Customer Relationship Management

A Databased Approach

V. Kumar

Werner J. Reinartz

Instructor’s Presentation Slides

Chapter 11

Campaign Management

Topics Discussed

• Campaign Management Process

• Campaign Planning and Development

• Campaign Execution

• Analysis & Control

• Campaign Feedback

Campaign

• A series of interconnected promotional efforts designed to achieve precise marketing goals

• Composed of one or more promotions, each of which is an initiative or a device designed to attract the customers’ interest

• Aimed at prospects or existing customers

• Usually undertaken within a defined timeframe

Campaign Management Stages• Planning:

– Strategic process by which decisions are taken

– Definition of the purposes and objectives of the campaign

• Development:

– Tactical process that takes care of creating the offer, choosing the

creating support and design, choosing the media and selecting the

customer names

• Execution:

– Operational process of running the campaign in the media chosen and controlling all related aspects

• Analysis:

– Evaluation process of the campaign results in light of the original objectives

Campaign Management Process

Setting objectives & Strategies

Identifying customer segments

Developing commu- nication strategy

Developing the offer

Campaign Budget

Testing

Implementation & Coordination

Measuring campaign results

Monitoring & fine-tuning

Response Analysis

ProfileAnalysis

Campaign Management

Campaign Planning & Development

Campaign Execution

Analysis & Control

Campaign Planning and Development

• Setting objectives and strategies

– Categories:

• Market penetration (increase usage or market share)

• Market extension (find new user groups or enter new segments)

• Product development (new products or services)

• Diversification (find new markets and products, discover new strategies)

– Examination of different marketing strategies in place:

• Product strategy

• Pricing strategy

• Distribution strategy

• Promotion strategy

Defining the Campaign Strategy

• Who to target?

– Retention strategy: focusing on existing customers

– Acquisition strategy: concentrating on getting new customers

– Mixed strategy between retention-acquisition: targeting existing and new customers at the same time

– Ideally the company should target its most profitable customers (often done through LTV and/or RFM analysis)

Retention Strategy

• Develop loyalty from the existing customers, via a

strong relationship or via superior quality or service

• Develop tailor made products for the needs of existing customer profiles

• Sell additional products to existing customers (cross-selling)

• Sell a superior product (with more features or additional services) to customers who already use similar products (up-selling)

• Merchandise different brands from different categories to the same customer (cross-merchandising)

Customer Acquisition Strategy

• If company wants to sell the same product to new customers: target “prospects” based on the profile and behavior model of existing customers

• If company wants to offer different products to new customers: develop new markets

Customer Retention and Acquisition Strategies

Allocate resources between existing and new customers

Retention Strategy: Keep existing customers

Market decisions:

-Segment your customers by

lifetime value-Retain your best customers-Develop one-to-one marketing

Product/Service decisions:-Develop relationship marketing-Retain your clients with superior

quality service-Develop tailor-made products-Cross-sell and up-sell-Cross-merchandise

Acquisition Strategy: Attract new customers

Market decisions:-Target the customers based on

the model of existing customers

-Develop new markets

Product decisions:-Highlight your price/ product offer-Have a clear positioning on the

market-Develop attractive branding-Give incentives to add initial

value to the new customer

Identifying Customer Segments

• Customer segments: Homogenous groups of individuals that have similar tastes, want and needs with respect to the company’s products or services

• Groups: Existing customers, prospects and defectors

• Identification by:

– Purchase behavior

• Recorded in the CRM database

• Allows the marketer to segment by product need and by Life Time Value

– Profile data

• Relate the individual customer to his or her response to past campaigns

• Allows implementation of a ROI-driven marketing

• Identifies tastes, needs and preferences of customer

• Can be used to target new customers accurately

Developing the Communication Strategy

• Marketing communications (marcom): Targeted interactions between company and its customers and prospects, using one or more media

• Can use a single approach (e.g. a direct mail) or combine several approaches (e.g. direct mail with advertising in television, radio and newspapers)

• Integrated marketing communications (IMC): management and organization of all marketing communication tools (media, messages, promotions and channels)

• CRM database system: stores information about customer and prospect preferences, allows firm to focus marketing activities toward specific targets - effective use of IMC

Communication Strategies

Strategy Description

Generic strategy No distinction between brands. Emphasis on category need rather than brand awareness (example: Promotions for a product category)

Pre-emptive strategy A generic claim is made about the superiority of the company’s brand

Unique selling proposition (USP)

Emphasizes superiority of the brand based on a unique feature or benefit.

