Rewarding Excellence

George Smith chairman, Institute of Direct Marketing

George Smith chairman, Institute of Direct Marketing

The decision to launch the IDM/ ICD Business Performance Awards last September was a considered one. The worlds of advertising, marketing and direct marketing are already awash with awards; just what was the point of another one?

But we thought we saw a gap. There was nothing that actually celebrated the business achievement of the direct marketing medium, the historic fact it had progressed from a marginal and specialist activity to become a mainstream method of business growth.

We wanted an award that acknowledged the extraordinary achievement of British direct marketers in using data-driven marketing to build whole new businesses, to wed the new concepts of customer care and loyalty with the older concepts of buying and selling.

We did not make it easy for entrants. We asked for copious information and hard statistics. Dozens of market leaders rose to that challenge, supplying small volumes of facts to explain their glittering case histories. The result was a shortlist of truly exceptional work.

The panel of judges was eminent indeed. And they were tough, distributing fewer commendations than they were allowed in the belief these awards should be given only for work of unambiguous excellence. Let me thank them for their hard work.

The IDM/ICD Business Performance Awards will now become an annual fixture, likely to be one of the most coveted in British direct marketing.

Lionel Thain chief executive, ICD Marketing Services

As chief executive of ICD, I was pleased and honoured to sponsor this award. When the concept of the awards was outlined to me last June, I felt ICD should be involved. As ICD, the IDM and the industry have all really grown up together over the past ten years, I wanted to help mark the success and achievements of the people and organisations, clients and colleagues, working in direct marketing. I also think it’s important for us to continue to support the IDM itself and its work in providing skills and resources for all of us.

I see the IDM/ICD Business Performance Award as bringing together the best examples of progress and development in direct marketing. The effort required to enter sets this award apart, and rewards strategic thinking as much as creativity or excellence in execution.

In my role as judge, I felt that the quality of the entries and the substantial benefits gained from direct marketing by the finalists clearly demonstrate how essential direct marketing has become to business performance. The substance of the entries also confirms the true strategic value of direct marketing and the impact it can have on branded products and services alike.

As supplier to the industry, ICD also sees first hand the growth and sophistication of direct marketing through our agency and direct clients.

Gold Award Winner

Client:Goldbrand Development

Agency:DP&A

Project:Goldfish launch

The UK credit card market is highly competitive, over-crowded and dominated by Barclaycard. During 1997 alone, 125 new credit cards were launched – one for every other working day. Advertising expenditure in the sector during 1996 was 57.5m (source: Register- MEAL), while in the same year over 900 different credit card mailings were sent (source: Market Movements).

Direct mail for credit cards accounted for 23 per cent of all financial services mailings, at more than 125 million items, equating to over 13 contacts per credit-worthy UK house hold. Achieving standout or substantial share of voice is extremely difficult for any single supplier. For a new launch, inertia and competition make it hard to achieve high volumes of card holding.

By leading an integrated campaign with direct marketing, offering a fresh and innovative brand, and developing an attractive proposition, Goldbrand Developments was able to recruit 650,000 customers within 16 months of launch, with an annual turnover of 1bn.

This compares with 316,000 American Express card holders, 474,000 GM Card holders, 632,000 for MBNA and 450,000 for RBS (source: NOP FRS).

On its own, the launch of Goldfish led to 18 per cent net growth in the credit card market overall. Despite an actual share of voice of ten per cent, prompted awareness of its DM campaigns stands at 40 per cent (source: HPI). Yet cost of recruitment is just 29 per cent of the industry average (source: DMIS/Market Movements).

At the heart of the integrated campaign has been an investment in and commitment to the use of data, including continual remodelling to improve results throughout. Prevented by regulatory issues from using the British Gas database for segmentation and targeting, Goldbrand had to use the electoral roll. Modelling was critical to meeting the business objectives of early high volume recruitment, cost-efficiency, capitalisation on brand momentum at launch, and maximising above the line activity.

The target market for Goldfish is the 10 million-plus high street bank credit card users. This means a gross target audience of 12 million households and 20 million individuals. To tie in with the above-the-line media planning, regionality was taken into account in the selection of targets, to reflect high levels of credit card penetration balanced against inertia towards switching.

