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Direct Marketing

Contents

1. Objectives
2. 1 What is direct marketing?
3. 2 The development of a discipline
4. 3 The cornerstones of direct marketing
5. 4 Customer lifetime value
6. 4.1 Calculating the LTV of individual customers
7. 4.2 The benefits of LTV analysis
8. 4.2.1 Assigning acquisition allowances
9. 4.2.2 Choosing media for initial customer acquisition
10. 4.2.3 Setting selection criteria for retention marketing
11. 4.2.4 Investing in the reactivation of lapsed customers
12. 4.2.5 Assigning an asset value to the marketing database
13. Forecasting is very difficult—especially about the future!
14. 5 Customer acquisition versus retention
15. Loyal customers are worth a fortune
16. 6 Customer Acquisition
17. 6.1 Objectives
18. 6.3 Targeting
19. 6.3.1 Geodemographic lists
20. 6.3.2 Lifestyle lists
21. 6.3.3 Choosing a list
22. 6.3.4 Other sources of prospects
23. 6.4 Media selection
24. 6.4.1 Direct mail
25. 6.4.2 Telemarketing
26. 6.4.3 Direct Response Press Advertising (DRPA)
27. 6.4.4 Door-to-door distribution
28. 6.4.5 Direct Response Television Advertising (DRTV)
29. 6.4.6 Inserts
30. 6.4.7 The internet and electronic media
31. 6.5 Communication of the offer
32. 6.6 Fulfilment
33. 6.7 Response analysis
34. Box 26.2 An illustration of an ACORN area
35. Demographics
36. Socio-Economic Profile
37. Housing
38. Food and Drink
39. Durables
40. Financial
41. Media
42. Leisure
43. Atitudes
44. 7 Building a customer database
45. 8 Customer retention
46. 9 The future
47. Guaranteeing privacy may be the differentiator
48. 10 Summary
49. Further reading
50. Discussion questions
51. Mini Case: Benedictine liqueur: the repositioning of a brand
52. Discussion question:

Section: Issues in Implementing Marketing Strategies Objectives


The objectives of this chapter are:

1. to introduce the role of direct marketing in the marketing porcess;


2. to explain the benefits fo direct marketing;
3. to introduce the concept of customer lifetime value;
4. to distinguish between customer acquisition and customer retention activity, providing
examples of each;
5. to consider the critical role of the customer database.

1 What is direct marketing?


BY this stage in the text you will already be familiar with a number of standard definitions of
marketing. You will also have appreciated the centrality of customer requirements to the
marketing management process and the necessity of satisfying those requirements better than
the competition. The same basic principles apply in the realm of direct marketing. Indeed, direct
marketing has much in common with the underlying philosophy of ‘general’ marketing; it is only
the approach that is different.

Specifically, direct marketing is an approach to marketing that treats customers as individuals


and characterizes them, not only by their individual characteristics, but also by how they have
behaved in the past. Thus, for example, organizations engaged in direct marketing will tend not
to view all 30–40-year-old customers as alike. They will endeavour to identify subtle differences
in behaviour, each of which could potentially be used to inform the development of a uniquely
tailored customer relationship. In short, database information about historic behaviours is
integrated into the marketing decision-making process and utilized to ensure that all customers
receive a marketing mix specifically adapted to their requirements.

This contrasts sharply with the days of the traditional mass-marketing approach, when
organizations treated all customers alike. A standard campaign was developed to address
everyone, regardless of individual preferences or whether they had been a customer in past.
Fortunately the death knell for this form of marketing was sounded when, in 1970, Alvin Toffler
introduced the term demassification into marketing vocabulary, noting that mass markets were
gradually eroding and with them the need for mass-marketing approaches. By the mid-1970s
consumers had started to become more discerning, thoughtful, and individualist. Indeed, in the
modern era consumers have come to expect greater choice and products/services that are ever
more tailored to their own individual requirements. For evidence of the impact of this new
thinking, Naisbitt (1982) reminds us of those not so distant days when bathtubs were white,
telephones were black, and cheques were green. Marketing certainly came a long way in the last
thirty years of the twentieth century.

This increasing consumer choice has also been reflected in the proliferation of communication
channels. In the late 1940s it was possible to reach half the adult population of the UK with a
single ad in the Radio Times. The early days of commercial television offered similar
opportunities for mass marketing. Brands could be created almost instantaneously with high-
profile campaigns and market shares could be doubled virtually overnight. With the onset of the
new millennium and the proliferation of communication media, mass advertising is losing its
appeal. Highly focused channels now exist that can reach a customer group much more cost
effectively than would previously have been the case. Indeed, the profile of individuals using
particular media can be carefully compared with the known profile of a particular organization's
customers and the closest match identified. Media can now be selected with a high concentration
of customers possessing very specific characteristics. Advances in targeting and database
technology have greatly facilitated this process and media wastage is being rapidly eliminated.

One of the pioneers of mass marketing, William Hesketh Lever, famously remarked that he knew
half the money he spent on advertising was wasted, but that he did not know which half. Even at
the time he was making this comment one group of marketers had a pretty good idea how their
advertising was working. For some time, early direct marketers had been testing customer
responses to various media and using this information to tailor both their media selection and the
creative approach employed. Direct marketing activity has the advantage of being infinitely
measurable. Whilst marketers can only make educated guesses about the impact of a traditional
advertising campaign, the customer response to most forms of direct marketing can be
measured to two or even three decimal places. Opportunities for testing abound and direct
marketers rolling out an expensive campaign are now in a position to predict with a high degree
of accuracy the consumer response that will ultimately be achieved.

This characteristic of measurability is reflected in the Direct Marketing Association's definition of


direct marketing: ‘Direct marketing is an interactive system of marketing that uses one or more
advertising media to effect a measurable response and/or transaction at any location.’ Although
this is a definition now widely supported by leading practitioners (e.g. Nash 1995; Stone 1996), it
does perhaps lack an emphasis on the collection and manipulation of customer data that
characterize so much direct-marketing activity. The definition developed by the UK's Institute of
Direct Marketlng makes this additional dimension clear. Direct marketing is: ‘the planned
recording, analysis and tracking of customers' direct response behaviour over time … in order to
develop future marketing strategies for long-term customer loyalty and to ensure continued
business growth.’

In the modern era, this process of recording, analysing, and tracking customer behaviour is
greatly facilitated by database technology. Customer information can now be easily captured,
processed, and used to inform the development of strategy. Advances in computing power have
made it much easier for organizations to process vast quantities of information and hence to
develop more personalized relationships with their customers. We will explore later in this
chapter exactly how this might be achieved.

‘Direct marketing also offers marketers audience selectivity, since they can select those whom
they wish to reach and observe the responses.’ (Chapter 12, p. 282)

2 The development of a discipline


MANY people assume that direct marketing is a new phenomenon. This could not be further from
the truth. Direct marketing has its roots in the mail-order industry and, as the chart in Box 26.1
makes clear, the basic ideas have been around for centuries. Indeed, those early pioneers would
have adopted many of the same distinctions between categories of customer that are made
today. Most, for example, would have recognized the distinction between active/lapsed
customers and unconverted enquiries. Certainly from the middle of the nineteenth century a
separate marketing approach would have been adopted for each distinct customer group.

Most of the organizations listed in Box 26.1 constitute early examples of stand-alone direct
marketing. In fact, this is only one of three categories of approach to direct marketing now
commonly adopted: stand-alone, integrated, and peripheral. Each is briefly described below.

Stand-alone direct marketing In many ways this might best be regarded as the ‘ultimate’
directmarketing approach. Organizations that employ stand-alone direct marketing employ no
other means to manage the relationship with their customers. Organizations such as First Direct
and Direct Line insurance clearly fall within this category. Customers are typically recruited via
direct response press advertising and/or direct mail. Thereafter the relationship is managed by a
combination of telephone and mail. Both organizations pride themselves on the degree of service
provided and both maximize the benefit they can provide for their customers through a careful
manipulation of their database.
Integrated direct marketing A second approach is to employ direct marketing as part of an
integrated marketing mix. Here direct marketing may be viewed as complementing the other
marketing activities undertaken. Organizations such as the AA, or a major charity such as Save
the Children, can be classified as adopting this general approach. The AA, for example, recruits
new customers through its kiosks at motorway service areas, press advertising, mass television
advertising, and even direct mail. The organization has also a network of retail outlets situated in
many high-street locations. Once customers are recruited, direct marketing is employed to
develop the value of these customers to the organization, perhaps through cross-selling other
product lines, or even asking them to ‘recommend a friend.’ In such cases direct marketing is an
integral part of a very broad mix.

Peripheral direct marketing The final category of direct-marketing activity embraces those
organizations for which direct marketing is only an occasional tactical marketing tool. The
customer database may be poorly developed and direct marketing is regarded as a peripheral
activity. Indeed it may often be initiated as a knee-jerk response to falling sales, or a short-term
response to competitive pressures. It will typically be employed for the purposes of customer
recruitment and the second side of the equation—namely, customer retention and development
—will be all but ignored.

3 The cornerstones of direct marketing


HOLDER (1998) argues that direct marketing comprises four components. These are continuity,
interaction, targeting, and control. Continuity contrasts with the mass-marketing approach where
the ‘contact’ with the customer is standardized and regarded merely as a series of one-off
exchanges. All customers are treated alike and very simple ‘product’-based messages are
employed stressing the desirability of making a particular purchase. The emphasis lies in making
a profit on each sale and budgets and communications strategy are developed accordingly.