Brand image strategy Relies on development of mental or psychological associations through the use of signs, symbols and images.

Resonance Strategy Attempts to recall events or feelings by evoking meanings, experiences, thoughts or aspirations that are relevant to target audiences

Affective or emotional strategy

Attempts to invoke involvement and emotion, with a powerful message.

Informational strategy

Based on the view that an important element of the creative theme is to convey info

Push Promotional strategy

Focus a promotional effort in manufacturers of goods and services to encourage the trade channel members to stock, promote and sell its products

Pull promotional strategy

Focus in encouraging end customers and consumers to demand goods and services

Communication Strategies (contd.)Positioning strategies

Positioning by attribute, product characteristic or consumer benefit

Brand is perceived to be better than others in features emphasized by Marketing communications

Positioning by price/quality Positioning can be sought in high price/high quality, prestige positions, low price/acceptable quality positions

Positioning by use or application

Segmentation and targeting can be carried out based on usage occasion

Positioning by product user Focuses on the requirements of target customers and consumers

Positioning with respect to product category

Rather than competing with another brand, a brand or product category might be positioned against another product category. The competitive focus is placed on substitutes

Positioning against a competitor

Brands promoted with understanding of relative competitive position for the target audience

Cultural positioning Positioning by cultural reference, where the brand is clearly associated with a particular culture, country, religion, ethnic group or sense of heritage or tradition

Source: “Pickton David, Broderick Amanda, “Integrated Marketing Communications”, Financial Times/Prentice-Hall, 2001

Retention and Acquisition Media

Direct Mail: Mailings:

- Single-product - Multi-product - Miscellaneous

- - Birthday cards- Thank-you notes- Invitations

Enclosures:- Statements- Parcels

Telemarketing:- Outbound- Inbound

Catalogues

Newspapers / bulletins

TV: - Direct response TV (DRTV) - TV spots

- Home shopping channels- Digital TV

Radio: - Direct response radio (DRR)- Radio spots

Telemarketing:- Outbound- Inbound

Print Media :- Press / newspapers- Magazines- Insert

Direct mail :- Mailings- Inserts

InternetExhibitions / field marketing

Retention Media Acquisition Media

Minicase: Pro-Mark- Example of Media-mix for an Acquisition and Retention Strategy

• $10-million drumstick maker in Houston; developed database with info. on

end-users by pursuing print media strategy in different specialized magazines

• Advertising/marketing campaign strategies:

– Recruiting test-marketers: • Ad offering free product samples in return for customer feedback

• Respondents' names entered into a database, each received a catalog with sample

• Achieved 100% response rate

– Profiling end users• Ran a simple black-and-white ad asking readers to nominate them to be selected

as the "Not Yet Famous Drummer”

• Contest doubled Pro-Mark's database of names.

– Promoting new products• To promote new autographed drumsticks, coupon allowing readers to buy them

for $5 and enter a contest to win a chance to meet Abbruzzese in person

Developing the Offer

• Offering the customer some kind of incentive that will induce him/her to buy

or to ask the company for more information

• Ranges from a free product sample to price-related incentives or an item providing information on the firm

• Objectives should be to attract new customers or members, obtain repeated

business from existing customers, reactivate lapsed customers, produce

sales leads or acquire new customers

• Record estimate of campaign costs and profitability in the CRM system - used as a “model” to fine-tune the campaign results

Developing the Offer (contd.)

• Questions on campaign costs and profitability:

– What is the product positioning?

– What is the price?

– What is the length of commitment?

– What are the payment terms?

– What are the risk reduction mechanisms?

– How much can they afford to spend on the incentive?

– Which promotion type should be used as an incentive?

– What should be the promotional package?

– Which promotional media should be used?

– Does it involve one-stage or several stages?

Offer Options

“Member gets member”

Automatic shipment

Free trial

Samples

Premiums

“You have been specially chosen”

Payment options

Price incentives

Money back guarantee

Bounce-back

Deluxe edition

Multiple product offer

Multiple discount offers

Contests and sweepstakes

Early bird offer

Campaign Budget Calculation: Methods

Pre-set Budgeting

• Determine a given year’s marketing expenditure on the basis of what

they spent the year before

Advantages:

– Follow a more or less steady expenditure flow

Disadvantages:

– Last year’s sales not considered, marketing considered as an expense rather than

an investment to boost sales

Budget Calculation Budgeting for an allowable marketing cost (AMC)