A targeting model was developed to establish the highest possible level of response and the highest approval rate. This used Financial Mosaic, Psyche (to identify experimenters and early adopters), Stage (an age identifer adding to propensity for acceptance plus responsiveness) and Delphi (financial history data).

Testing showed that the model increased responsiveness by 362 per cent and approval by 121 per cent among the most creditworthy but less responsive targets. Less financially stable but more responsive targets showed a conversion rate of 125 per cent in the model, compared to control cells.

The launch campaign was re-analysed and a new scorecard developed. The second stage of the campaign improved response rates by 144 per cent compared to the launch campaign, with approval rates rising by 112 per cent. A database was built using geodemographic, financial and lifestyle data which was then analysed using logistic regression.

This was in recognition that the impact of the brand at launch would have a dynamic curve which would affect response rates. Constant remodelling has meant that during quarter four of 1997, response rates were improved by 165 per cent without reducing the propensity to be accepted.

Throughout, the campaign has integrated all media, building a consistent brand, brand values and tone. Extensive creative testing of direct mail has taken place to establish the most effective treatments. This has seen new work beat the control in response by 115 per cent, with acceptance rising by 105 per cent and conversion by 121 per cent, yet at lower cost per acceptance. A new control pack has been established, which uses four variations, based on the target’s propensity to respond and be converted.

A successful remailing programme has also been carried out to counter diminishing response rates. Over three million of the original prospects have been remailed, with response rates reaching 82 per cent of the original level. Using tactical opportunities within press inserts and radio, recruitment volumes have been supplemented substantially without affecting the cost per acquisition.

Silver Award Winner

Client: Tesco

Agency: Evans Hunt Scott/Dunn Humby

Project:Tesco Clubcard

During 1992 to 1995, the rate of growth in grocery retail sales slowed. Recession was affecting consumer spending, while planning permission for new stores had become scarce. Grocery multiples were increasingly forced to capture sales from each other in order to grow market share.

Tesco was in a strong position to ride these currents. It had introduced very high levels of quality, service and value, supported by the “Every Little Helps” positioning. However, competitors could adapt their own offer to challenge Tesco. Sainsbury’s was leveraging its quality heritage, while Asda was emphasising its low pricing, for example.

In 1994, Tesco had two primary business objectives – to ringfence existing customers, and to grow sales among existing customers through consolidating their spend. To achieve this, the company needed to develop a better understanding of its customers and forge a closer relationship with them, allowing its offer to be more tailored. This meant developing a better understanding of who its customers were and how they behaved, then influencing them to increase loyalty.

A mechanism was required to allow Tesco to identify every shopper by name, capturing details on their shopping habits. An initial test of Clubcard was carried out in three stores from October 1993. Customers not only found the scheme appealing, they also spent more as a result. Despite the enormous costs of roll out, Clubcard was launched nationally in February 1995.

The initial recruitment target of five million members in the first year was achieved in six weeks, rising to a current level of 12 million. These shoppers account for over half of all transactions, but a much higher proportion of spend. The 200 million product purchases daily are transferred overnight to a central database. This creates the engine for Clubcard activity.

Segmentation is carried out by visit pattern, spending, lifestage, geography, department use, type of purchase and coupon redemption. A structured programme of testing has revealed when and what type of information should be used to best effect. This helps to drive the primary communications tool of the Clubcard statement, which thanks and rewards shoppers, while informing them about products and services and substantiating the Tesco brand.

Ten million customers are mailed four times a year, with over 10,000 variations in the statement to reflect different types of customer behaviour. More than 250m in vouchers is redeemed annually by Clubcard holders. Redemption levels are over 30 per cent, compared to an industry average of one to two per cent.

The cost of the programme is more than covered by the sales increase produced each quarter after the statement mailing. Accounting for millions of pounds of incremental spend, these four new “Christmases” for the store have doubled in size since launch. Targeted activity is also carried out to meet specific objecties, including building loyalty.