In direct marketing, the goal is to use customer information to develop an ongoing relationship
with each individual on the database. Direct marketers recognize that it is not essential that the
organization makes a profit on each transaction with the customer, provided that over the full
duration of their relationship a respectable return on investment (ROI) can be obtained. Thus the
costs of recruitment are less of an issue for direct marketers, as they recognize the future
potential (or lifetime value) that will accrue from each customer. Indeed, the concept of customer
lifetime value lies at the core of successful directmarketing activity and drives both what the
organization is prepared to spend on recruiting each new customer and what it is prepared to
spend on developing a relationship with a customer over time.

The interaction component emphasizes the fact that direct channels afford marketers numerous
opportunities to engage the customer, with creative opportunities far superior to those that
would be available through traditional channels. A Royal National Institute for the Deaf (RNID)
Christmas mailing to its donors, for example, included a newsletter, a donation form, an audio
cassette featuring a Christmas message from the charity's chief executive, and even a festive
party whistle in keeping with the ‘celebratory’ nature of the season.

The concept of targeting stresses that directmarketing activity is also characterized by a unique
ability to target customers with relevant communications. Modern geodemographic and lifestyle
lists make it possible to target consumers with increasingly relevant marketing offers (see
Section 7). Once customers have been recruited, information in respect of past-purchase
behaviour can be used to develop ever more refined communication strategies. Customers
ordering baby clothes from a mail-order catalogue today, for example, are likely to be in the
market for ‘toddler toys’ in 18–24 months. Database information can thus be used to ensure that
they receive relevant product information at the appropriate time.

The control component draws attention to direct marketing's ability to pre-test almost every
dimension of a direct communication. In the case of the RNID mailing, for example, the charity
could conceivably have tested the impact of
• including, or not including, the cassette;
• including, or not including, the party whistle;
• the presence of a message on the envelope;.
• the choice of colour(s) to appear in the newsletter;
• the impact of asking the donor for specific sums.

In practice perhaps three or four versions of a mailing might be developed and mailed to a small
sample of the database. The pattern of response can then be assessed and the most effective
version of the mailing rolled out to the remainder of the customer base. Not only does this allow
an organization to select the most appropriate mailing; it also allows it to predict with a high
degree of accuracy the performance of the overall campaign.

It is these four elements together that combine to make direct marketing a unique discipline
within marketing. At its core, however, is the concept of customer lifetime value, since it is this
that will shape the strategy to be adopted.

4 Customer lifetime value


BITRAN and Mondschein (1997: 109) define lifetime value (LTV) as ‘the total net contribution that
a customer generates during his/her lifetime on a house-list’. It is, therefore, a measure of the
total worth to an organization of its relationship with a particular customer. To calculate it one
has to estimate the costs and revenues that will be associated with managing the communication
with that customer during each year of his/her relationship. If, for example, the relationship
extends over a period of four years, one can subtract the likely costs of servicing the relationship
with that customer (e.g. product costs, catalogues, newsletters, telephone calls, etc.) from the
revenue so generated. In essence, the contribution each year to the organization's overheads can
then be calculated. Of course, there is a certain amount of crystal-ball gazing involved, since it
becomes increasingly more difficult to predict costs and revenues the further one looks into the
future. To take account of this uncertainty and to reflect the fact that a £50 sale in four years'
time will be worth in real terms much less than it would today, it is also important to discount the
value of the future contribution streams that will be generated. After all, instead of investing the
money in dealings with its customers, an organization could simply elect to place the money in
an interestbearing account at a building society. Unless the return from direct-marketing activity
can be expected to match, or hopefully exceed, what could be generated by an interest-bearing
account, it will clearly not be worthwhile. If this analysis is conducted right across the database, a
key advantage accrues. Organizations can employ an LTV analysis to increase their overall
profitability by getting rid of customers who will never be profitable and concentrating resources
on recruiting and retaining those that will (Dwyer 1989; Jackson 1989).

4.1 Calculating the LTV of individual customers

The formula for calculating LTV in the case of an individual customer is as follows.

Multiple line equation cannot be represented in ASCII text.

where:
C = net contribution from each year's marketing activities
d = discount rate
i = the expected duration of the relationship (in years).
This somewhat complex-looking equation merely indicates that it is necessary to calculate the
likely future contribution by a customer each year, discount these future contributions, and then
add them all together. The grand total is the LTV of a given customer. Table 26.1 shows a worked
example.

Suppose for the sake of argument that a customer has just been recruited. We know that she was
recruited from a standard cold mailing and, from the details she supplied when she made her first
purchase, that she is female, aged 45, living in a certain type of housing (identifiable from her
postcode information), and interested in a very specific product category (e.g. classical music
CDs). On the basis of a historical analysis of the database, the marketer can determine the future
revenue that a person matching this profile would be likely to generate. On the basis of this
information, coupled with projected costs, it is possible to produce the forecast given in Table
26.1 of the contribution that this customer will make to the organization over the duration of her
predicted five-year relationship. As previously indicated, the value of the future contributions
must be discounted and on this basis the predicted LTV of the customer is calculated to be £387.
This informa= tion can be used to facilitate planning and to assign the customer to an
appropriate pattern of communication.

Many organizations now employ this analysis. The Ford Motor Company estimates the LTV of a
typical customer to be of the order of £100,000, whilst, in the USA, Domino Pizzas have
calculated their average customer LTV to be $4,000. In this latter case, the knowledge that
customers are actually worth such a substantial sum, instead of the few cents profit that might
accrue from an individual sale, has had a considerable impact on the way the organization has
developed its marketing activity.

4.2 The benefits of LTV analysis

LTV can be used to drive five management decisions:

• assigning acquisition allowances;


• choosing media for initial customer acquisition;
• setting selection criteria for retention marketing;
• investing in the reactivation of lapsed customers;
• Assigning an asset value to the marketing database.

Each of these will now be considered in turn.

4.2.1 Assigning acquisition allowances

An understanding of the LTV of an organization's customers can guide the determination of how
much a particular organization may be willing to spend to recruit each new customer (Lewis
1995) (see Insert). As was highlighted earlier, many organizations conscientiously strive to
achieve as close as possible a break-even position at the end of each of their recruitment
campaigns. Whilst commendable, this is not at all necessary, so long as the future income stream
from the customers being recruited is a healthy one. Organizations employing the LTV concept
would, therefore, tend to assign somewhat higher acquisition allowances than those that do not.
In financial terms this is simply because a marketer employing a traditional approach will
calculate campaign ROI thus:

Multiple line equation cannot be represented in ASCII text.


A direct marketer employing the LTV concept would, by contrast,
calculate ROI as:
Multiple line equation cannot be represented in ASCII text.
where
ROI = return on customer acquisition investment
future contribution = estimated annual contribution to profit
discount = reduction in value of future pounds to today's rate
(discounted cashflow).

4.2.2 Choosing media for initial customer acquisition


Marketers engaged in the perennial problem of customer acquisition are well versed in the
necessity of asking questions such as

• Which media should I be using for my recruitment activity?


• What balance should I adopt between the media options that are available?
• On what basis should I select potential customers for target

The traditional approach to answering these questions would have been to consider the pattern
of response typically received from each media in the past, calculate likely ROIs for each, and
then select the most attractive option on this basis.

Such analyses, however, suggest suboptimal allocations of marketing resources, because they
ignore certain known customer behaviours. Customers recruited from one medium may never
buy again, whilst customers recruited by another medium exhibit much greater degrees of
loyalty. The overall profitability from one relationship can, therefore, vary considerably from that
of another. LTV analysis can be used to good effect as an aid to selection of recruitment media
and to help focus marketing activity on those customers who are likely to have the highest value
to the organization over time.

Of course, to be in a position to utilize LTV as a decision-making tool, an organization needs a


considerable amount of historical transactional data. Successful forecasting of the LTV of a given
individual, or (more usually) segment of the database, requires a detailed understanding of how
similar individuals or segments have behaved in the past.

4.2.3 Setting selection criteria for retention marketing

LTV calculations can prove instructive for more than just recruitment planning, The information
can be used to guide contact strategies for ongoing customer development. LTV analysis can be
employed to identify customers with whom it will never be possible to conduct profitable
business. In many cases it may cost an organization more to mail them with catalogues, product
reminders, etc., than it could ever hope to recoup from an individual's pattern of purchase.

If an organization calculates a projected LTV for each customer on the database, customers can
be assigned to specific segments, and contact strategies can be customized to raise LTV. Initially,
this may involve simply recognizing the difference in contribution, so as to offer particularly high-
value customers a differentiated pattern of care that reflects their status. Many of the airlines, for
example, now offer ‘membership’ benefits to their frequent fliers, or those that they perceive will
become frequent fliers in the future. As companies become more experienced in the use of LTV
analysis, it will also be possible to associate the impact of differentiated standards of care, or
forms of contact, upon the LTV for a given customer. As Peppers and Rogers (1995: 49) note:
‘Instead of measuring the effectiveness of a marketing programme by how many sales
transactions occur across an entire market during a particular period, the new marketer will
gauge success by the projected increase or decrease in a customer's expected future value to
the company.’

4.2.4 Investing in the reactivation of lapsed customers

Most organizations now recognize the value of their database. Few would question the
established wisdom that existing customers will always be the most cost-effective source of
additional sales. Few would also disagree with the notion that reactivating lapsed customers can
be profitable. Having been sufficiently motivated to buy at least once in the past, with the proper
encouragement it is eminently possible that such individuals will buy again. The problem,
however, for many organizations lies in deciding which lapsed customers should be selected for
contact. Whilst one could do this easily on the basis of the total amount spent, the size of the
average purchase, or the length of time since the last purchase, it can be instructive to use
projected LTV to inform the decision. With the right persuasion to respond, targeting those with a
higher forecast LTV is likely to prove the most efficient use of resources. A ‘reactivation
allowance’ can be built into the budget. How much an organization is prepared to commit to
reactivating one customer would inform the nature and quality of the contact strategy employed.

