Direct marketing success in today s economy Leverage automated predictive analytics to drive marketing ROI An Experian white paper
Marketplace campaign analysis When Sugar Creek Gardens, a specialty nursery in Kirkwood, Mo., expanded its operations from seasonal to year-round, the owner recognized the need to attract new customers to remain successful. The company had used direct mail before but wanted to improve its response rate by mailing to prospects who were most likely to be drawn to the unique perennials, roses, vines, herbs and ornamental grasses offered by the nursery. This small business did not have access to a comprehensive external database or to highly trained statisticians or expensive software. However, the company did maintain a housefile, and, with the help of a Web-based, automated predictive analytics software tool, it was able to create a list of prospect records and score and rank them all in less than an hour. A post card sent to a list of scored prospects generated by the predictive analytics tool resulted in a 7.8 percent response rate, representing more than five times the response generated from a similar mailing targeting nonmodeled prospects. While the campaign cost was slightly higher for the predictive analytics generated list, the campaign return on investment (ROI) was a startling 285.6 percent. This type of success extends beyond local small businesses. A large university located in the southwestern United States leveraged the same predictive analytics tool and reduced the average recruitment cost for each new student from $4,500 to $3,000, saving the institution millions of dollars in marketing costs. Likewise, AT&T, a Fortune 50 telecommunications company, used automated predictive analytics to quickly and efficiently create hundreds of local models, which replaced the large, time-consuming regional model builds previously used to drive marketing campaigns. The end result was a 3000 percent increase in campaign ROI. This success spurred a change in the way the Marketing department creates, manages and implements its marketing programs. 1 The sophisticated, industry-specific analysis that allowed these companies to target prospective customers efficiently is now within reach of small and medium-sized companies. Leveraging on-demand access to customer segmentation, profiling, market penetration reporting and predictive analytics, companies can use existing direct-marketing channels to become more effective and cost-efficient, resulting in improved marketing ROI. This paper discusses how to make direct marketing more relevant; the effect of segmentation and predictive analytics on response rates; the advantages of automating the predictive analytics process; and the future impact of high-tech automation on direct marketing as companies embrace technology and the Internet to realize higher marketing ROI. 1 Gene Emiston and Don Kridel, Automated Modeling and Sales Targeting in the Real World: A Case Study for AT& T Advertising and Publishing, DMA (October 2007) An Experian white paper Page 1
Current state of direct marketing Direct marketing plays a formidable role in the U.S. economy, accounting for more than half of all advertising expenditures last year a total of $176.9 billion and roughly 10 percent of the 2008 U.S. gross domestic product. These ad expenditures generated more than $2 trillion in total incremental U.S. sales. Direct mail accounted for 33.9 percent of the overall direct-marketing expenditures, followed by e-mail at 11.3 percent. 2 While the direct-marketing industry is feeling the impact of the difficult economy, advertising expenditures related to direct marketing are expected to increase 3.5 percent in 2009, to $183.1 billion, according to the Direct Marketing Association (DMA). 3 Marketers have a variety of channels at their disposal to target customers and prospects, including direct mail, e-mail and telemarketing. Regardless of the approach, the key to a successful campaign is to strategically target the right audience at the right time with the right message. A 2008 survey of marketing executives by the Chief Marketing Officer Council found that more than 60 percent of respondents are looking for ways to increase marketing performance. 4 Examples include alternating e-mail and direct mail for current customers, making greater use of social media such as Facebook or Twitter, and delivering marketing messages via smartphones such as iphone ȚM BlackBerry TM and G1 ṬM The trend toward using direct mail to drive customers to the Web continues to grow. A recent survey conducted by Vertis Customer Focus found that the number of respondents who said they visited a sender s Web site after receiving a direct-mail communication increased seven percentage points, from 14 percent in 2003 to 21 percent in 2007. This data compares with a 1 percent increase, from 22 percent to 23 percent, in trips to the sender s nearest physical location. 