Loyal shoppers typically only use half of a store’s departments, for example. This has been addressed by communications encouraging them to “shop the shop”. Profiling has also been used to ensure customers receive relevant mailings. By identifying the characteristics of wine buyers, similar profile customers who are not buying wine have been targeted, for example.

Clubcard has not only been used to drive communications, it has also been embraced by the whole business to deliver Tesco’s customer-focused policy. This includes using data from the scheme at a local level to support new store launches, address store underperformance or combat competitor activity. The buying departments also use data extensively. Site development is also more effectively planned as a result.

Two months after its launch, in April 1995, Tesco became market leader for the first time. During 1997, year-on-year sales increased by 6.2 per cent, compared with market growth of 2.4 per cent. Loyalty has also been increased – primary shoppers now spend 80 per cent of their grocery shopping budget with Tesco (source: AGB Retailer Track).

Latest results for Tesco show its like-for-like sales up six per cent, total sales up 10.1 per cent and operating profits up 12.2 per cent.

Clubcard is now well on the way to leading the company into being organised around customer segments. Sophisticated segmentation techniques and communications vehicles have allowed the development of much closer customer relationships, and a level of understanding that allows Tesco to tailor its offer.

Silver Award Winner

Client: TSB

Agency: WWAV Rapp Collins

Project: Guaranteed Lending

One of the major dilemmas in banking is how to balance offering credit with refusing it. To maximise profits, direct mailshots for loans, credit cards, payment cards, mortgages or overdrafts are highly effective. However, customers who are mailed and then refused on application (as a result of risk control) may have their relationship with the bank undermined. This can reduce loyalty and profitability, and ultimately increase attrition.

Since 1995, TSB has been pursuing a strategy of guaranteeing acceptance for lending products. This has been achieved by using the customer database to define propensity models in order to select the most appropriate targets. These customers are further screened using credit reference information.

This has allowed TSB to use highly powerful and personal creative messages which have increased response rates, increased cross-selling, improved profitability, enhanced customer service and built up customer relationships. Three years on, it remains one of the few financial institutions to apply this approach and has rolled it out across key product categories.

Current accounts do not make money for the bank, averaging a profitability index of 61 against a mean of 100. In 1995, the top 10 per cent of TSB customers generated 90 per cent of profits on current accounts, while over half made a negative contribution.

In comparison, personal lending has a profitability index of 696, life and pensions 388, general insurance 326 and savings 287.

During 1995, TSB decided to switch its marketing strategy away from above the line and into customer-focused database marketing. The guaranteed loan proposition became a key element of the direct marketing programme which resulted. The strategy was to meet the need for personal loans while overcoming the fear of rejection and reducing the damage done to relationships if an application is turned down. In turn, this would focus resources into the most profitable business, reduce bad debt and save administration costs.

Regression analysis was carried out to build a propensity model for the likelihood to need a customer loan. Using data on age, current account turnover and usage of other products, each attribute was assigned a score. Only those falling into the top decile were selected for mailing. This group was also credit scored to define a guaranteed loan amount.

Significantly, this allowed WWAV Rapp Collins to target the creative proposition strongly towards the customer, underlining TSB’s overall strategy to compete on factors other than price. Mailings offered a “no questions asked” guaranteed acceptance, immediate accessibility, underscored by a closing date, and convenience of application (by phone, post or branch).

Testing of a number of packs produced a clear winner which is the current control pack, using pre-printed cheques. Comparing test results against previous “invitation to apply for a loan mailings” showed the impact of the guaranteed offer. Phone response increased by 85 per cent, postal response by 100 per cent, while cost per sale was reduced overall by more than 25 per cent.

The guaranteed offer has been extended to credit card recruitment, mailing only customers assured of acceptance. This has helped to push penetration of the TSB Trustcard among its customer base to 84 per cent (source: NOP). With 2.35 million in use, it is the second most issued credit card behind Barclaycard.

Guaranteed overdrafts have also been marketed in this way, meeting the needs of customers who often go overdrawn without meaning to. Twenty-three per cent of customers choose to take the facility – analysis shows they are eight times less likely to close their account, five times less likely to become dormant and three times more likely to buy a further TSB product.