4.2.5 Assigning an asset value to the marketing database

There are many competing demands upon the income of a typical company. Quite reasonably,
expenditure on marketing is often perceived as a cost to be minimized. Whilst it is certainly true
that marketing could be regarded as a cost, it should actually be seen as an investment. Using
LTV analyses, organizations can explore the future behaviour of their database; this information
can be used to place an overall value on customers as intangible assets. This can have a
remarkably sobering impact on those responsible for the organization's financial management.
The justification for customer recruitment activity suddenly becomes clear, and the rationale for
doing more for customers than simply sending them catalogues is obvious.

Forecasting is very difficult—especially about the future!

‘Many companies that know average lifetime values still manage their customers on their past
value rather than predicted lifetime value.’

Source; Stone (1997:49).

5 Customer acquisition versus retention


As will already be clear from the previous section, direct marketers draw a firm distinction
between customer-acquisition activity (that is, activity designed to attract new customers to the
organization) and customer-retention activity (that is, activity designed to keep them loyal over
time). It is estimated to cost up to five times as much to conduct business with a new customer
than to conduct it with an existing one. An organization's cheapest source of custom will always
be its existing customers. Existing customers have, after all, already demonstrated their interest
in the available products/services by virtue of their past purchase and are therefore considerably
more likely to purchase again. Thus, for example, a supplier of garden seeds is likely to generate
a much higher response from mailings to its past customers than it will ever achieve using a cold
list of prospects, because inevitably its catalogues could be sent to some individuals who have
little/no interest in gardening, or who are perfectly happy buying from another supplier.

Indeed, in the case of direct mail, there is a world of difference in response rates between cold
mailings (that is, those to prospective customers) and warm mailings (those to existing
customers). It would be usual for the former to achieve a response rate of between 0.1 and 5 per
cent, whilst response rates to the latter have been known to exceed even 50 per cent.

In practice, direct marketers draw a distinction between four distinct groups of customers, each
possessing its own unique response characteristics. This is illustrated in Fig. 26.1. As one works
along the continuum from repeat sales to the generation of completely new business, the
attainable response rates worsen considerably.

It is not only response rates, though, that make targeting existing customers a particularly
attractive option. Organizations generally know more about the needs and wants of their existing
customers, if only by virtue of their purchase history. This makes it possible to tailor the market
offerings more precisely to those customer needs, quite possibly allowing the organization to
change a premium for the enhanced quality of service that results.

Existing customers can also be cross-sold different product lines and be encouraged to generate
referrals of other individuals who might have a similarly enhanced interest in the organization's
products. There is, therefore, a world of difference between the likely profitability of
customeracquisition activity and customer-retention activity. Indeed, many organizations expect
to do little more than initially break even from acquisition activity, but are content in the
knowledge that they will be able to cultivate quite profitable relationships with the customers
they recruit over the full duration of their relationship with them.

In terms of the balance of resources, it makes sense to target the majority of the marketing
resources at those customers that will be worth the most to an organization and generate the
highest levels of profitability. Typically, therefore, in the case of an established organization,
customerretention activity normally accounts for between 70 and 80 per cent of a direct-
marketing budget, with a much smaller percentage being allocated to the more speculative
customer-acquisition side of the business (see Insert). This balance will obviously vary dependent
on the direct-marketing strategy adopted and may be different in the case of organizations
setting themselves aggressive market-share targets, as the emphasis in such a case would be on
building numbers in the database.

The use of direct marketing for both customer acquisition and customer retention will now be
considered in turn.

Loyal customers are worth a fortune

‘Good long-standing customers are worth so much that in some industries, reducing customer
defections by as little as five points—from say 15% to 10% per year—can double profits.’

Source: Caulkin (1996:9)

6 Customer Acquisition
EVERY organization needs to consider ongoing customer acquisition. New customers will always
be necessary to replace those that for one reason or another will stop doing business with an
organization in a given year. Even if the service provided is excellent and levels of satisfaction
are high, some customers will still terminate their relationship. In some markets this may be
because they have outgrown the need for the product, their interests have changed, they no
longer have the necessary moneys, or they may have died or moved away. Customer-acquisition
activity is essential to preserve and if necessary enhance the overall number of customers on the
database. It can also help to inject ‘freshness’ into a house list, because it is often the case that
customers will be at their most profitable in the period immediately following their recruitment
(Holder 1998).

In developing a customer-acquisition campaign there are seven stages that should normally be
considered. These are illustrated in Fig. 26.2. Each of these steps will now be briefly reviewed in
turn.

6.1 Objectives

The first step in developing a customeracquisition programme is to decide on the objectives the
organization wishes to achieve. Objectives are an important part of the plan, as they are the only
mechanism by which its success can be measured. If a plan achieves its stated objectives, one
might reasonably conclude that it has been a success. Without them, one can only speculate as
to the planner's original intent and the effectiveness of the activities undertaken has no
benchmark against which to be assessed. Valuable resources could be being wasted, but the
organization would have no mechanism for identifying that was in fact the case.

Recruitment objectives would normally address the following issues.

• The target response rate that will be achieved.


• The number of new customers that will be attracted over a given time period or campaign.
This is not the same as the previous point, since it takes into account the conversion rate of new
customers. A large number of customers might respond to a press ad, requesting a brochure, for
example, but ultimately only a few of these enquirers might actually make a purchase.
• The desired return on investment (ROI), although it is important to note that many
recruitment campaigns are expected initially to operate at a loss.
• The desired LTV of the customers recruited. Organizations with an established database will
already lmow the profile of their high-value customers. Newly recruited customers can be
compared with this profile to assess their likely future potential. Objectives can, therefore, be
couched in terms of the degree of ‘match’ obtained.
• The allowable cost per sale (i.e. how much is the organization prepared to spend to make
each new sale?)
• 6.2 Segmentation and profiling

Having delineated recruitment objectives, the next stage is to determine which potential
customers (or prospects) will be targeted. In essence there are two approaches, the
appropriateness of which will be determined by the extent to which an organization has a prior
knowledge of its markets. These methods can be categorized as being either apriori or cluster
based and post hoc. An apriori approach is based on the notion that marketers decide in advance
of any research which categories of customer they intend to target. Typically this might involve
classifying customers into segments according to their demographic, geodemographic, or
lifestyle characteristics. The marketer would then carry out research to identify the attractiveness
of each segment and make a decision on the basis of the results as to which segment or
segments to pursue.

Post hoc segmentation, by contrast, may be most appropriate where the marketer is already
familiar with the market for a particular product/service and is perhaps in possession of a
database of customers who are already purchasing the product category in question. It is now a
comparatively simple matter to employ an analytical tool to develop a profile of the ‘typical’
customer. The level of detail an organization can achieve with this profile will clearly depend on
the number of variables stored in the database, but most organizations should be able to develop
a demographic and/or geodemographic profile of consumers who have typically responded well
in the past.

Indeed, some organizations may be in a position to take this analysis one stage further. Consider
Fig. 26.3. Organizations with larger databases will undoubtedly find that purchase patterns are
not uniform. Individuals exhibit wildly different LTVs and this information can be employed to
great effect in informing recruitment activity. Figure 26.3 shows an example of a database that
has been profiled by customer LTV. At the bottom of the pyramid there is a large number of
customers who will contribute very little to the organization over the duration of their lifetime. At
the top there are a small number of individuals who will contribute a great deal.

There is no particular mystique about this pattern. It is commonly observed in database analysis
and reflects what has come to be known as the Pareto Rule. It is often the case that 80 per cent
of the contribution gained by an organization can be accounted for by 20 per cent of the
organization's customers.

Whilst many organizations base their recruitment activity on the profile of a ‘typical’ customer, it
is actually those individuals towards the top of the pyramid that should be of greatest interest.
Ideally recruitment activity should, therefore, be based on a profile of the highest value
customers and NOT on that of the database as a whole. It is, therefore, now common practice to
divide a database into decile segments based on value and to use the profile of the top deciles to
inform the nature of recruitment activity.

6.3 Targeting

This detailed customer profile can then be employed to inform the selection of appropriate
recruitment media to reach other individuals in society who match these characteristics. If direct
mail is to be employed, the information can be used to inform the criteria for the selection of
appropriate prospects from commercially available lists.

In the late 1990s there were estimated to be over 4,000 such lists in existence in the UK alone.
Navigating the range of alternatives can, therefore, be somewhat problematic, unless an
organization has considerable past experience on which to draw. For this reason, many
organizations engage the services of a highly specialized list broker, who can offer advice on the
best lists to meet a specific set of recruitment requirements.

The list is the singularly most important concern in any customer-acquisition campaign. No
matter how strong the creative activity—no matter how strong the offer—if it is sent to
individuals with no interest in the product category, the mailing is doomed to failure.

Consumer lists fall broadly into the categories of geodemographic and lifestyle and a detailed
profile of existing customers can greatly assist an organization in refining the criteria that will be
used to select between the various options available.

6.3.1 Geodemographic lists

Geodemographics represent an attempt to categorize consumers by the type of housing they live
in. The idea underlying the use of the approach is that ‘birds of a feather will flock together’—in
other words, that similar types of people will tend to live in similar types of housing, have similar
interests, and be in the market for similar categories of product.

There are a variety of commercial geodemographic systems now available, each capable of
supplying a list of consumers matching a certain set of characteristics. These include ACORN,
MOSAIC, PINPOINT, and FINPIN.

The common point in all of these systems is their use of census data. In the UK, a detailed census
of the population is conducted every ten years. The next census is due in 2001. The census
consists of a questionnaire sent to every household in the country, which gathers data on over
300 variables. The majority of households receive a standard census document, whilst a small
percentage (15 per cent) receive a more detailed document for completion. In a typical census,
over 96 per cent of the questionnaires will be completed.