5 The use of e-mail marketing also is on the rise. However, despite cost advantages, e-mail is not always the best option. Marketers still need to carefully analyze which marketing channels are driving the highest response within each customer segment. E-mail may represent a lost opportunity if the targeted recipients are not likely to respond to messages delivered through that medium. Most effective marketers are continually reviewing their marketing mix to determine which channels have the best chance to increase response and to drive their business. Traditionally, direct mail offers a number of important advantages over other channels. It is a highly effective way to reinforce an organization s brand, since the shelf life is longer than e-mail or telemarketing. Direct mail also allows multiple household members to view the same piece. Finally, direct mail can drive the recipient online, thus opening a new communication channel between the company and the customer. 2 Direct Marketing Association, DMA 2009 Statistical Fact Book (New York: Direct Marketing Association, 2009) 3 Direct Marketing Association, DMA 2009 Statistical Fact Book (New York: Direct Marketing Association, 2009) 4 Exact Target, The Marketing Almanac (October 2008) 5 Direct Marketing Association, DMA 2008 Statistical Fact Book (New York: Direct Marketing Association, 2008) Page 2 Leverage automated predictive analytics to drive marketing ROI
Improving campaign effectiveness through better targeting Two primary strategies marketers use to target their direct-marketing campaigns more effectively are segmentation and predictive analytics Segmentation classifies consumers into homogeneous groups of potential buyers, helping marketers to better understand their target market. Segmentation is helpful to assess, compare and connect local markets as well as to analyze and to project market trends. Additionally, it leads to more effective identification of the right target groups for a product or service. This approach reduces the tendency to try to convey a single message to all campaign targets simultaneously. Segmentation allows development of multiple messages that are meaningful to the target audience. Building on the advantages of segmentation, predictive analytics goes beyond conventional analysis and considers the behavioral patterns of individual customers. This can be especially powerful when it is difficult to delineate clearly between previously identified segments. In many cases, predictive analytics is most appropriate when a company needs to target customers specifically at the individual or household level based on their anticipated behavior rather than a profile or grouping of common characteristics. Predictive analytics provides the ability to help organizations turn customer intelligence data into actionable information for improving the accuracy, efficiency and success of campaigns. This not only lowers the cost of most marketing programs, but it also can lead to the ability to optimize existing processes, identify unexpected opportunities and better anticipate problems before they happen. 6 A recent study conducted by the Accenture Institute for High Performance Business found a powerful link between organizations analytic orientation and their ability to outperform the market. High performers are much more likely to value fact-based decision making and to have the skills and capabilities in place to use analytics effectively across their organizations, the study found. 7 Marketplace trends indicate that businesses will need to adopt predictive analytics to remain competitive. The Gartner Group has identified the Top 10 Marketing Processes for the 21st Century, which indicate the industry would be well-served by the application of predictive analytics, either directly or indirectly. 8 Automating the predictive analytics process Transforming raw data into useful information is a critical business challenge. Most companies do not know how to glean real information out of an enormous amount of disparate data. Companies that have the ability to extract intelligence quickly from multiple data sources and to use that knowledge to make business decisions will likely enjoy a significant competitive advantage. 6 Wayne W. Eckerson, Predictive analytics: Extending the value of your data warehousing investment, TDWI Best Practices Report (First Quarter 2007) 7 Greg Todd, Retailers Using Analytics are Outperforming Rivals, DM Review Magazine (June 2008) 8 Christopher Checco and Bill Kastner, Boosting Marketing ROI With Predictive Analytics: Six Keys to Unlocking the Value of Customer Intelligence (March 2006) 9 Wayne W. Eckerson, Predictive analytics: Extending the value of your data warehousing investment, TDWI Best Practices Report (First Quarter 2007) An Experian white paper Page 3
