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Patty BrehmMailmen, Inc.June 21, 2010

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The plain pencil is symbolic ofboth the attitude and the practiceof the true testing direct marketer:

1. You get up close to the numbers.2. You must be prepared to make

a lot of changes.

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“If you're not failing every now and again, it's a sign you're not

doing anything very innovative.”

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"It is common sense to take a method and try it. If it fails, admit it frankly and try another.

But above all, try something.“Franklin Delano Roosevelt

   32nd U.S. president

…and if you want to stand out from the crowd you have no choice but to keep experimenting.

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What do the best direct mailers know and how do they know it?

► They know how customer behavior differs at various seasons of the year.

► They know which sets of customers are their most profitable, and which sets are a drag on their bottom line.

► They know who tends to respond to what type of offers.

► They know when to spend more money on a mailer and when to save money and get the same results.

They keep complete records of what is mailed when.

They assign each customer an RFM* score. (* to be explained)

They integrate codes into each offer and each list.

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A real-life example of the direct mail and emailtest records kept by a major retailer:

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Product: Watches Season: Graduation Time15% Off, Free EngravingPrestige Name Brands

Product: Watches Season: Graduation Time15% Off, Free EngravingPrestige Name Brands

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Aim Properly When You Test:

Your goal is to gain knowledge that will translate to trueinsight into your business.

Response rates and income are secondary and will grow as your knowledge grows.

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► Create a basic direct mail piece and begin with the basics. ► Keep it as simple as possible, without a lot of “bells and whistles” in the package.► Use examples of fairly well proven techniques and avoid expensive and ultra-creative formats.► Then begin testing lists using this same piece.

What do you test first… The package or the list?

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How many different elementscan you testat a time?

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What do yourecord

foreachtest?

► Don’t skimp on data kept► If in doubt, record it► # of pieces mailed, list used► Weather, mailing circumstances, major news events► Number of responses, source of responses► Average order size ► Conversion rate► Response rate► Cost per thousand for the piece► Cost per order► Percentage of no-pays, returns, etc► ROMI► Any differences in ordering trends► Methods of payment► Response methods chosen

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Q: What should you do with test numbers after a test is complete?

A: After analysis, write a “verbatim” of your test. You should have an official report for every mailing. That report should contain:

► A description of the test► The purpose of the test► The components of the mailer► Statistical data► Complete results► A numerical and a verbal analysis► Action steps advised as a result of the test

Source: Dean Reick, CEO, Creative Direct LLC

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Dean Reick, CEO, Creative Direct LLC

“Initial tests have a nasty tendency to be flaky. So you should always retest, especially when you

get a positive result or a significant change in results. It's tempting to instantly toss anything that fails

and adopt anything that wins. But it often pays to be patient. Test it again and see

if you get similar results before making a decision.”

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Steve Cuno, Chairman, The Response Agency, Inc.Author: Prove It Before You Promote It: How to Take the Guesswork Out of Marketing.

Your test results should be the most important determinantof your list, offer, formats and creative strategies ongoing.

“Learn to observe and trust the data, not your ‘gut instincts’.

Your gut doesn’t know squat.”

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► Recency: When was the last customer interaction?

► Frequency: How frequent has this customer been in his or her interactions with the business?

► Monetary: What is the sum total of his her or her purchases over the past cycle? (usually 1 year)

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► Score your customers.

► Rank or “decile” them.

► Overlay demographics.

► Overlay attitudes & lifestyles

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Record # Recency Frequency Monetary RFM

A35976 1 3 3 7

C45022 5 3 1 9

R48232 3 1 5 9

A98301 3 5 5 13

B48937 0 1 3 4

J94837 1 5 3 9

Scoring

Purchase in past 90 days…….5Purchase in past 6 months…..3Purchase in past 12 months…1Purchased over 1 year ago…..0

Purchase in past 90 days…….5Purchase in past 6 months…..3Purchase in past 12 months…1Purchased over 1 year ago…..0

Purchase 4 or more x annual……..5Purchase 2 or more x annual……..3Purchase annually………………….1Purchased less than annually …..0

Purchase 4 or more x annual……..5Purchase 2 or more x annual……..3Purchase annually………………….1Purchased less than annually …..0

Spend over $2000 annually…..5Spend over $1000 annually ….3Spend over $500 annually……1Less than…………………….…..0

Spend over $2000 annually…..5Spend over $1000 annually ….3Spend over $500 annually……1Less than…………………….…..0

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Deciling

A decile is any of the nine values that divide the sorted data into ten equal parts, so that each

part represents 1/10 of the sample or population. Thus:

► The first decile consists of the top tier of customers.*► The 5th decile is the top half, the 3rd decile is top quartile.► The 8th decile represents the least responsive, least valuable, and least profitable customers.