Contrary to what many people believe, census information is not published at an individual level.
Census information is available only at the level of the ‘enumeration district’, which typically
contains ten postcodes (see Table 26.2). For direct marketers this poses something of a problem,
because the most useful unit of analysis for marketing purposes is undoubtedly the postcode.
Geodemographic systems such as ACORN have, therefore, to match census data from the
enumeration district to the relevant bundle of postcodes. They achieve this match by employing
the relevant map references for enumeration districts and postcodes. In practice this stage is the
most common source of error in a geodemographic system, for the following reasons (Fairlie
1992).

• The boundary for some enumeration districts can cut across a postcode. One postcode
could thus include households in two different enumeration districts.
• The map references for postcodes are often imprecise.
• The only map references available outside London for enumeration districts (EDs) are those
for the centroid of the ED. Since EDs do not have a regular shape, attempts to associate the
relevant postcodes could introduce a substantial amount of error.

By this stage in the analysis, each postcode now has a mass of relevant census data associated
with it. Geodemographic systems then employ a number of analytical processes that allow them
to reduce the high number of census variables down to a more manageable number that is
capable of explaining key differences in consumer behaviour. To develop market segments, a
technique such as cluster analysis will then be utilized to identify groups of postcodes that
appear to behave similarly in relation to this reduced number of variables. The aim is to group
together postcodes with similar behaviours, whilst ensuring that the difference between these
postcode groups is as large as possible.

All the major suppliers of geodemographic information employ slightly different sets of census
data and employ differing statistical techniques to derive the final segments that will comprise
their system. Typically this might include information in respect of:

• age
• marital status
• household composition
• household size
• employment type
• travel to work
• unemployment
• car ownership
• housing tenure
• amenities
• housing type
• socio-economic group

Some suppliers of geodemographic systems will enhance the utility of their system by conducting
research with a representative sample of households from each segment. This allows the supplier
to overlay information about the detailed purchasing behaviour of each group of customers. An
example, drawn from the ACORN system, is depicted in Box 26.2.

The system has had a number of benefits for marketers, notably that, when a particular company
has some knowledge of its customer base, it may profile it and obtain a geodemographic ‘picture’
of the typical target segment (or segments) that it is addressing. This information may then be
utilized to target other individuals who exhibit similar characteristics, perhaps with direct mail.
Wastage is minimized and response rates have been shown to be consistently higher than those
achieved through the use of lists selected on the basis of geographical location alone.

Towards the end of the 1990s there were moves to create segmentation systems based on
socalled fuzzy geodemographics. Instead of allocating households to one of a prescribed number
of segments on the basis of their response to a combination of census variables, these new
systems will be capable of identifying the key census variables that drive behaviour in relation to
a given product category. Using consumer responses to these variables, the systems will then
identify an appropriate number of market segments and allocate postcodes to these segments
accordingly. What results is in essence a separate geodemographic classification system for
every corporate use of the system. Hence, for one manufacturer, the fuzzy system might group
postcodes into twenty segments that behave differently in relation to their product. For another
manufacturer, in a different sector, it might identify sixty-three distinct segments of customer
behaviour. These new systems will allow direct marketers much more flexibility to relate
geodemographic analysis, specifically to their own unique needs.

6.3.2 Lifestyle lists

A plethora of lifestyle information is now available commercially. Lifestyle databases differ from
geodemographic databases since they collect data at an individual level. Organizations offering
this service draw on the results from large commercial surveys, or product registration cards,
completed by individuals with a willingness to take part. Questionnaires are often very detailed,
with a typical lifestyle survey containing over 200 questions. To facilitate completion respondents
are often lured by the prospect of a prize draw, or a promotional premium that ensures that they
derive some direct benefit in exchange for the time necessary to complete the instrument. A
number of typical lifestyle products are presented in Table 26.3.

Four broad categories of data collected by lifestyle companies were identified by Reynolds
(1993):

• names and addresses;


• data pertaining to product purchase patterns—or anticipated product purchase patterns;
• demographic and socio-economic information;
• values and lifestyle information.

There are many systems available commercially most of which work on a similar principle,
although the variables utilized in each case are slightly different. It would, therefore, be
advantageous prior to utilizing one of these systems to have carried out some initial market
research to identify specifically which lifestyle variables are significant in a given market.

6.3.3 Choosing a list

Typically, 2,000 names and addresses may be purchased from a commercial list for between £80
and £150, a much lower cost than many people believe. In practice, the exact costs will be
determined by the following factors.

• The level of detail that is to be employed in prospect selection. Some suppliers will charge
less for a list of single males that they will for a list of single males who own their own homes, have
a disposable income in excess of £30,000, and take an interest in rugby. In this latter example, it
may take a supplier a little longer to extract the required individuals from their system and costs
will vary accordingly.
• Whether it is intended to purchase the list or merely rent it. Most suppliers offer
organizations a choice and lists can be purchased outright, or rented for a specified number of
uses. Dummy addresses are often inserted to ensure that the list is used only on the number of
occasions that was originally specified!
• Whether the list can be bought ‘off the shelf’. Organizations can elect either to employ an
existing list, or to pay to have one constructed specifically to meet their requirements. This would
be more normal in industrial markets where a very specific set of criteria may often need to be
met. This is an expensive option—because of the time required to conduct the necessary research
—and charges may reach as high as £30 per name.

Given the plethora of available lists, it is always essential to evaluate the alternatives available. A
number of the criteria that can be employed to assess lists for their suitability are given below.

• The level of detail that can be supplied. Lists vary considerably in terms of the
sophistication they can offer marketers for targeting purposes.
• The level and nature of previous usage. It is important to clarify the extent to which prior
use has been made of the list and in particular whether competitors have already employed the
list to market their own goods and services. Lists can become ‘tired’ very quickly, and assessing
the extent to which they have been previously employed can be a very significant issue.
• Past results. Suppliers can often give an indication of the response rates achieved by
previous clients. Accepting that these might tend to fall as the list ages, such information can
nevertheless prove invaluable in assessing the desirability of using a particular list.

There are also a number of tests that can be conducted in-house. Whilst most suppliers have a
minimum order quantity, it should always be possible to obtain a small sample of the members of
a list and ascertain response rates with a test mailing. Subsequent analysis of the response
should allow an organization to predict with a high degree of accuracy the response it will
achieve when the whole list is eventually mailed. If two competing lists are being evaluated, the
pattern of response can be compared and the most appropriate option pursued.

6.3.4 Other sources of prospects

Throughout this chapter we have made numerous references to the use of cold lists for
recruitment purposes. Whilst these do typically represent a common source of new customers,
they are by no means the only source that may be employed. Indeed there are a number of
sources of potential new customers. These are illustrated in Fig. 26.4. The diagram has been
arranged as a pyramid to reflect both the number of prospects likely to be generated and the
likely response rates that will be achieved by an approach. The most highquality prospects any
organization can hope to generate are those supplied by its own satisfied customers. So-called
member-get-member (MGM) schemes have become increasingly popular. In essence, current
customers are invited to introduce a friend or acquaintance to a company in return for a small
gift or premium. When the newly introduced customer makes his or her first purchase, the
premium is shipped. Such schemes have a high conversion rate, since those newly introduced
individuals are often expecting to receive their first mailing and have been recommended
because they already possess an interest in the products/services available.

At the next level down are an organization's former customers. Companies often neglect this
group, feeling that perhaps they are no longer interested in the products/services available.
Whilst this may be true, organizations will still achieve a higher response rate from the members
of this group than they will by targeting any of the remaining three groups in the pyramid. This is
simply because an interest in the product category clearly exists. The problem lies in
incentivizing former customers to make a further purchase and an organization may wish to test
a combination of different offers and creative ideas, to identify the campaign with the greatest
reactivation potential.

Unconverted enquiries are also a good source of new customers. Again, such individuals must
have had an interest in the broad product category available, but were unwilling or unable to
make a purchase at the time the original enquiry was made. The enquirer's circumstances may
change over time and a timely reminder may well pay dividends.

The remaining categories of selective and broadscale media are also available for recruitment
purposes. Dell Computers, for example, could elect to advertise in either a selective media—for
example, Personal Computer World—or a broadscale media—for example, the Daily Mail. The
response to an advert in the former is likely to be much stronger, since all the readers of Personal
Computer World have by definition an interest in personal computing. The same cannot be said
of the readers of the Daily Mail and the relative levels of response will reflect this.

In attempting to meet recruitment objectives it would always be advisable to consider working


down through the pyramid, progressing through each level, until such time as the recruitment
objectives are met. Bearing in mind the likely response rates that will be obtained, it would be
folly to progress immediately to broadscale media without first exhausting the possibility of
reactivating former customers or generating sales from unconverted enquiries.

6.4 Media selection

A variety of media can be employed for the purposes of customer recruitment. These include
direct mail, telemarketing, direct response press advertising (DRPA), door-to-door distribution,
direct response television advertising (DRTV), inserts, and the Internet and electronic media, as
well as, radio, in-house magazines, vending machines, and so on. The major recruitment media
are described below.

6.4.1 Direct mail


The terms direct mail and direct marketing have become almost synonymous. A steadily
increasing volume of items from 1.5 billion items in 1986 to well in excess of 3.5 billion items in
1997 has contributed to an increasing consumer awareness of the medium. It has suffered
historically, though, from a poor image, with early, poorly targeted campaigns leading to a public
perception of the medium as ‘junk mail’. In fairness to the industry, however, improvements in
targeting technology have greatly reduced the number of poorly targeted mailings and the
majority of consumers now receive mailings that relate, at least in part, to their likely needs. It is
also important to recognize that the label ‘junk’ is perhaps most fairly attributed to cold mailings,
since once a customer has started doing business with an organization they are much less likely
to be antagonized by its subsequent communications.

