kestnbaum & company andrew hamada daniel tait melia widjaja h.e.l.p. a direct marketing case...

Kestnbaum & CompanyAndrew Hamada

Daniel TaitMelia Widjaja

H.E.L.P.

A DIRECT MARKETINGCASE STUDY

OVERVIEW

1. Financial Problems

2. Operational Problems

3. Financial Objectives

4. Catalog Scenarios

5. Market Opportunities

6. Gains Chart Analysis

7. Direct Marketing Opportunities

FINANCES OPERATIONS OBJECTIVES SCENARIOS MARKET GAINS OPPORTUNITIES

FINANCIAL ANALYSIS


Financial Problems

Rate of increase in profits has been declining.

Rate of increase in sales dramatically outpaces rate of increase in profits

FINANCIAL ANALYSIS

Over 6 years, sales increased 170%, while profit increased only 66%

Customer acquisition costs are rising at a higher rate than gross revenue, likely stemming from H.E.L.P’s ordinary acquisition channels peaking

PRIOR YEAR 6 CURRENT YEAR

Sales: E$10MM

Profit: E$3MM, 30% of sales

Sales: E$27MM

Profit: E$5MM, 18.5% of sales


Operational Problems

Processing standards are subpar. Management sometimes fails to meet standards.

Extensive customer information database is not being used properly. No connection between customers and merchandise picks. Only two segmentation models: age and profitability. Desired segmentation model to include: purchasing power, behavior (four kinds of buyers)

OPERATIONAL ANALYSIS


OPERATIONAL ANALYSIS


• No behavioral segments (high-value deal seeker, habitual shoppers, etc.)

• Not testing customer segments

•Only modest improvement from creative variations

FINANCIAL OBJECTIVES


Financial1. Increase sales by 203MM over the next 5 years

2. Increase average profit per customer from $15.21 to $20.21 over next 5 years

$16.21 per customer per year in year 1

$20.21 per customer per year in year 5

Five-year schedule ($MM)

Year 1 2 3 4 5 Total

Sales 28.6 40.7 42.5 44.4 46.4 202.6

Profit 4.5 6.9 7.6 8.4 9.2 36.8

1. Additional Catalog RemailAdditional mailing to the top deciles each season.

2. Increase List RentalIncrease customer acquisition mailings to lists

3. Larger CatalogAdd an 8 page signature in each of the next 4 seasonal catalogs

CATALOG SCENARIOS


HELP has developed three possible catalog modificationsto address their financial problems.

Largest increase in buyers over 5 year period

Largest increase in net sales over 5 year period

Proportion of increase in net sales to increase in buyers is highest

CATALOG SCENARIOS


Based on our analysis, a larger catalog with a signature insertwill have the best effect on sales and profit.

MARKET OPPORTUNITIES


HELP can leverage their existing resources in new waysto open new market opportunities.

1. Use customer database to overhaul segmentation model.• Current segmentation is based on age alone

• Analyzing relationships between customer variables will aid HELP in profiling their customers

• Most profitable customers

• Underserved, high potential segments

• A more robust segmentation model will help identify causes for underperformance in the bottom four customer deciles.

• Reduce circulation expenses

• Improve product mix



Demographics Geographics Psychographics Behavior

Women, 20 – 29 Central Europe

Habitual Shoppers Shops frequently, brand loyal

Women, 30 – 39 Western Europe

High-value deal seekers

Wait for limited time sales, trust retailers

Women, 40 – 49 Eastern Europe

Variety-loving shoppers

Buy on impulse, shop as entertainment

Women, 50 – 64 Northern Europe

High-involvement shoppers

Consider numerous product attributes, sometimes motivated by event




2. Duplicate business model in a new market.

• HELP is based in Europe

• US market is large, wealthy, consumption driven and untapped

• Entry requires only a US distribution center – use most elements of existing business model

• New campaign requires cultural research & testing to avoid ethnocentrism



US Market Entry Test Plan

Offer/Bribe Product Format Creative Media

Control None European selection

Catalog with signature insert

European styling Mail

2 None Americanized selection



3 None European selection


Americanized styling Mail

4Free shopping

tote with $100+ purchase

European selection



5Free shopping

tote with $100+ purchase

Americanized selection



6 None Americanized selection


Americanized styling Mail




3. Offer in-house financing to select customers.• Analyze database to identify customers amenable to financing

• Credit card users

• Low-volume purchasers

• Can increase sales volume by enabling income-sensitive customers to purchase in larger quantities, more frequent intervals

• Assuming effective risk management, interest income provides an additional revenue source without higher acquisition costs

• In-house financing opens many incentive opportunities

• Low-interest for X periods



In-House Financing Test Plan

Intro Rate Offer Purchase Rate Minimum Order Copy Location Bribe

Control None None None None None

2* None 29.9% None Mail-in None

3* 0%, 3 months 29.9% None Mail-in None

4 None 29.9% E$ 100.00 Mail-in None

5 0%, 3 months 29.9% E$100.00 Mail-in None

6 None 29.9% None Catalog cover None

7 0%, 3 months 29.9% None Catalog cover None

8 None 29.9% None Mail-inNo interest if

paid in full in 12 months

9 None 29.9% None Catalog coverNo interest if

paid in full in 12 months

*Test is necessarily dyadic or triadic.

GAINS CHART ANALYSIS


Line Segmentation Gain Chart

Decile Sales/000 Cum. Sales Profit/000 Cum. Profit

1 3.10 31.0% 6.80 68.0%

2 1.70 48.0% 2.80 96.0%

3 1.27 60.7% 1.66 112.6%

4 1.04 71.1% 1.10 123.6%

5 0.94 80.5% 0.81 131.7%

6 0.79 88.4% 0.21 133.8%

7 0.47 93.1% -0.44 129.4%

8 0.26 95.7% -0.91 120.3%

9 0.29 98.6% -0.81 112.2%

10 0.14 100.0% -1.22 100.0%

1. If there are no trends, cease promotion to the bottom four deciles.

2. Otherwise, modify promotion to divert attention to lower cost sales channels.

GAINS CHART ANALYSIS


Habitual Shoppers: Sending new product offers often that will introduce them to similar and relevant products

High-Value Deal Seekers: Emphasizing on promotions and deals more heavily

Variety loving Shoppers: Offering different product recommendations that will satisfy their various interest

High Involvement Shoppers: Focusing on communicating the individual features and benefits involved in using the products

DIRECT MARKETING


Questions?

THANK YOU

kestnbaum & company andrew hamada daniel tait melia widjaja h.e.l.p. a direct marketing case...

Documents

sales sales

current year sales

net sales

gains chart analysis

year period largest

new market op

customer segments

prior year