Until recently, most predictive models have been customized, time-consuming and expensive. Consequently, the use of predictive analytics has been limited to large companies with substantial budgets. Highly trained individuals with years of statistical experience working with custom software programs such as SPSS or SAS can spend weeks or even months analyzing customer files and data sets to build predictive models. In recent years, technology has advanced to the point that artificial intelligence systems now can automate many of the steps used by experienced analysts to build robust and capable predictive models. In fact, according to TDWI, Automated analytical software has taken much of the labor, time and guesswork out of creating sophisticated analytical models. 9 Modelers now can purchase a single software package that supports all the steps in the analytic development process, including defining the project, extracting data, and creating and testing models. One of the most important aspects of this advancement in technology is that these systems now go well beyond older, black box style model building and have become more dynamic, flexible and intelligent. The impact of these improvements has been significant. Today, companies not only can build and deploy predictive models more promptly, but they also can achieve the same or similar results with lower up-front investments. This intuitive, cost-effective process has brought the power of predictive analytics to many small and medium-sized companies that would otherwise not be able to leverage this application. As the experiences of Sugar Creek Gardens and other small businesses illustrate, increasing the response rate on direct-marketing campaigns through the use of predictive analytics to more effectively target a marketing campaign can translate into higher revenues, lower costs and an overall marketing ROI that once seemed unattainable. What does the future hold? The power of automated predictive analytics first must be fully realized, as a wider range of companies use this capability to identify targets effectively and efficiently for their marketing campaigns. Once this feat is accomplished, the next logical step is to integrate this process with multichannel campaign-management platforms, which are available from a number of vendors. When campaign-management platforms are integrated with platforms containing targeted leads identified by predictive analytics, direct marketers not only will have access to the best prospects, but more important, they also will be able to blend this tool with unique data sources. This approach will allow marketers to personalize messages and to deliver them through a strategic combination of direct mail, telemarketing, online channels and e-mail. Additionally, as automated predictive analytics becomes more efficient, many companies will see internal marketing resources freed up, allowing more time for personalizing marketing programs and developing strategic marketing initiatives. Page 4 Leverage automated predictive analytics to drive marketing ROI
In the future, blending offline and online marketing channels will create a seamless environment that continually captures data to refine the targeting process. Recency, frequency and monetary value data ultimately will be funneled into Web-based data-capture systems for further analysis and data mining, resulting in immediate feedback for the organization. These powerful, integrated and automated systems will allow marketers to focus time and energy on creating and delivering the appropriate messages for each target audience. About Business Market Analyzer SM Business Market Analyzer SM is a Web-based data access tool that provides marketers with access to Experian s commercial and consumer data assets in a powerful, easy-to-use platform. It is configured to allow for in-depth analysis of customers, prospects and markets so marketers can make informed, intelligent marketing decisions. Business Market Analyzer also contains a proprietary modeling engine to leverage predictive analytics in the building of acquisition, up-sell and crosssell models. These features, combined with advanced segmentation and interactive mapping capabilities, provide all the tools needed to increase campaign ROI and gain a competitive advantage. About Experian Experian is a global leader in providing information, analytical and marketing services to organizations and consumers to help manage the risk and reward of commercial and financial decisions. Combining its unique information tools and deep understanding of individuals, markets and economies, Experian partners with organizations around the world to establish and strengthen customer relationships and provide their businesses with competitive advantage. For consumers, Experian delivers critical information that enables them to make financial and purchasing decisions with greater control and confidence. Clients include organizations from financial services, retail and catalog, telecommunications, utilities, media, insurance, automotive, leisure, e-commerce, manufacturing, property and government sectors. Experian plc is listed on the London Stock Exchange (EXPN) and is a constituent of the FTSE 100 index. Experian has corporate headquarters in Dublin, Ireland, and has operational headquarters in Costa Mesa, Calif., and Nottingham, UK. The Group employs approximately 15,000 people in 40 countries worldwide, supporting clients in more than 65 countries around the world. Total Group revenue for the year ended March 31, 2009, was $3.9 billion. For more information contact us at 1 800 850 4389. An Experian white paper Page 5
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