As a medium, direct mail has a number of advantages. It is a genuinely one-to-one medium that
facilitates the communication of a very distinct and targeted message. Mail-order companies can
mail only those customers that they know will be interested in a given product category and
those that they know can afford to purchase the range on offer. Organizations can also make use
of the enhanced creative opportunities the medium offers.

The mailing illustrated in Fig. 26.5 was dispatched by Honda to those individuals on its database
it thought might be interested (and financially able) to purchase its new CRV vehicle. Each item
was sent separately, with a few days between each mailing. As the car sponge, ice cube tray, and
salt and pepper pot were sequentially dispatched, the only accompaniment to the mailing was a
sleeve surrounding each item proclaiming ‘something for the glove compartment of the ultimate
recreational vehicle’. There was no other clue as to the origin of each mailing. In the final mailing
of the sequence, consumers received a storage case for a pair of Ray-Ban sunglasses. On
opening the case, consumers discovered that they could collect a pair of Ray-Bans to fill the case
when they arranged to test drive the new Honda CR-V—the ultimate recreational vehicle!

Mailings such as the one described engage consumers in a way that would be impossible in other
media. Indeed, some mailings now appeal to a variety of different consumer senses. Some
organizations now mail audio or video cassettes to get their message across. A leading cruise
line, specializing in cruises to the Orient, even went so far as to include a sachet of Jasmine tea
with their brochure, So that consumers could experience the ‘taste of the Orient’ as they read
through the details of the cruises on offer.

6.4.2 Telemarketing

Despite the commonly held perception that telemarketing is a relatively new medium,
expenditure in this area in both the USA and UK now outstrips what is spent each year on direct
mail. Telemarketing has been used to good effect for both ‘inbound’ and ‘outbound’ purposes.

In respect of the former, many organizations now offer their customers a convenient number to
call the organization for information, or to place an order. On occasions the organization
concerned will bear the full cost of the inbound call, whilst, on others, the consumer can call in for
the cost of a local call, with the organization paying any balance that might be due directly to the
telephone company. The earliest example of successful inbound telemarketing was the campaign
in the USA to restore the Statue of Liberty. Consumers who wanted to make a donation were
asked to call 1–800 THE LADY. Indeed, the increasing incidence of alphanumeric keypads has
recently led to some particularly creative telemarketing approaches. During the 1990s in the
USA, for example, if you wished to apply for an American Express Gold Card, you dialled 1–800
WEALTHIER.

The term ‘outbound’ telemarketing, by contrast, refers to telephone communications initiated by


the organization. Early use ofthis medium by organizations selling double glazing and other
home-improvement products was viewed as intrusive and the use of telemarketing for
coldcustomer recruitment has been much criticized. More acceptable, perhaps, are ‘warm’ uses
of the technique, where customer interest in a product category has already been established
and where the content of the call is thus more likely to be of interest.
Companies new to the use oftelemarketing can either elect to employ their own telemarketing
staff, or engage the services of a specialist agency, who will answer or initiate calls as if they
were part of the client's organization. The use of such agencies can be particularly helpful, where
it could prove difficult to anticipate the customer response. Not only can they offer guidance
based on their experience, but the fact that they service a number of clients often means they
have the necessary manpower to cover an especially large and perhaps unanticipated response.

6.4.3 Direct Response Press Advertising (DRPA)

DRPA differs from traditional press advertising in that the purpose of the ad is always to initiate a
direct response. The ad will typically contain a high degree of information about the
product/service and a response mechanism will be provided such as a coupon or an ‘0800’
inbound telemarketing number. As with other forms of direct marketing, it is possible to track the
response from particular ads. Telephone operators can be instructed to record the source of the
enquiry and, in the case of coupons, a code can be printed on each coupon, uniquely identifying
the nature and date of the publication. Replies can be carefully analysed and the most effective
media identified.

6.4.4 Door-to-door distribution

Carriers such as the Royal Mail offer a service that allows a direct-marketing organization to
concentrate its resources in particular geographical regions. Leaflets or fliers can be delivered
with the mail to all the households in a specified area. It is clearly less targeted than direct mail,
but has considerable advantages in terms of cost, since there are no postal charges to pay. For
these reasons it is now common practice to employ door-to-door distribution in the case of those
products/services with a fairly universal appeal (Bird 1989).

6.4.5 Direct Response Television Advertising (DRTV)

As with DRPA, the aim of this form of advertising is to engender a direct response. An increasing
proportion of television advertising now contains a response number and may hence be classified
under this general heading. The fragmentation of television channels means that advertisers can
now reach highly specialized audiences with this form of communication (Young 1994). The birth
of digital TV only served to increase the pace of fragmentation and, since highly specialized
audiences are usually more willing to watch commercials that relate specifically to their needs,
the duration of commercials will lengthen. In effect, television advertising has come ‘full circle’.
The earliest forms of television commercial were quite bland affairs, where the details of the
product would be recounted in great detail. Indeed some commercials in the late 1940s were as
long as thirty minutes in duration. Advertising carried by some specialist channels is now
beginning to resemble these early approaches. Indeed, some channels (e.g. QVC) are now
entirely given over to DRTV appeals.

6.4.6 Inserts

Inserts are loose-leaf or bound in cards inserted into many newspapers and magazines. Anyone
buying a magazine in recent times will be familiar with the use of this medium, particularly if they
have held the magazine upside down and shaken it. A flood of paper and card inserts will
doubtless have assembled on the carpet. As a direct response media, these inserts would
typically carry a response telephone number or a reply coupon. Indeed, many inserts are actually
designed as response cards in themselves and on completion can be placed directly in the mail
for return to the company.

Inserts are typically much more effective than press advertising and can often generate between
four and six times the response of an equivalent press ad (Stone 1996). Inserts can also offer
enhanced opportunities for testing, since several different versions of the insert can be printed,
with no additional insertion costs being incurred, since the inserts are delivered en masse to the
media owner. The principal drawback of inserts is the cost. The cost per thousand is usually four
to five times that of the equivalent press advertising.

6.4.7 The internet and electronic media

Since the introduction of the World Wide Web in 1991, the use of the Internet has grown almost
exponentially. By the late 1990s the Internet was attracting what has been described as a
‘sophisticated consumer’ demanding timely information and a prompt and personalized service.
Research indicates that a typical internet user is male, aged 35 years, with an above-average
level of education and household income (Nua What's New 1997). The gender gap is narrowing,
though, and the profile continues to soften with each passing year, embracing ever more broader
sections of society.

Not only is access to the Internet widening; users appear ever more likely to use the Internet to
make product purchases, despite early concerns over the security of transmitting credit-card
information over the Web. Indeed, between 20 and 30 per cent of users have made at least one
purchase using this new electronic medium. Many organizations are, therefore, beginning to
exploit the potential of the Internet for marketing purposes, and the proportion of sites offering
visitors the capacity to purchase goods and services is increasing rapidly every year.

Davenport (1996) identifies four levels of internet presence.

• Electronic brochure. This is a site that provides only the most basic of information about the
organization and its services.
• electronic catalogue. A detailed online catalogue enables customers to browse and if so
desired, to place an order by using the phone or fax.
• diret response without cash transactions. This category is similar to the above, but the site
permits online ordering. Payment must, however, be handled via conventional means.
• Full direct response andpayment. Some sites permit all of the above, but in addition allow
the user to pay for the goods ordered on line. To deal with concerns over the security of personal
financial information, many sites now provide a data encryption facility to ensure that the link with
them is secure.

The household penetration of Internet use is expected to increase dramatically with the advent of
Web TV. The merging of traditional entertainment channels with the flexibility and information
provision of the Web will represent a considerable marketing opportunity. Consumers exposed to
DRTV will shortly be able to request further information direct from the manufacturer, seek wider
information about other suppliers of a given product category, or even make a purchase direct
from their own armchair at the simple press of a button. Web TV should also allow advertisers to
target individuals with a known interest in particular products/services. The pattern of advertising
to which we are all exposed will be made to vary at an individual level and will be driven by our
unique needs and preferences.

This personalization is already prevalent on the Internet. Users visiting a web site for the first
time are often asked to provide information about themselves that can be stored by the company
for future reference. As a service to their customers, companies store basic information about
each individual in a ‘cookie’ file on the customer's home (or office) pc. Most users are unaware
that data are being stored on their computer in this way, but it can be a helpful facility, since the
next time they call into the company's web site, the organization requests information from their
cookie file and is able to identify them. The appearance of the site can then be made to vary by
the individual's known preferences. The ‘home page’ of the Internet bookshop Amazon is
presented in Box 26.3. As you can see, although this is the first screen in the site I have visited,
the organization has already recognized me, addressed me by name, and prepared a list of texts
it believes I will find of interest.
Of course, web sites are not the only media opportunity offered by Internet technology. Electronic
mail (e-mail) is increasing in popularity and many organizations now communicate with their
customers on a regular basis using this medium. At present, the majority of this activity is
inbound (i.e. customer initiated) or undertaken primarily with the customer's consent. Whilst it is
technically possible for organizations to send out large numbers of unsolicited e-mails, or SPAM
as it has come to be known in Internet jargon (reflecting the effect of a can of spare thrown into a
fan), such forms of communication are extremely unpopular. Most organizations therefore
respect the wishes of other Net users and avoid their use. When immigration lawyers Cantor and
Siegel failed to observe this ‘netiquette’ and advertised their legal services through every
available Internet discussion group, their organization received many thousands of hate-mail
responses which resulted in the organization being thrown off the network. The lawyers have
since claimed, however, that their tactics gained them over $100,000 worth of new business.

