From Customer Knowledge toSegments of One

Can “customized” marketing and sales deliver significantly higher sales at lower costs than conventional approaches?

2 Case Studies

ISBM-HCV-Sess 8 - 1

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Overview

Question: Can “customized” marketing and sales deliver significantly higher sales at lower costs than conventional approaches?

Evidence: Two Fortune 500 B to B test cases

Industrial equipment distributor

Telecom service provider

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There are two tactical marketing approaches competing for future corporate investments

Information Platform:

Background

KEY FEATURES

Customer behaviorsSecondary data (i.e., D&B,

proprietary, subscription)

Customer behaviorsSecondary data Survey data

FeatureElements

Conventional DatabaseMarketing

CustomizedMarketing

Markets: Medium and small businesses All businesses

Target Focus: Homogeneous groups/ segments

Groups/individual customers

Communications Move:

One way Interactive

Channels: All All

Offer Configuration: Product focusedOne message to all or separate

message/group

Solution focusedCustomized message for each

customer

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How does conventional database marketing work?

Step #1 Market manager defines Increase caller ID revenuesobjectives

Background

Step #2 Database marketing appliespattern seeking models to selectand prioritize prospects

Step #3 Marketing defines offer and • General product feature benefitsmessage, then selects channel(s) • Price/benefit

• Mail/telemarketing • Direct response brochure

Step #4 Channel(s) implementation • Scripted telemarketing

Step #5 Campaign results • Response feedback to models

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How does customized marketing work?

Background

Step #1 Market manager uses desktop access to identify and selectopportunity

Step #2 Selection results in prioritized

prospect list and channel

query tools

Step #3 Market manager downloads list

and query tools to channels

Step #4 Channel(s) implementation

Step #5 Campaign results fed back to Real time model adjustments to improvemodels real time and prospect accuracyquery models updated

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PROPRIETARY INFORMATIONNot for use or disclosure outside ISBM except under written agreement 7

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PROPRIETARY INFORMATIONNot for use or disclosure outside ISBM except under written agreement 9

PROPRIETARY INFORMATIONNot for use or disclosure outside ISBM except under written agreement 10

PROPRIETARY INFORMATIONNot for use or disclosure outside ISBM except under written agreement 11

PROPRIETARY INFORMATIONNot for use or disclosure outside ISBM except under written agreement 12

PROPRIETARY INFORMATIONNot for use or disclosure outside ISBM except under written agreement 13

PROPRIETARY INFORMATIONNot for use or disclosure outside ISBM except under written agreement 14

PROPRIETARY INFORMATIONNot for use or disclosure outside ISBM except under written agreement 15

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Integration of Targeting and Relationship Management

Customized Recommendation

Customized Recommendation

“Best Offer” Query Model: Female-owned small business“Best Offer” Query Model: Female-owned small business

Alternative Model

Professional/Social/Personal ServicesOther ________

Work at Home?

Y

Customer Access

Problem?

Have Website?

N

Y

N

Terminate

Y

Call/Caller Priorities?Y

Which Complaints?

Y

Offer DOffer D

N

Offer AOffer A

Terminate

N

Offer DOffer D

Line of Business?

Customer Access

Problem?

N

Caller ID?

Y

Offer AOffer A

N

Y

Offer BOffer B

Offer COffer C

N

Compete with

personalized service?

•Can’t Find You

• Busy Signal•Frustrating Voice-Mail•Put on Hold Too Long•Other

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CASE STUDIES

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Case Study #1: Company Background

Case Study #1: Company Background

Type of Business: Distributor of industrial equipment

Size: $4 billion/year, 1.5 million customers

Geographic Scope: U.S.

