Direct Marketing and the Internet
Week 8
Fall 2007
Ganesh Iyer
1
A Simple Comparison
Four Distinctions
Mass marketing
Direct marketing
standard
custom
Media
broad, one-way
narrow, interactive
Target
segment
individual
Focus
transaction
relationship
Product
Ganesh Iyer
2
Strategic Customer Aspects

Managing customer equity = net lifetime value of a consumer
» Dialogue
– Promotions as response devices to elicit individual information.
» Develop loyalty programs (frequent shopper programs)
» Use of cross promotions.
– Amazon recommendations.
Ganesh Iyer
3
Cost Aspects
Reichheld, F. (1996) The Loyalty Effect, HBS, Boston.

Cost Implications: cost of acquisition v. cost of retention
» Acquiring new customers is more costly than retaining current
customers.
Ganesh Iyer
4
The Loyalty Effect
Ganesh Iyer
HOMEWORK: CONDUCT CONSUMER
LIFECYCLE ANALYSIS FOR C&C FOR A 5 YEAR CUSTOMER LIFE
5
Competitive Aspects

Database Technology & Customized marketing strategy
» Example from (Iyer and Soberman 2000)
» http://groups.haas.berkeley.edu/marketing/PAPERS/IYER/prodmod.pdf

ICOM’s has a relational database that incorporates household level
information on demographics, activities, preferences and importantly
brand consumption.
» Consumer Data Base with 20 million households (loyalty/usage data)

Use of ICOM’s database in the OTC pain relief category
» Motrin and Advil are direct competitors in the OTC pain relief market and
share the same active ingredient (i.e., ibuprofen).
» Analysis of ICOM's database revealed that Advil's usage was relatively high
among headache sufferers. In contrast, Motrin usage was higher among
sufferers of backache.
Ganesh Iyer
6
Database technology and customized marketing
strategy
Retention-Type Information
» Using information from ICOM's database, J & J developed a
communications and promotions program targeted at the frequent
sufferers of backaches.
» This adds-value to consumers who are loyal to Motrin.
Conquesting-Type Information
» J&J could also increase its appeal to the loyal consumers of Advil
by communicating its efficacy for headaches.
» This adds-value for Motrin among the loyal consumers of Advil.
Ganesh Iyer
7
Internet and Direct Marketing

Large scale interactivity (3 characteristics):
1. Firms can interact with a large number of customers on a
one-to-one basis at a low cost.
2. Consumers can interact with firms.
3. Consumers can interact with each other.

What does the Internet add to Direct Marketing?
» Customization + Interactivity

This leads to the concept of consumers being co-creators
of products.
Ganesh Iyer
8
NIKEiD: Product customization

Dedicated whole division to this ($250mm
commitment…expected to lose money initially as operations
expand).

Why is Nike doing this?
Ganesh Iyer
9
Lands’ End customization
Comment
 Customization and consumer behavior
» Can there be over-provision of variety?
Ganesh Iyer
10
Customized Marketing is:

Consumer centric through
1. Building long-term relationships with consumers based on
their individual needs.
2. Customizing interactions between companies and
individual consumers

Maximize the value of the lifetime relationship.
[My advice is..] Stop being a company with its face towards the
CEO and ass towards the customer”
Jack Welch, CEO, G.E.
Ganesh Iyer
11
Analysis Framework
Perceptual mapping
Company Analysis
Marketing Myopia
First mover advantages
Customer Analysis
Competitor
Analysis
Positioning
Segmentation
Marketing Strategy
Pricing process
Pricing and innovation
Product
Marketing Orientation
Branding
Price
Promotion
Direct marketing
Place
Going to market
Goodyear
Market
Ganesh Iyer
12