6.5 Communication of the offer

Having selected appropriate media, the offer can then be communicated to the target audience.
There may typically be several different ways of framing the offer and incentivizing a response.
Direct marketers will often test a series of different creative approaches and compare the likely
ROIs achievable by offering a range of different incentives to engender a response.

In the direct-marketing context, it is possible that a multi-stage approach to communication may


be planned. In the example in Box 26.4 there are several different approaches that may be used
to engender a response. In general, the greater the number of stages in a communications
strategy, the greater will be the ultimate response. It is, of course, a matter of balancing the cost
of employing additional stages, with the return that will be generated by the additional
investment. Past experience or additional research will often suggest the optimal number of
stages to employ.

Box 26.4 Contact strategy: consumer


* Mail
* Mail → 0800
* Mail → Phone
* Press → 0800 → Mail follow-up
* Mail → 0800 → Mail follow-up → phone
Source: Holder (1998).

6.6 Fulfilment

When the response from customers is received, the organization must then ensure that the order
(or request for further information) is processed within the time frame promised in the original
communication The response must be handled as efficiently and effectively as possible. This
process is known as ‘fulfilment’. Testing will have suggested the likely response rates that will be
achieved and the organization can use this information to plan fulfilment resources accordingly.
In many consumer markets, manufacturers will elect to outsource the fulfilment aspect of the
campaign to ensure that an adequate level of service is provided. Fulfilment is a highly
specialized operation and it will often be more economic for a manufacturer to rely on an
external supplier than to have resources of its own standing idle between direct-marketing
campaigns.

6.7 Response analysis

The final step in a recruitment campaign is perhaps the most critical. A detailed assessment of
campaign performance can be invaluable in guiding future direct-marketing strategy and tactics.
Performance can be compared against the objectives that were originally set for the campaign
and against other campaigns that have been run in the past. The profile of responding customers
can also be compared with the profile that was originally envisaged and any refinements
necessary can be made to the targeting of future campaigns.

The most common financial criteria that are employed to assess recruitment campaigns are as
follows:

• % response;
• % conversion (i.e. from enquiries to sales);
• £ cost per customer;
• £ revenue per customer;
• £ profit per customer;
• £ projected LTV per customer;
• ROI.

‘Geodemographic segmentation combines the use of location and demographic variables. Simply
defined geodemographics is “the analysis of people by where they live”…’ (Chapter 16, p. 388)

Box 26.2 An illustration of an ACORN area

These comfortable, mature neighbourhoods have very low levels of recent home mvers. The
largely middleaged population contains very many people who own their homes outright. ACORN
Type 26 is found all over Britain, but the highest concentrations are in Norfolk, the Isle of Wight
and North York-shire. Cleethorpes is a typical town with many areas of this type.

Demographics

These neighbourhoods have a mature age profile. There are below average numbers of children,
especially 0–4 yea olds, and younger adults. The largest age group is the 45–64 year olds, of
whom there are 35% more than average. The household structure is characterized by a high
proportion of older couples, in the 55+ age group, with no dependent children. The proportion of
adults who are married is 23% above average.

Socio-Economic Profile

The unemployment rate in these neighbourhoods is only half the national average. The poportion
of retired people is 23% above average. Women in couples without children are much more likely
to be working part time or not working than working full time. Of those in emloymen, 19% work in
manufacturing, a proportion just above the national average, while 61% work in services
(identical to the national average). The socio-economic profile peaks in the skilled, non-manual
groupings. Whilst the proportion of people with degrees is 15% below average, the proportion
holding diplomas is nearly 30% above average.

Housing

44% of homes are owned outright—this is 84% higher than the average. A further 48% are being
purchased by mortgage and so levels of rented housing ae very low in these areas. Nearly 90% of
the housing stock is either detached or semi-detached. In terms of house size, there is an
average representation of very large homes (7+rooms), but the majority are 3–6 rooms in size.

Food and Drink


Grocery shopping trips tend to be made by car and on a weekly or less frequent basis. Both
freezer ownership and usage of freezer centres are average. Consumption of most food products,
including frozen foods, is below average, partly as a result of small household sizes. A few
products, however, are dog food. Beer consumption is well below average. Table wine and, in
particular, sherry are the favourite drinks.

Durables

Car ownership levels are above average, bu not dramatically so. People in these neighbourhoods
change their cars much less often than average, and the proportion of people who have owned
their car for more than 5 years is over 30% higher than average. The proportion of large cars is
relatively high. Purchase rates for most durables are low with the exception of video cameras and
dishwashers, both of which are purchased at above average rates. The proportion of homes
having replacement windows fitted is nearly 50% higher than average.

Financial

Financially, these are very comfortable areas. The income profile peaks in the £25–30,000 per
annum band. Ownership of most financial products is above average, with the exception of hire
purchase agreements. 59% more people than average have National Savings Certificates. The
rate of new savings account opening is 35% above average.

Media

These are areas where The Telegraph and The Mail have well above average readership levels.
Amongst Sunday titles, The Sunday Telegraph, The sunday Express and The Mail on Sunday are
all read here by significantly more people than average. ITV viewing is medium, but commercial
radio listening is light.

Leisure

The proportion of people taking holidays is above average, especially for winter and long
holidays. Caravanning and camping are both more popular in this ACORN Type than on average.
Gardening is a very popular activity: 70% more people than average have a greenhouse and
garden expenditure is about 30% above average. People are more likely than average to eat out
during the day and steakhouses ae a very popular choice. These people are less active in terms
of both sports and cultural pursuits. Activities which do show above average popularity are golf,
rambling and visiting stately homes.

Atitudes

An interesting aspect of these people is that they do not have particularly strong views on
anything. They are happy with their standard of living and less likely than average to budget
carefully when shopping or to search for the lowest prices.

Source: CACI Ltd. 1999, all rights reserved. ACORN and CACI are registered trademarks of CACI
Ltd.

7 Building a customer database


AS soon as new customers have been recruited, their details and purchase behaviour will be
stored in the marketing database. This information can then be used to refine the targeting of
additional customer-acquisition activity and it can also be used to inform the development of
ongoing relationships with the individuals concerned.
As Kotler (1994) notes: ‘A marketing database is an organized collection of comprehensive data
about individual customers, prospects or suspects that is current, accessible and actionable for
such marketing purposes as lead generation, lead qualification, sale of a product or service, or
maintenance of customer relationships.’ Given Kotler's definition, the creation of a computerized
database is the single most important investment that many organizations can maike. As will
already have become clear, the benefits a database can offer in terms of a more detailed
understanding of consumer behaviour can lead to an infinitely more effective use of marketing
resources.

Before taking the decision to invest in a database, however, an organization needs to be clear;

• what the primary purpose of the database will be;


• what secondary functions the database will be expected to fulfil;
• the other systems with which the database must interact—e.g. accounting;
• the categories of data it is intended to store;
• the volume of data it is intended to store;
• the forms of analysis and/or segmentation the database will be expected to accomplish;
• the forms of marketing it is intended to support;
• the range of outputs that will be expected.
• 7.1 Three ways of producing adatabase

An understanding of these issues should enable an organization to select between the various
options open to it in the acquisition of appropriate database software. For a typical organization,
these are likely to include the following.

• Purchasing or leasing a commercially available software package. There are a great many
packages currently on the market and their number continues to grow on an almost daily basis.
Packages will support many forms of direct-marketing activity, including direct mail and
telemarketing. Other more sophisticated systems will aid in market research and even allow the
development of geodemographic profiles of the customers on the system.
• Using proprietary software. This differs from packaged software in that it is usually
developed by highly specialized third parties such as Marketing Computer Bureaux. These
organisations usually lease the software and work with the users to help them carry out their
marketing activity and analysis.
• Designing a custom database. This is clearly the most expensive of the three options and
therefore beyond the reach of most smaller organizations. Moreover, one would need a very strong
argument in favour of this alternative, since the range of proprietary or packaged software is likely
to meet all but the most specialized of needs perfectly adequately. Circumstances that are likely to
warrant this considerable investment include the necessity to link with a wide range of other
systems, the desire for a particularly specialized function, and/or the sheer size of the database to
be created.
• 7.2 What information should be stored?

Data in respect of customers are typically held in ‘files’ that usually require the user to follow a
set format. Each variable that is stored (for example, age, gender, and so on) will have a specific
‘field’ into which such information must be entered. More sophisticated packages also contain a
number of user-definable fields, so that the database can to a certain extent be customized to
the needs of the individual organization. Box 26.5 illustrates the information that would typically
be stored in the case of both consumer and businessto-business contexts.

It is interesting to note that the collection of a customer's telephone number has taken on a new
significance since telephone systems have been equipped with a facility known as caller
recognition. This allows the system to recognize the person calling by his or her telephone
number and to display the relevant customer file in front of an operator so that he or she can
welcome the caller by name. Not only is this a more personal service, since the operator has
immediate access to the customer record, but the time taken to process an enquiry is
considerably shortened-something of benefit to both parties to the transaction. This facility is
likely to become ever more powerful now that telephone users can be allocated their own unique
telephone number, which they can then use for a lifetime, talcing it with them when they move
from house to house.

‘Marketing-database data become “information” when we identify the recency, frequency, and
monetary value (RFM) of customer orders.’ (Chapter 8, p. 169)

8 Customer retention
THE role of the database for the purposes of recruitment has already been explained. It can also
offer considerable utility, however, for customer development and retention. This is achieved by
segmenting the database and developing a uniquely tailored service for each of the segments
identified. Customers will thus receive communications that are relevant to them as individuals,
with improvements in satisfaction and loyalty likely to result.