Channels Used: Direct salesDirect mailCall centersInternetWalk-in branches

Customer Base: Large to small businesses

Database Resources:• Data warehouse• Customer records include SIC, number of employees,

number of locations, sales revenues, purchase history

Primary Targeting Method (prior to 1997)• Customers: recency, frequency and volume• Prospects: underpenetration models using SIC and size

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Marketing Problem

Small business customer revenue growth flat after several years of double digit growth

Research and competitive intelligence suggest spending in small business market growing

Response rates and revenue yields on most legacy marketing initiatives flat

Suspect: database marketing model performance peaked

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Remedial Action

Conduct research to identify customer needs Product category Procurement/planning Service Delivery

Segment customers on needs patterns

Assign all customers to segments

Integrate into customer and prospect data records

Proposed application: Add needs to targeting algorithms Use targeted needs in MARCOM collateral Test impact of needs integration versus existing targeting models

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Sample Customer Records

Jack Hammer Construction321 Main StreetMilwaukee, WI 10872613-772-0172

Bill Jones: Supply ManagerSIC: ConstructionSize: 20+ employeesRecency: 5 (moderate)Frequency: 2 (light)Volume: 8 (high)Needs:

B2 (Efficiency)S4 (Product Choice)S8 (Delivery Choice)Bu6 (Easy Return)

Jack Hammer Construction321 Main StreetMilwaukee, WI 10872613-772-0172

Bill Jones: Supply ManagerSIC: ConstructionSize: 20+ employeesRecency: 5 (moderate)Frequency: 2 (light)Volume: 8 (high)Needs:

B2 (Efficiency)S4 (Product Choice)S8 (Delivery Choice)Bu6 (Easy Return)

B&G Construction 1001 Center StreetSan Ramon, CA 40782415-693-7720

Humphrey Smyth: ProcurementSIC: ConstructionSize: 20+ employeesRecency: 5 (moderate)Frequency: 2 (light)Volume: 8 (high)Needs:

B1 (Price Sensitive)S2 (Volume Discounts)S5 (Generic Products)Bu9 (Payment Options)

B&G Construction 1001 Center StreetSan Ramon, CA 40782415-693-7720

Humphrey Smyth: ProcurementSIC: ConstructionSize: 20+ employeesRecency: 5 (moderate)Frequency: 2 (light)Volume: 8 (high)Needs:

B1 (Price Sensitive)S2 (Volume Discounts)S5 (Generic Products)Bu9 (Payment Options)

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Test methodology

Test Methodology

Campaign selection criteria: Multiple campaigns Legacy campaigns

Channel selection criteria: Legacy Prevalent

Test basis: Conventional database marketing (control) Integrated database marketing (test)

Success measures: Response rates Revenue/account Cost/account

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Campaign

A. Direct Mail promotion offering discounts on discontinued items

B. Direct response campaign using vertical line catalog and no discounts

Acquire

Cross-sell

C. Direct response vertical product promotion with discount

Grow value

Acquire

Upsell

Test Campaign

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Results

Results

Response Rate Revenue Yield CostResponse Rate Revenue Yield Cost

Campaigns Control Test Change Control Test Change Control Test ChangeCampaigns Control Test Change Control Test Change Control Test Change

A .05% .85 +1600% $110/Acct $210/Acct +91% $61/Acct $43/Acct -29%A .05% .85 +1600% $110/Acct $210/Acct +91% $61/Acct $43/Acct -29%

B

Acquire 6.5% 9.9 +52% $6/Acct $10/Acct +67% $3.30/Acct $2.50/Acct -24%

Gross-sell 4.3% 5.1 +19% $3.50/Acct $5/Acct +43% $1.90/Acct $1.35/Acct -29%

B

Acquire 6.5% 9.9 +52% $6/Acct $10/Acct +67% $3.30/Acct $2.50/Acct -24%

Gross-sell 4.3% 5.1 +19% $3.50/Acct $5/Acct +43% $1.90/Acct $1.35/Acct -29%

C

Grow value NA NA NA $26.60/Acct $31.10/Acct +17% $14.63/Acct $10.83/Acct -26%

Acquire NA NA NA $13.60/Acct $15/Acct +10% $7.48/Acct $5.39/Acct -28%

Upsell NA NA NA $3.18/Acct $4.38/Acct +38% $1.75/Acct $1.28/Acct -27%

C

Grow value NA NA NA $26.60/Acct $31.10/Acct +17% $14.63/Acct $10.83/Acct -26%

Acquire NA NA NA $13.60/Acct $15/Acct +10% $7.48/Acct $5.39/Acct -28%

Upsell NA NA NA $3.18/Acct $4.38/Acct +38% $1.75/Acct $1.28/Acct -27%

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Implications

Implications

Small business market management expects integrated database marketing to add $100 million/yr in revenue and…