Debit card penetration has also been increased by guaranteeing approval. As a large proportion of the customer base was acquired before debit cards were available, a rolling programme has been used to target those likely to use a card. This has increased the volume of transactions by card in 1997 compared with 1996 by 16 per cent to 95 million transactions – overtaking cheques in volume and value.

In late 1996, a cashback offer on guaranteed mortgages was developed for the remortgage market. This gave TSB its largest ever share of the mortgage market at over 8.7bn in outstanding borrowings. The strategy is now expected to be applied to the merged Lloyds TSB customer base when the companies are formally united in 1998.

Highly Commended

Client: Homebase

Agency: Retail Marketing Partnership

Project: Spend & Save Card

A central element of Homebase’s marketing strategy is the Spend & Save loyalty programme. In a highly competitive market, its prime objective is to maintain market share and improve profitability by rewarding loyalty. The scheme is designed to give the biggest rewards to the store’s highest spenders.

At its launch in 1991, Spend & Save was the first magnetic swipe card in the UK to allow customer transactions to be recorded at point of sale. During the price wars of the early Nineties, when some competitors were offering 60 per cent off goods, it allowed Homebase to stay away from discounting. As a result, it was able to increase share without reducing margins.

Since introducing the programme, Homebase has created profitable relationships with over 6 million customers, building loyalty, driving incremental sales and protecting against competitor activity. Cardholders visit Homebase three times more frequently than non-holders, and spend twice as much.

The database is built from over 3 million Homebase customers and nearly 3 million Texas customers. With the acquisition of 240 Texas DIY stores in 1995, Spend & Save proved to be an important vehicle in its integration into the company.

Immediately following the acquisition of Texas, Spend & Save was rolled out in a dual branded Texas and Homebase version. Take-up was enthusiastic, leading to a near doubling of the database and the retention of profitable customers. Catchment area analysis was also supported by the data gathered, allowing for comparison of customer profiles within the two chains. Among Texas stores which have converted to Homebase, sales have seen an uplift of 45 per cent.

Given the intense competitive pressures in the DIY sector, the database has been an important tool in allowing covert marketing activity at a local level. Selected groups of cardholders are invited to regular in-store promotional events. Response to these invitations often exceeds 30 per cent, with over 80 per cent visiting and spending at the store within four weeks of being mailed.

Direct mail to Spend & Save customers is also used for local marketing campaigns to counter competitor activity. Store openings, refits and new departments or services are also communicated this way. As a result, Homebase has been able to retain customers in the face of new rival openings.

During 1997, an intensive mailing programme was carried out. The aim was to use targeted rewards to drive specific actions, such as increasing visit frequency, while allowing Homebase to find out more about customer groups.

Nine segments were identified and allowing the company to test offers and creative executions. Control cells were included to allow for comparisons. Those targeted, in-cluded home movers, high-spending customers, and new cardholders.

Customers who had been in the programme for a long time were also mailed, as were high spending but non-responsive cardholders. A reactivation programme for dormant customers was included. A questionnaire mailing offering bonus points was also tested. This asked for details on the customer’s DIY activities, shopping habits and reasons for shopping at Homebase.

The campaign exceeded expectations, with response rates ranging from five to 35 per cent for the questionnaire. The additional information gathered from this will also be important to Homebase. Analysis is using analogue models to compare the spending patterns of those who were mailed with those who weren’t. Initial results suggest segmented tactical activity can drive incremental sales. Further testing and roll out is planned for 1998.

Highly Commended

Client: Coca-Cola Schweppes Beverages

Agency: Brann SJA

Project: Packaged soft drinks vending

The UK vending business of Coca-Cola Schweppes Beverages (CCSB) has developed over the past ten years into the largest packaged soft drinks vending programme in Europe. With a turnover of more than 50m a year, it is also the most profitable vending operation in Coca-Cola worldwide.

During that time the business-to-business direct marketing programme which underpins the national salesforce has evolved. Through refinement of targeting and creative propositions, the programme is now showing a return on investment of about 20:1. The data derived from DM has been central to the way CCSB has managed its salesforce and developed market share.

While the US has a cold drink culture, the UK still consumes fewer soft drinks. Moreover, companies have not recognised the possibility of selling canned drinks at a profit to people at work. Vending is also a low-interest activity with little organisational status – there is often no formal decision-maker.

One of the first challenges for CCSB and its direct marketing programme was to develop a database of target companies in appropriate sectors. The company had already identified that it had a strong market in retail and catering, which still offered opportunities for expanding sales, but could significantly boost sales at work, education, in the health and leisure sectors.

Having set up the vending division, CCSB appointed Brann SJA to work on developing its DM strategy, database and lead management. To continuously update the database, the contact strategy needed to have the widest possible reach, while also optimising the number of times CCSB could contact the company.

An initial call centre of three people was established to handle phone response. This has since grown into a two location, 30-strong data-driven call centre which handles appointment setting and diary management, providing a link between the agency and the salesforce. The response management system (RMS) ensures leads are evenly distributed, that all leads are tracked, and further data capture takes place.

Initially, direct mail was used as the primary lead generation vehicle because it could be targeted at individuals and companies, would allow clear presentation of a complex proposition, and generally produces good quality leads. The first campaigns focused on establishing rental contracts, with clients providing their own product from cash and carry outlets.

CCSB developed this into a full vending offer in which a machine was provided free, filling and cashing up was undertaken by the vending company, and the site received a share of profits.

The nature of the equipment being offered has also evolved. A greater choice is now provided, differing in size and the nature of the drinks vended.

Creative work within direct mail has also evolved. Original packs concentrated on product and service to overcome barriers to the newness of the concept. The strength of the brands being vended is now emphasised.

Premium offers are also widely used to encourage appointment setting with a sales person. Response rates have consistently exceeded two per cent, while conversion of lead to sale has improved to 20 per cent.

A wider range of media is now used to generate leads, including direct mail, inserts into trade publications, direct response radio and press. Telemarketing is also employed.

Response rate, conversion to appointment and conversion to sale have all been tracked. The database now drives specific initiatives to target different sectors and to identify trends. If, for example, a market segment is underperforming compared with the model, the system will identify this.

FINALISTS

Client: Scottish Courage Brands

Agency: The Blue-Chip Marketing Consultancy

Project: Beck’s Club X

Club X is a long-term integrated marketing programme for Beck’s Bier, launched in August 1996. It is designed to capture young drinkers as they consolidate their brand repertoire and to build loyalty to Beck’s. The scheme has broken the mould for packaged marketing communications. Sales of Beck’s almost doubled in the first year of the programme.

Client: Britannia Building Society

Agency: (not applicable)

Project: Members’ Loyalty Bonus Scheme

Having decided in 1995 to retain its mutual status, Britannia needed to communicate to its members the real benefits. The launch of the loyalty bonus scheme gave members a chance to share directly in the success of the society. The scheme has since become a key element in the overall plan for the business.

Client: BT

Agency: (not applicable)

Project: Consumer Quarterly Mailing

An integrated marketing campaign, based around a quarterly mailshot, has built call volumes and lines. It has delivered growth in the penetration of key products and has also improved customer perceptions. In the financial year 1996/97, it delivered a projected incremental gross cashflow of 327m.

Client: Land Rover

Agency: Craik Jones Watson Mitchell Voelkel

Project: Freelander launch

In a stagnant market for 4×4 vehicles, direct marketing was used to identify potential prospects and build demand for the Freelander before it was launched. As a result, when it went on sale, 50,000 prospects in the UK wanted to buy the car, over and above the client’s target (and production levels).

Client: Sainsbury’s

Agency: WWAV Rapp Collins

Project: Sainsbury’s Bank launch

Better understanding of the customer base was required to beat off competition and improve renewal rates. Sophisticated database analysis was used to identify core issues for attrition, resulting in a mailing programme for renewal notices which targeted the members’ characteristics. Increased retention has increased profitability as a result.

Client: RAC

Agency: Lowe Direct

Project: Customer recruitment and retention

Sainsbury’s was looking for ways to increase profitability through brand stretching. Having identified the potential of financial services, it decided to be the first UK supermarket bank. Direct marketing was used to optimise low cost, high volume customer acquisition and to increase purchase behaviour. The bank has taken 1.4bn in deposits.

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