Market Deciles can be ranked highest to lowest or vice versa

* Some statisticians do it the opposite way, with the 1st decile lowest

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Overlays

By overlaying geographic, demographic and psychographic (attitude & lifestyle) data, you

can build a PROFILE VIEW of your various deciles and take your testing to an even higher

level.

A basic model built by a database consultant will costfrom between $2500 - $7500 for basic profile/models.

For huge databases, etc., the cost goes up from there.

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Customer Profiling is a relativelystatic process that builds a“profile view” of your deciles.

Customer Modeling is an activeprocess that builds a model of the prime target for a particularproduct, offer, or initiative.

Both methods have their place for the ongoingtesting and databased mailer.

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Once you begin keeping and tracking data, you can go deeperand deeper in your applications. Here is an example of a

RETURNS ANALYSIS – THOSE WHO RETURN SALES TO A RETAILER.

This is a national retailer whose average transaction is under $90.

They had over 400,000 customers shopping in Spring, 2009, of which 354,000 had only sales, i.e., no returns.

22Source: Claude Johnson Associates

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► They retained 34.5% of customers from Spring to Fall ’09.► The best of the best spent over $1000 and stayed at a rate of 81.5%.► 47% of purchase-returners came back, 12% higher than the mean percentage of retained customers.► And the average spend for the returners is $200 compared to $127 for those who did not return items!► If the non-returners had come back and spent like those returners, the company would have realized another $7.7 million in revenue!!!

Perhaps an emphasis on making customers happy

and comfortable about returning merchandise, as wellas making it easier to do so….

MIGHT BE A GOOD IDEA?

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Every business is a big bathtubthat has cracks and leaks.

Thought for the day:

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Your acquisition programs are the faucets that fill the tub with water (new customers).

Some water leaks out because

customers move to new phases in

their lives.

Some water leaks out because

customers can’t affordto stay in the tub anymore.

Some just stay put and refuse to leave.

Some justdon’t need

your servicesvery often.

Some likeother tubs

better.

Some feel like theywere mistreated.

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Basics of Building a Predictive Modeling System

Segmentation is a way of grouping people or organizations with similar demographic profiles, attitudes, purchasing patterns, buying behaviors or other attributes to help understand customers more thoroughly and thus market to them more effectively.

The problem is many businesses use segmentation to only recognize that every customer has some unique characteristics, providing a somewhat superficial view for each….then allyou have is “one-to-some,” which is not much better than “one-to-all.”

Source: David Vergera, Director of Product Marketing, SPSS Analytics, Chicago IL

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► Create customer segments to enable differential marketing programs. ► Use past purchase data and demographics to construct customer subgroups.

► Isolate key performance factors linked to long-term customer value as major data drivers for the segmentation.

► Link product line or category affinity to each subgroup. ► Develop marketing plans incorporating value-based budgeting and category affinity to make programs more relevant and efficient.

Example: You may have to offer less expensive value-added specials to certain sub-groups to keep them

from deserting you altogether.

Example: You may have to offer less expensive value-added specials to certain sub-groups to keep them

from deserting you altogether.

Source: David Vergera, Director of Product Marketing, SPSS Analytics, Chicago IL

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Summary and Take-Aways

► Aim Properly: Your goal is knowledge and you search for specific bits of knowledge with each test.

► Start with a basic direct mail piece, and test it against lists.

► Then test offers. Lists and offers are 80% of the power of mail.

► Score by RFM, then build segmentation clusters.

► Make marketing decisions that are relevant to each group.

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The LI PCC would like to thank today’s session sponsor

Thank you

Bi-County Mailing

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