  • Outlines the target segments and consumer behaviour
  • Specifies the competition and other environmental variables
  • Product, pricing, promotion, distribution
  • Specifies the measurement activities
  • Provides a formal review process
marketing plan elements
Marketing Plan Elements

1. Introduction

2. Executive Summary

3. Situation Analysis (SWOT)

  • Market environment
  • Competitive situation
  • Target group analysis (segmentation)
  • Distribution channels
  • Product situation
  • Research
marketing plan elements cont d
Marketing Plan Elements (cont’d)
  • Opportunity and Issue Analysis
  • Objectives
  • Marketing Strategy
    • IMC strategies
    • Creative brief
    • Technology strategy (data brief)
  • Campaigns (tactics)
  • Metrics
  • Budget

A Segment is:

  • A group of customers or prospects with similar characteristics that you have identified for marketing purposes.

Segmentation is:

  • The process of dividing larger customer groups into profile groups (or segments) based on one or more meaningful characteristics for targeted marketing purposes.
  • Direct your marketing dollars to where they will do the most good.


  • Group customers that respond similarly to various marketing treatments.
  • Establish & refine segments as ongoing points of reference in your business.
  • Segments must be profitable to serve.
segmentation methods
Segmentation Methods
  • Geographic
  • Demographic
  • Geo-demographic
  • Psychographic
  • Attitudinal
  • Behavioural
  • …or some combination of the above
segmentation data types
Segmentation: Data Types

Purchase behaviour data

  • Segment by customer value (LTV)
  • Segment by customer need

Profile data

  • Target existing customers – identify those most likely to respond (ROI-driven marketing)
  • Target new customers more accurately


segmentation data types1
Segmentation: Data Types
  • Segmentation is based on 2 main types of data
    • Behavioural (purchase) data-such as what banks and retailers like Shoppers Drug Mart do (OPTIMUM CARD)
    • Profile data (consumer characteristics)-DEMOGRAPHICS or PSYCHOGRAPHICS (Lifestyle attributes)


segmentation applications techniques in direct marketing
Segmentation Applications & Techniques in Direct Marketing

Principles of Direct and Database Marketing, 3rd Ed., Alan Tapp, pg 58.

discovering opportunities
Discovering opportunities

Data Mining

  • is the process of using statistical analysis to detect relevant patterns and trends in purchasing behavior in a database
  • requires task-appropriate software to sift through massive quantities of data
  • helps transform data into marketing information, e.g.:
    • develop models that predict future purchase behavior based on past purchases
      • determine response to marketing programs
      • help forecast sales
    • allows for creation of customer profiles
some commonly used statistical procedures and software for dm
Some Commonly Used Statistical Procedures and Software for DM
  • Statistical Procedures
    • Regression Analysis
    • Cluster Analysis
    • Discriminant Analysis
    • Factor Analysis
    • CHAID (Chi-square automatic interaction detection)
segmentation applications
Segmentation Applications

Segment by customer value

  • Not all customers are created equal - most sales are to a minority of customers
  • PARETO Principle: For most companies the 80/20 rule applies: 20% of customers account for 80% of profits
  • Goal : increase profitability by identifying and focusing on that 20% of customers
  • How much are your customers worth today, their lifetime value (present value of future profits), or their potential value (future growth) given growth


segmentation applications ltv
Segmentation Applications: LTV

Lifetime Value (LTV)

  • Calculate how much profit each customer is likely to be worth to the company
    • Focus marketing strategy
    • Determine allowable marketing spend
  • What it really means is that throughout the time that a customer spends with you, they will generate revenue for you
  • That revenue generated over those years is essentially their lifetime value
  • You can determine, what the value of that customer is today, given how long they will stay, this is all you need to understand about LTV


customer value dictates strategy
Customer Value Dictates Strategy
  • Best Customers (MVCs)
  • 20% of Customers
  • 80% of Revenue

