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Direct Marketing and the Internet

Week 8

Fall 2007

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A Simple ComparisonFour Distinctions

Mass marketing Direct marketing

Product standard custom

Media broad, one-way narrow, interactive

Target segment individual

Focus transaction relationship

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Strategic Customer Aspects

Managing customer equity = net lifetime value of a consumer

» Dialogue– Promotions as response devices to elicit individual information.

» Develop loyalty programs (frequent shopper programs)

» Use of cross promotions.– Amazon recommendations.

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Cost Aspects Reichheld, F. (1996) The Loyalty Effect, HBS, Boston.

Cost Implications: cost of acquisition v. cost of retention» Acquiring new customers is more costly than retaining current

customers.

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The Loyalty Effect

HOMEWORK: CONDUCT CONSUMER LIFECYCLE ANALYSIS FOR C&C FOR A 5 YEAR CUSTOMER LIFE

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Competitive Aspects

Database Technology & Customized marketing strategy» Example from (Iyer and Soberman 2000)» http://groups.haas.berkeley.edu/marketing/PAPERS/IYER/prodmod.pdf

ICOM’s has a relational database that incorporates household level information on demographics, activities, preferences and importantly brand consumption.

» Consumer Data Base with 20 million households (loyalty/usage data)

Use of ICOM’s database in the OTC pain relief category

» Motrin and Advil are direct competitors in the OTC pain relief market and share the same active ingredient (i.e., ibuprofen).

» Analysis of ICOM's database revealed that Advil's usage was relatively high among headache sufferers. In contrast, Motrin usage was higher among sufferers of backache.

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Database technology and customized marketing strategy

Retention-Type Information» Using information from ICOM's database, J & J developed a

communications and promotions program targeted at the frequent sufferers of backaches.

» This adds-value to consumers who are loyal to Motrin.

Conquesting-Type Information» J&J could also increase its appeal to the loyal consumers of Advil

by communicating its efficacy for headaches.

» This adds-value for Motrin among the loyal consumers of Advil.

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Internet and Direct Marketing

Large scale interactivity (3 characteristics):

1. Firms can interact with a large number of customers on a one-to-one basis at a low cost.

2. Consumers can interact with firms.

3. Consumers can interact with each other.

What does the Internet add to Direct Marketing?» Customization + Interactivity

This leads to the concept of consumers being co-creators of products.

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NIKEiD: Product customization

Dedicated whole division to this ($250mm commitment…expected to lose money initially as operations expand).

Why is Nike doing this?

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Lands’ End customization

Comment Customization and consumer behavior

» Can there be over-provision of variety?

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Customized Marketing is:

Consumer centric through

1. Building long-term relationships with consumers based on their individual needs.

2. Customizing interactions between companies and individual consumers

Maximize the value of the lifetime relationship.

[My advice is..] Stop being a company with its face towards the CEO and ass towards the customer”

Jack Welch, CEO, G.E.

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Analysis Framework

Market

Customer AnalysisCompetitor Analysis

Company AnalysisMarketing Myopia

Marketing Strategy

Product

Price

Promotion

Place

Marketing Orientation

Perceptual mapping

Segmentation Positioning

First mover advantages

Branding

Pricing processPricing and innovation

Going to marketGoodyear

Direct marketing