About $200 million in margin

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Company ProfileCase Study #2: company Profile

Type of Business: Telecommunications service provider

Size: $30 billion/year, 1-2 million business customers

Geographic Scope: U.S.

Channels Used: Direct salesDirect mailCall centersInternetWalk-in centers

Customer Base: Large to small businesses

Database Resources:• Data warehouse• Customer records include purchase, usage history, SIC,

number of employees, number of locations

Primary Targeting Method (prior to 1996)• Market manager judgment• Historical campaign performance• Underpenetration models

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Marketing Problem

Marketing Problem

Business revenue growth flat at 5%/yr

Response rates and revenue yields on most marketing initiatives flat or declining

Competitors taking increasing share in formerly monopoly market

Objective: improve campaign response and revenue rates

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Remedial Action

Remedial Actions

Conduct research to identify needs and emerging business problems Business needs Communications needs Product category needs (voice, data, and Internet) Business communications problems

Segment customers on needs and problems

Assign all business customers to segments

Integrate needs and problems into marketing database

Proposed application: Use needs, purchase propensities and historic behavior to systematically

identify opportunity and prioritize targets Use needs and problems in targeted MARCOM collateral Test methodology, refine process and rollout

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Test Campaigns

Campaigns

A. Telephone prequalification, direct sales campaign to winback customers who switched to competition in top sales region

B. Telephone prequalification, direct sales campaign to sell “data solutions” -- a mix of data services to solve customer problems

C. Call center campaign to sell additional telephone line(s) to one line customers

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Test Methodology

Remedial Actions

Campaign selection criteria: Multiple campaigns Attack existing threats/problems

Channel selection criteria: Use direct sales Use call center

Test basis: Conventional database marketing approach (control) Integrated database marketing (test)

Success measures: Lead rates Cost rates Sales rates

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Results

Results

A 3.8% 5.4% +42% 26% 41% +58% $222 $497 +124%A 3.8% 5.4% +42% 26% 41% +58% $222 $497 +124%

Sales Rate Close Rate Revenue/Sale(Sales/Contact) (Sales/Lead)

Sales Rate Close Rate Revenue/Sale(Sales/Contact) (Sales/Lead)

Campaigns Control Test Change Control Test Change Control Test ChangeCampaigns Control Test Change Control Test Change Control Test Change

B 2.1% 4.2% +100% $71 $44 -38% NA NAB 2.1% 4.2% +100% $71 $44 -38% NA NA

Hot Lead Rate Cost/Lead Revenue/Sale(Leads/Contact)Hot Lead Rate Cost/Lead Revenue/Sale

(Leads/Contact)

Campaigns Control Test Change Control Test Change Control TestCampaigns Control Test Change Control Test Change Control Test

C 1,705 2,015 18% $341,000 $403,000 18%C 1,705 2,015 18% $341,000 $403,000 18%

Number of RevenueLines SoldNumber of RevenueLines Sold

Campaigns Control Test Change Control Test ChangeCampaigns Control Test Change Control Test Change

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Implications

Integrated database targeting methods produce significant improvements in:

Sales rates

Close rates

Lead rates

Revenue

Costs

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Summary

Database targeting methods that incorporate needs into target selection models produce significantly better results than conventional techniques that rely on customer and secondary data only

Needs can be identified for individual customers with sufficient reliability to produce demonstrable impacts

Pilot studies are key to proving value: investment NOT an expense!

Key Points