Objective: Retain

Spend Service Dollars Here


Objective: Grow

Spend Marketing Dollars Here

Best hope

for new GOLD customers

Move up

Objective: Drop or make Profitable

Reprice, move up, lose

  • Worst Customers
  • 50% of Customers
  • 1% of Total Revenue


Source: Strategic Database Marketing, A. Hughes

segmentation applications1
Segmentation Applications

Segment by customer need

  • Quite common in marketing to segment by customer need
  • Helps to understand the benefits obtained by different sets of consumers from the same product
  • How:
    • Market Research
    • In house information from your warehouse
    • External psychographic or demographic information (PSYTE)


customer profiling
Customer Profiling

Customer profiles

  • a way of identifying possible new prospects for your company
  • Divide customer base into segments with similar attributes: purchase behaviour, demographics, lifestyle
  • Works on the principle that our best prospects are like our existing customers


customer profiling1
Customer Profiling

Various ways to create customer profiles, e.g.:

  • Demographics
  • Cluster Analysis


customer profiling demographics
Customer Profiling: Demographics

What are Demographics?

  • Facts about people that describe who they are and that we can determine, measure and record
  • e.g. - income, age, presence of children, housing, sex, marital status type of car, occupation etc.


  • Surveys - ask questions on satisfaction surveys, application forms, contests etc.
  • Applicant data - banks, insurance, credit card companies
customer profiling cluster analysis
Customer Profiling: Cluster Analysis
  • Data is searched to find natural groupings, the members of each group having more in common with each other than they do with members of other groups e.g.:
    • parents of babies
    • sports enthusiasts
    • people who read: fiction vs. biographies
  • Software suggests additional purchases that would likely appeal to a customer based on what others in the segment have bought
customer profiling cluster analysis1
Customer Profiling: Cluster Analysis

Applications - e.g.:

  • Bank - have teller display screens suggest “next product”
  • Department store - identify households that buy cribs and strollers and target them for baby clothes and infant toys
  • Start thinking about relationships that might not be obvious - e.g., a U.S. company that sells wine direct discovered:
    • Champagne buyers are more likely to add glassware, chocolates or gift items to their order
    • Red wine buyers more likely to take advantage of full case discounts
    • Buyers of California wine are more likely to add other California wines to their order
major industry roles
Major Industry Roles





  • Brand/Category Management
  • Regional Management
  • Segment Management
  • Global Management
  • Account Executives/ Supervisors/ Directors
  • Creative Services/ Copywriters/ Art Directors
  • Research Services
  • Production
  • Media Planners/ Buyers/ Supervisors
  • Media
  • Media measurement
  • List houses
  • Fulfillment houses
  • Technology vendors/integrators
  • Data Processing services
review of key terms
Review of Key Terms

Direct marketing:

  • The interactive use of media to stimulate customer response that can be measured and stored using database technology.

Relationship (1-to-1) marketing:

  • Marketing messages specifically tailored for individual customers based on information about their preferences and purchases contained in an individual’s database record.
review of key terms cont d
Review of Key Terms (cont’d)


  • Net present value of all future profits to be realized on the average new customer during a given number of years.

Lead generation:

  • Direct marketing activity designed to invite inquiries for sales follow-up.
review of key terms cont d1
Review of Key Terms (cont’d)

Direct mail:

  • a direct marketing medium

Direct-response advertising:

  • The use of traditional advertising media as a carrier vehicle for a direct marketing message.
true false
  • Database technology allows marketers to create a different marketing mix for each target segment. (T/F)
true false1
  • Sustainable competitive advantage comes from making products or services that are very similar to those sold by competitors. (T/F)
true false2
  • Alternative direct marketing plans are best evaluated by the amount of sales volume they are expected to generate. (T/F)
true false3
  • Marketers should take advantage of all opportunities they see in the marketplace. (T/F)
true false4
  • Given that a marketing plan consists of forecasts and estimates, management will never really know if a plan is successful even well after it has been executed. (T/F)
multiple choice
Multiple Choice

Marketing objectives are usually classified in terms of:

  • Timelines
  • Market share
  • Financial targets
  • All of the above.
it all starts with the list
It all starts with the list
  • A listis a collection of names and addresses used by direct marketers to target offers.
  • The list determines:
    • WHO will ultimately receive your message
    • The total number of interactions possible for the campaign
    • The total projected revenue from the campaign
list types and sources