• Determine the amount that can be spent on campaign marketing activities,

while preserving the required profit margin

• Potential expenditure is given priority according to its forecast for return on

investment

• Obtained by subtracting the costs (cost of goods + distribution costs) and

the required profit margin from the total sales value

Advantages:

– No pre-set limit to the campaign budget unless a constraint of cash-flow is

imposed, the company can controls costs

Disadvantages: – Many activities are hard to accurately forecast and some activities may not

payback in a given year

Budget Calculation

Budgeting with the competitive parity method

• Equating budget allocation with those of competitors

Advantages:

– Emphasis is on competitor intelligence

Disadvantages:

– Very difficult to be precise as to who the competitors are and what are

their relative sizes

– Different marketing communication strategies for market leaders and for

market followers and budgeting based on parity may not work

– Cannot satisfactorily take into account sudden changes in the competitive

activity or objectives or even the company’s own objectives

Budget Calculation

Budgeting with the objective and task method

• Determining marketing objectives and the marketing communications tasks needed to achieve them

• Budget set by calculating costs of the communication tasks

Advantages:

– Resources expended are limited to the objectives

Disadvantages:

– Implementation difficult because it is not always easy to define the objectives and

to quantify their implementation costs

– Assumes that the relationship between objectives and tasks is

well known and understood

Budget Calculation

Percentage of sales method

• Fixed percentage of turnover allocated to marketing communications

• Marketing communication expenditure directly linked to sales level

• To determine the exact percentage that should be allocated, the company

looks at competitor allocations and industry averages

• To define the turnover the company can look at historic sales

Advantages:

– Incorporates a series of alternatives and allocates costs to the objectives

Disadvantages

– Difficult to determine the percentage of sales that must be allocated

– Competitors may have a small advertising budget and concentrate their

budgets on the sales force, and this would be a deceiving benchmark

Budgeting with Key Performance Indicators

Ratio of sales revenue to the

campaign cost ROI = Sales Revenue / Total promotion

expenseReturn on Investment

(ROI)

Calculated by comparing the

number of buyers with number of responders to the campaign

CR (%) = (number of buyers / number of responders) x 100

Conversion rate(CR)

Ratio of total costs to enquiries

that were converted into sales, net of returns and bad debts

CPS = [Total promotion expense / (total orders- Returns and bad debts)]

Cost per sale (CPS)

Ratio of total campaign costs to total enquiries

CPE = (Total promotion expense / total orders)

Cost per enquiry (CPE)

Ratio of total campaign costs to

number of responses obtained

CPR = (Total promotion expense / number of responses)

Cost per response (CPR)

Relates total cost of promotion

with quantity produced.

CPM = (Total promotion expense / Total quantity) x 1’000

Cost per thousand (CPM)

DefinitionFormulaPerformance

Measure

Key Performance Indicators for anEmail Campaign

$2$18$286$100$71Cost per sale

2.5%3.9%2.0%2.0%1.2%Purchase Rate

10%N/A3.5%0.8%N/AClick through rate

$5$686$200$16$850Total

$5$270N/A*$1$270Delivery

N/AN/A$200$15$118Media

N/A$462N/AN/A$462Production

CPM (cost per thousand)

Email to house list

Direct mail to house list

Email to rented list

Banner advertising

Direct Mail to rented list

Customer RetentionCustomer Acquisition

Budget Calculation

Lifetime Value

• Allows the company to compare returns on alternative marketing expenditures

• Allows comparison of return on expenditure from obtaining business from existing customers or from new ones

Advantages

– Using CRM database information allows the company to predict cost of the campaign

more accurately

– Allocates resources between strategies because it allows comparison between the

returns of alternative marketing campaigns

Disadvantages

– Difficult to keep track of customer values because most companies lack transactional

data from its customers

– Sometimes the strategy that produces highest ROI does not provide the fastest return

and therefore can be disregarded by faster strategies with lower ROI

Testing

• Conducting a comparison between different ways of proceeding with a

campaign

• Test individual campaign elements, other elements remaining constant, and measure the resultant change in the performance of the campaign

• Benefits of testing

– Shows real behavior, as it provides a (close to) real environment in which behavior is validated

– Augments and validates research

– Stimulates creativity

– Protects the company’s greatest asset (the customers): by using only small samples with each test can give customers the “proven offer”

– Minimizes financial risk and avoids costly errors

– Uncovers ways to reduce costs

Variables for Testing

• Key variable: the target audience - in the form of a list of targeted customers and prospects

• Offer variables - prices, incentives, proposition

• The format - physical shape, the “feel”, and the size

• The creative element - the appeal, the tone, and the message

• The media and/or the timing

Performance Measures Tested to Predict Campaign Results

• Response to the campaign, in percentage

– The number of responses obtained divided by the total number of customers

selected will give the response rate, in percentage

– Response rate serves as an indicator of the success that the particular campaign

being tested can achieve

• Campaign profitability

– Performance results allows an estimate for the revenues of the real campaign

– Total campaign costs (expenses of preparing the campaign, testing costs plus

cost of running the campaign) deducted from the revenues, gives a prediction for

the profitability of the campaign

Testing in Different Media • Direct Mail

– Direct marketer controls every aspect of the campaign, including the

timing and the budget

– Testing of all elements possible

• Telemarketing

– In one call session, promotion of a particular product or service,

testing a different script or promotion, etc possible

• Press and Inserts: not as easy and inexpensive as others

– Split-run testing (different versions in different magazines)

– A/B splits (alternative copies in same publications)

– Cross-over test (different elements changed in different messages and

rerun with same audience)

Potential Problems in Testing

• Performing several tests with the same set of customers

• Limited time validity: since customer preferences change over time,

conclusions drawn from tests often short-lived

• Testing the same things all over again

• Optimizing a particular campaign driving the testing rather than

having a successful marketing program

Campaign Execution

• Operational process by which a campaign is implemented

• Implementation and coordination

– The campaign program

– The campaign schedule

– The activity schedule

• Monitoring and fine-tuning

– Revision of planning based on enquiry or orders performance alone.

– Adjustment of the media selection

– Undertaking corrective action if the campaign included a first sequence

of creative and offer testing

Causes of Campaign Failures

• When marketing planning is undertaken at a functional level and does not integrate with other functional areas of the company

• Separating the responsibilities of operational marketing and strategic marketing planning, leading to a divergence of short and long term objectives

• Concern over short-term results at the operational level will make the company

less competitive in the long term

• Top management not taking an active role in marketing planning

• If the degree of formalization of campaign management is not adapted to the

diversity of operations within the company and its size

Analysis and Control

• Evaluates campaign results in light of original objectives and determines campaign level of success or failure

• Measuring campaign results

– Comparing the CPM, CPS, ROI, and the CR with the budgeted KIP

– Back-end performance analysis

• Direct mailing: statement of profit or loss for the campaign promotion

• For a loyalty program: allowable marketing cost and break-even

• Contribution: Campaign costs deducted from the gross margin and resulting value divided by the number of new customers

• New customer lifetime value and attrition rate

– Return on Promotion (ROP)

ROP = [(Contribution – Cost per order) / Cost per order] x 100

Analysis and Control (contd.)

• Response analysis

– Calculates the campaign results up-to-date, projects its final results, as

responses, inquiries and leads, and analyzes these results

– Can be performed with customer and market segments, product lines,

campaigns, offers and promotions, media or advertising agencies

– Responses recorded in CRM database should be summarized by time, i.e., by arrival date

– Results can be analyzed as soon as the first campaign responses are known and eventually can correct the campaign progression

Profile Analysis

• Used to define and compare the profile of campaign responders with the

actual profile of the company’s customers and prospects

• Allows marketers to verify if the initial targeted profile actually corresponds with the responder’s profiles, i.e., if the customer segments were well targeted

• Should be performed at different stages of the campaign

• Considers the input (generally geographic, demographic or psychographic) and clusters names into groups with similar tastes and preferences

• Statistical techniques as automatic interaction detection (AID) and chi-square automatic interaction detection (CHAID) also used in analysis

Campaign Feedback

• Record all relevant data about campaign planning, implementation and results

• Model relationships between data gathered, the controllable variables and campaign results

• Apply this knowledge to future campaigns

Summary

• A successful campaign management process comprises of planning, development,

execution and analysis

• When pursuing a customer retention strategy, ideally the company should target its

most profitable customers (via LTV and/or RFM analyses)

• The CRM database plays a central role in customer segmentation process by providing

information on customer behaviors and profiles, channel preferences and brand

awareness

• Making a campaign budget should be a balance between measurement, financial

calculations, competitive analysis and good judgment

• Testing can accurately predict performance measures like response to the campaign in

percentage and campaign profitability

• Campaign analysis can be done using campaign key performance indicators, by using

back end performance analysis, or profile and response analysis