A number of criteria can be applied to segment a database and thus select individuals (or
organizations) to receive a particular campaign. Variables such as age, gender, income,
geographic location, geodemographic coding, occupation, lifestyle, and so on could all be used
for this purpose. Communications with specific themes can be sent to those who experience
suggests would be most receptive. In the context of database segmentation, there are, however,
a number of other variables that could be utilized—namely:

• original recruitment media;


• amount of most recent purchase;
• product categories purchased;
• date of most recent purchase;
• frequency of purchase;
• nature of the desired relationship;
• LTV.

Each of these variables is considered below.

Original recruitment media Data in respect of the original recruitment media can be used to
good effect, since all customers are unlikely to behave in the same way. Customers recruited by
DRTV, for example, are notoriously poor responders to direct mail. There would, therefore, be
little point in attempting to develop a relationship with this group by mail. An approach based on
the telephone, however, may prove more productive.

Amount of most recent purchase Similarly, the amount of the most recent purchase (or
average order value) can be used to develop a customer from a low-value category (say £30 per
annum) to a higher-value category (say £100 per annum). As an organization starts to
understand more about the interests of its customers, it can refine the content of
communications accordingly. It can also flame the ‘offer’ to encourage the customer to spend
ever greater amounts of money with the organization concerned—what direct marketers refer to
as building ‘share of the customer’ (McDonald 1998). It is important to note that average order
value can also be used to ensure that mailings containing the details of high-value products are
not sent to those with insufficient resources to purchase.

Product categories purchased A knowledge of the product categories purchased can be


employed to ensure not only that customers receive future mailings that are particularly
pertinent to their interests, but also those concerning related products/services that are also
likely to be of interest. This is known as cross-selling.

Some organizations will also use this information for a second purpose—what direct marketers
refer to as ‘up-selling’. Customers, for example, currently buying a car at the bottom of a
manufacturer's range can be targeted to receive details of a slightly larger vehicle when they are
considering repurchase. Recent purchasers of a Peugeot 106, for example, could be sent details
of the 206 eighteen months after purchasing their previous vehicle.

Date of most recent purchase The date of most recent purchase can be used to control the
timing of the next contact that an organization will have with a given customer. There are few
things that irritate customers more than placing an order one day and then receiving another
marketing communication a few days later for a similar product. Marketing communications
should be timed at appropriate intervals, based on the record of previous correspondence and
the customer's purchase history.

Information about the date of last order can also be used to identify customers who appear to
have lapsed. On the basis of the value of their prior relationship, a decision can then be taken in
respect of whether to delete them from the active portion of the database, or whether to attempt
to reactivate them with a particularly attractive promotional offer.

Frequency of purchase Many organizations make the mistake of attempting to develop


customers solely by order value. Mail-order catalogues, for example, often encourage their
‘agents’ to place ever larger orders through the provision of a series of financial and/or gift-
related incentives. It is important to recognize though that customers can also be developed by
the frequency with which they make an order. Persuading a customer who might typically make
two purchases a year worth £40 to an organization to make a third will have the same effect on
overall revenue as developing their average order value to £60. There are, therefore, two distinct
alternatives.

Nature of the desired relationship Rather than manipulating the database to provide
customers with the contact strategy the organization believes customers will find most
appropriate, many organizations are now allowing customers to select for themselves whether
and how they might wish to hear from an organization again. Increasingly customers are being
offered a choice over the receipt of further communications, the product lines they wish to be
kept informed about, and when and how often they would like these communications to be
received. Some organizations even offer their customers choice over the media that will
subsequently be employed (for example, mail, e-mail, telephone, fax, and so on).

LTV As was noted previously, the projected LTV of customers can be used to ensure that they
receive a standard of care that reflects their value to the organization. Whilst losing any
customer is regrettable, losing higher-value customers should be a matter of great concern.
Database information can hence be employed to ensure that a particular effort is expended to
retain and develop higher-value customers.

Data in respect of LTV can also be used periodically to clean the database. In almost every
database there will be groups of customers with whom it will never be profitable to develop a
relationship. Customers that make no contribution to the organization's profit, or who are actually
costing the organization money to support, can be identified and deleted from the active portion
of the database. In the author's experience, as much as 10 per cent of the active portion of a
database can be made up of customers who will never be profitable.

9 The future
THE direct-marketing revolution has barely begun. As the pace of technological change quickens,
opportunities for direct marketers to develop what Business Week has referred to as a ‘silicon
simulacrum’ of the relationships that people used to have with tradesmen such as butchers,
bakers, and so on will abound. Tailored approaches will become the norm and tailoring the
approach to dealing with different categories of customers will no longer mean increasing
marketing cost. Modern databases can greatly facilitate the identification of discrete customer
segments and suggest contact strategies designed specifically to build customer value.

Whilst it is always difficult to speculate about the future, a number of trends can already be
observed. These include:
Channel integration The need for households to own a separate hi-fi, television, video recorder,
and home computer will shortly be ended. Integrated home entertainment and information
systems are already in the development stage. A new generation of intelligent Web TVs, for
example, will record user preferences and search for the programming and information that will
be of most interest. Facilities will exist to download relevant audio, video, and printed information
and users will be able to purchase most of the goods and services they require from the comfort
of their own armchair. There can be little doubt that the fragmentation of the advertising media
will continue, but that it will become increasingly easier to navigate the alternatives from one
central point of access. Direct marketers of the future will hence find it easier to reach potential
new customers, but perhaps more difficult to retain them, as information about alternative
products becomes much easier to assemble.

Rise in integrated communications Marketers have been making increasing efforts to


integrate direct-marketing activities within their overall communications mix. Organizations can
no longer afford to manage each of these activities separately—opportunities for synergy have
now to be exploited to have the maximum impact on the target market. When launching the new
Peugeot 406, Peugeot was keen to integrate every aspect of its campaign. In the run-up to the
launch, dealerships received packs of promotional material, including point of sale material
featuring stills from the forthcoming television commercials, CDs with the music from the
commercials for distribution to customers, and a range of full-colour brochures—again featuring
scenes from the ads.

Past customers of Peugeot, likely to be interested in this category of vehicle, received ‘teaser’
mailings to generate an awareness of the launch, without giving anything away about the look of
the car. These mailings were also designed to make the recipients feel special, as they were
amongst the few individuals to be aware of the launch. The copy informed them of the timing of
the first television commercial, when the details of the new car would finally be revealed. Press
ads were also designed and placed in the broadscale media to draw attention to the launch.
These featured the numbers 406 and the date and time the first commercial could be viewed.

The television commercial itself was aired after the national news and space was bought on
every major television channel. Viewers to ITV, Channel 4, and the major satellite channels were
all exposed to the first ad simultaneously—the first time in television history such an event had
been orchestrated.

In this example, each of the direct channels was carefully integrated to build up consumer
awareness of, and interest in, the television commercial, where all would finally be revealed
about the look and style of the new car. Such integrated approaches are likely to become the
norm in the future, as companies recognize that the impact of one media can be greatly
enhanced by the synergistic impact of others.

Share of customer not share of market Much of this chapter has been concerned with the
concept of customer LTV. Whilst this is a fundamental concept in direct marketing, organizations
are only just starting to recognize the implications thereof. As database technology improves and
companies are able to gather and store more information about their customer base,
opportunities for a more meaningful analysis of LTV will abound. Until the second half of the
1990s, for example, the major airlines targeted their frequent flier programmes at the individuals
who had historically flown most frequently with their airline. In other words, they were basing
their approach on the historic value ora given group of customers. As airlines gained more
knowledge about the flying behaviour of their customers, however, it soon became apparent that
frequent fliers were only frequent fliers for a period of around four years. After that, the
individual's job role would typically change and it was no longer necessary for him or her to travel
on such a frequent basis.

The problem from the airline marketer's perspective was that it would typically take between
eighteen months and two years to identify frequent fliers (on the basis of past purchases), which
allowed the airline a small window of only two years in which to keep them loyal and develop a
larger share of their custom.
At the end of the twentieth century the smarter airlines were in a position to profile the behaviour
of their customers and to predict with a fair degree of accuracy those individuals who would
become frequent fliers in the future. This maximized the airline's ability to keep the customers
loyal throughout their most intensive period of travel.

Technology will thus allow organizations of the future to identify potentially high-value customers
early in their relationship with a given organization and allow marketers to concentrate on
developing a relationship that will generate an ever larger percentage of that customer's overall
expenditure in a given product category. When Tesco's introduced its loyalty card, its purpose
was largely to ensure that the customer had good reasons for conducting every weeldy shop at
the Tesco's store. The company was trying to attract a greater share of its existing customers'
overall spend, rather than concentrating on bringing in ever greater numbers of customers. This
is a change of emphasis that will continue to permeate many sectors in the future.

Ethical behaviours Mention has also been made in this chapter about consumer concerns over
different forms of direct-marketing activity. Many traditional forms of direct marketing have been
judged intrusive and an invasion of an individual's privacy. Organizations will need to become
increasingly sensitive to such issues, as many of the new direct channels rely on the electronic
transmission of data. Customer privacy and security will become an intrinsic consideration in any
new media campaign (McDonald 1998). Organizations will need to educate consumers about how
their data will be held and how, if at all, it will be used by them in the future. Changing regulatory
flameworks will also give customers greater control over this process and companies will need to
ensure that they have an appropriate infrastructure in place to respect the wishes of their
individual customers (see Insert).

Guaranteeing privacy may be the differentiator

‘Businesses that use data to deliver better service to customers while also respecting their
privacy will be the real winners in the direct marketing revolution.’ The economist, (9 Jan. 1999,
p. 69)

10 Summary
IN this chapter we have provided a general overview of the subject of direct marketing. We have
defined it as a unique discipline within marketing, the aim of which is to deal with customers on a
one-to-one basis, through a careful analysis of information stored on an organization's database.
It is this unique emphasis on the use of customer information that characterizes so much
directmarketing activity.

We have also explored in detail the role of the marketing database and explained its role in
informing both customer-acquisition and customerretention activity. The structure of a typical
customer-acquisition plan was highlighted and a range of recruitment media was discussed.

The chapter concluded by speculating as to the likely direction the discipline will take. The rise of
new electronic channels, improvements in technology and a general move towards media
fragmentation look set to secure its future. Indeed it may not be long before all marketing
activity can be legitimately classified under this one general heading.

Further reading
Introductory text books

McDonald, W. J. (1998), Direct Marketing: An Integrated Approach (Singapore: McGraw Hill).

Tapp, A. (1998), Principles of Direct and Database Marketing (London: Pitman/FT Publishing).

Practitioner texts
Baler, M. (1996), How To Find and Cultivate Customers Through Direct Marketing (Lincolnwood,
Ill.: NTC Publications).

McCorkell, G. (1997), Direct and Database Marketing (London: Kogan Page).

Stone, M., Davies, D., and Bond, A. (1995), Direct Hit: Direct Marketing with a Winning Edge
(London: Pitman Publishing).

Textbooks on specific aspects of direct marketing

King, J. M., Knight, R, and Mason, J. H. (1997), Web Marketing Cookbook (New York: John Wiley).

Lewis, H. G., and Nelson, C. (1995), World's Greatest Direct MailSales Letters (Lincolnwood, II1.:
NTC Publications).

Reitman, J. I. (1996), Beyond 2000: The Future of Direct Marketing (Lincolnwood, II1.: NTC
Publications).

Shaver, D. (1996), The Next Step in Database Marketing: Consumer Guided Marketing (New York:
John Wiley).

Some useful journal articles

Evans, M., O'Malley, L, and Patterson, M. (1996), ‘Direct Marketing Communications in the UK: A
Study of Growth, Past, Present and Future’,Journal of Marketing Communications, 2: 51–65.

Muranyi, N. R. (1995), ‘Database Marketing in FMCGs: What is The State of the Art?’, Journal of
Database Marketing, 4/1:13–20.

Thwaites, D., and Lee, S. C. I. (1994), ‘Direct Marketing in the Financial Services Industry’, Journal
of Marketing Management, 10: 377–90.

Wang, P., and Petrison, I. (1993), ‘Direct Marketing Activities and Personal Privacy’, Journal of
Direct Marketing, 7/1:7–19.

Discussion questions

1. How would you characterize direct marketing? How does it differ from a mass-marketing
approach?
2. Explain how a manufacturer of consumer goods might employ a knowledge of customer
lifetime value to inform the development of its marketing strategy.
3. How might an organization typically generate a list of potential new customers to receive a
recruitment campaign?
4. What are the key differences between lifestyle and geodemographic lists?
5. In your role as the fundraising director of the Royal National Lifeboat Institution (RNLI),
develop a customer-acquisition plan to recruit l00,000 new donors to the organization.
6. A manufacturer of industrial fasteners is about to develop a customer database for the first
time. What advice would you offer its marketing department? What information should be stored
on the new database? How might it be used to inform marketing strategy?
7. What are the primary concerns that consumers have about the use of direct-marketing
techniques? How might the direct-marketing industry counter these criticisms?

Mini Case: Benedictine liqueur: the repositioning of a brand


In the 1990s the drinks market was replete with attempts to move brands towards a younger
target audience. Tia Maria and Harvey's Bristol Cream have both made successful and highly
publicized attempts to reposition their brands. Other big names such as Southern Comfort have
chosen to broaden their appeal, by moving away from the perception of an after-dinner drink
towards that of an exotic cocktail mixer.

Against this background, Benedictine, too, has recognized the need for change. The brand has a
400-year-old history and has been around for long enough for drinkers to form a distinctive
perception of the ‘values’ of the product. The organization recognized in 1996, however, that the
perception was no longer one that was appropriate, given the competitive pressures in the
market. The profile of drinkers was ageing and the brand was viewed as being rather staid and
old-fashioned.

The marketing team, therefore, sought a way to reposition the brand, add some excitement, and
build sales volumes, without alienating the existing and loyal customer base. The budget to
achieve this goal was comparatively small. Whilst competitors such as Tia Maria or Southern
Comfort were both able to consider the use of television advertising to assist in their
repositioning, the Benedictine brand is small by comparison, with much smaller sums being
available for the purposes of marketing. The marketing team, therefore, decided on a highly
targeted djrect-marketing approach—any other approach would have resulted in a high degree of
wastage, which the team was keen to avoid.

An additional problem with television advertising was the likely timing thereof. In common with
other alcoholic drinks, Christmas is a period of peak sales for the Benedictine brand. It would,
therefore, have been logical to advertise in the period immediately prior to the holiday, but in so
doing the brand would have had to compete with a concentration of other advertising messages
from competitors with a larger share of the voice.

The decision to invest in direct marketing was triggered by the existence of a small but accurate
database of existlng customers that had been built in the past from onbottle promotions, money-
off vouchers, and an offer of free miniatures. This made it possible for Benedictine to have its
customer base profiled against the Target Group Index (TGI) and for the lifestyle characteristics
of its drinkers to be identified.

The results of the analysis revealed that the Benedictine drinker could be either male or female,
was typically well educated, aged 35+ from socio-economic groups ABC1, and culturally aware.
Drinkers appeared to enjoy leisure activities such as theatre visits, gardening, art, travel, and
food. The Benedictine team decided to develop a campaign that would focus on these drinkers,
developing lifetime value rather than attempting expensive customer acquisition. Direct mail was
to be the chosen medium.

The TGI profile made it possible to identify that existing drinkers had a distinct set of interests
and that these interests were generally related to sensory stimulation of one form or another.
The marketing team soon recognized that customers would be likelyto respond to an appeal
designed, equally, to stimulate the senses. Customer mailings were hence given an ‘awaken your
senses’ theme.

The Benedictine liqueur is made from a traditional (and secret) recipe in the Normandy region of
France. This, together with its 4oo years of history, combine to give the brand an interesting
story to tell. The mailings Benedictine developed were designed to build on these characteristics
and associate the brand with art, good food, and the beauties of the garden. Drinkers were
offered recipes and cocktail mixes and given many different reasons for increasing their product
usage. Mailings (which took place twice a year) also included money-off tokens and an
opportunity to earn discounts for a second purchase. Takeup rates to these offers is usually very
high and response rates of over 4o per cent have been reported.

Product packaging was also redesigned to include a new promotional sleeve, inviting drinkers to
send in their details in return for entry to a promotional prize draw. As a consequence the
organization's database grew from a mere 6,000 to well over 17,000 in just two years. These
enhanced numbers and ongoing consumer response to new direct-marketing campaigns
provided ever more detailed information for the organization about the nature of its customer
group. As the organization continued to learn, the quality and targeting of its communications
strategy continued to be refined.

Discussion question:

1. Critically appraise Benedictine's strategy? Can you discern any weaknesses in the approach
adopted?
2. In developing its retention programme, what controls would you expect the Benedictine
team to have put in place?
3. How mightthe Benedictine team approach a customer-acquisition programme? What form
might this take?

Oxford is a registered trade mark of Oxford University Press in the UK and in certain other
countries

Published in the United States by Oxford University Press Inc., New York

© Oxford University Press 2000

Box 26.1 The history of a discipline


1498 Aldus Manutius published the first book catalougue to
appear with prices in Italy.
1667 William Lucas published the first gardening catalogue.
1727 Benjamin Franklin's mail-order library was established
in Philadelphia.
1833 Antonio Fattorini established his mail-order watch club
in Bradford (what was later to become Empire Stores).
1905 Freeman's established the first modern mail-order
catalogue.
1926 Sherman and Sackheim launched their now famous Book of
the Month Club in the USA.
Table 26.1 Example LTV Analysis (£)
Revenue and costs Year1 Year2 Year3 Year4 Year5 Total
1 Total income 60 70 130 140 150 550
2 Total costs 9 9 10 17 18 63
3 Contribution (1–2) 51 61 120 123 132 487
4 discounted value 51 55 99 92 90 387
Note: Discount rate of 10% per annum.
Table 26.2 UK postal units
Postal unit Example Number in UK Number of
households
Postal area Reading(R) 121 200,000
Postal district RG9 2,900 8,275
Post sector RG9 1 9,000 2,700
Enumeration district Approx, 148,000 c.150
ten postcodes
Postcode RG9 1PD 1,600,000 10–15
Source:Royal Mail.
Legend for Chart:
A-Supplier
B-Product Name
C-Description
D-Size (m.individuals)
Table 26.3 Lifestyle products
A B C D
CACI Lifestyle UK
List and profiling tool, 44
capable of tagging
existing databases. Each
individual may be se--
lected by 300 different
lifestyle attibutes.
NDL The lifestyle Data collected from product 16
Selector registration guarantees; c.
4 million returned
annually.
Claritas Lifestyle Data collected from in-- 12
Selector product questionnaires and
satisfaction surveys.
ICD Facts of livng Compiled by mailing members 8
Survey of the electoral roll.
Consumer Surveys Lifestyle Complied by mailing 14 4
Focus Ltd. million households.
Typically 200 lifestyle
questions posed.
Box 26.5 Elements of a database
Consumer database Business-to-business database
ID Number ID Number
Title Title of organization
Name Names and titles of
Gender Contacts
Address Addresses
Telephone number Telephone numbers
Fax number Fax numbers
E-mail E-mail addresses
Recruitment source Classification (SIC code)
Socio-economic group Business size
Geodemographic coding Geographic characteristics
Purchase history Purchase history
Credit limit Purchase channels
Communication history Credit limit
Preferences Communicaton history
Other information Preferences
Other information
By Adrian Sargeant

Edited by Keith Blois