List Types and Sources







house lists
House Lists
  • House List: an internal list compiled from internal customer records.
    • Can contain purchase data and purchase patterns
    • A valuable asset
    • House lists can be “bartered” (traded) with strategic partners
house list sources
House List Sources
  • accounting records
  • shipping records
  • records of inquiries
  • warranty cards
  • survey research results
response lists
Response Lists
  • Response List: an external list made up of individuals who have already exhibited a type of interaction desired by the firm.
  • = “Another firm’s house list”
  • Examples:
    • Buyer lists
    • Attendee/Membership/Seminar Lists
    • Subscription lists
    • Donor lists
compiled lists
Compiled Lists
  • Compiled List: an external list that includes records without any previous indication of willingness to respond, but with some defined characteristics.
  • Examples:
    • Consumer compiled list
    • Consumer lifestyle-enhanced list
    • Business compiled list (directories)
example infousa
Example: InfoUSA
  • BusinessUSA: 14 million businesses
  • HouseholdsUSA: 200 million households
  • Physicians & Surgeons: 732,000 physicians
  • Big Businesses: 218,000 top firms
  • Manufacturers: 612,000 manufacturers
  • Small Business Owners: 4.5 million


  • If you were purchasing a single response list for an upcoming direct mail campaign, which one would you choose?
    • List A: bought a similar product
    • List B: bought within the category
    • List C: bought something by mail

bought an identical product by mail

bought a similar product by mail

inquired about your product

bought within the category

bought something by mail

any other action by mail

affinity another perspective
Affinity – Another Perspective

Most Effective

  • Active Customers
  • (bought in last x months)
  • Inactive Customers
  • (bought in > x months)
  • Former Customers
  • Select Prospects
  • (high propensity to buy)
  • Other Prospects


Least Effective

case study caa
Case Study – CAA
  • In your new job as a direct marketer at the CAA, you are responsible for building membership.
  • What are some potential list sources?
list management
List Management
  • The role of list managers
  • Selection criteria
  • Seeding
  • Data hygiene
list management roles
List Management Roles
  • List renter:the list “buyer”
  • List compiler: the company or person who compiles the list
  • List broker:an intermediary who:
    • Maintains list hygiene and suppression
    • Provides recommendations, discounts, etc.
    • Typically paid on a commission basis
selection criteria
When was the list last updated?

How deliverable is the list? (hygiene)

What selections are available, and at what cost?

What is the source of the list?

Is the list owner a member of the CDMA?

What is the rollout potential of the list compared to rollout fees?

Size and turnover

Selection Criteria
selection criteria costs
Selection Criteria - Costs
  • “Premium” lists contain:
    • Recently verified contacts (30-90 days)
    • Proven mail-order buyers
    • Contacts with highly detailed profiles
    • Hard-to-find customer data
  • “Bargain” lists contain:
    • Unconfirmed contacts
    • Inquired instead of purchased
    • Names/addresses only
  • Seeding: a common practice by list compilers/brokers of adding disguised names and addresses to monitor list usage.
data hygiene
Data Hygiene
  • Data hygiene: business processes that maintain the usability of customer data.
  • Reasons:
    • Non-standard/missing address data
    • Incorrect Name
    • Titles, Gender
    • Duplication
    • Inappropriate
    • Gone away, died
demonstration infousa
Demonstration - InfoUSA
  • Use the InfoUSA web site to investigate how many small retail stores could be targeted in the Manhattan area.
  • Selections:
    • Under 20 employees
    • “Excellent” or “Very Good” credit rating
    • Toronto-GTA area (area code 416,905,647)
Homework …
  • Sign up for an industry e-newsletter
    • Peppers & Rogers Consulting
    • Direct Marketing News
    • CRM Community
  • Determine group for Group Project
  • Start working on Assignment 1
  • Reading
    • Today covered Chapter 1, 2 and 3 in TAPP textbook
    • Next week: Chapters 10, 11, and 12 in TAPP textbook, Stone pp. 37-44
    • READ the DMN Article handed out in class; “Is it Possible to change public perception of direct marketers as junk mailers, if so how?”. Be prepared to discuss in class next week: