Targeted Marketing
By Lorna Pappas
Now that GNC Corporation better understands which customer segments to target, the world’s largest global specialty retailer of nutritional supplements spends fewer targeted marketing dollars on a direct mail program that’s become far more productive. By applying better analytics against good customer and sales data, and streamlining direct mail messaging, “we have experienced an overall increase in average tickets and in transaction rates,” reports Steven Nelson, vice president of marketing at Pittsburgh-based GNC.
Not bad for a company that operates 2,650 company-owned stores in North America, 1,156 domestic franchised locations, 1,149 Rite Aid “store-within-a-store” locations and 858 international franchised locations.
The Harte-Hanks Trillium Software System Series 7 installed on GNC’s customer data management system unearthed the information GNC needed to streamline its targeted marketing. Previously GNC’s approach was to blanket customers with volumes of direct mail, which was “productive when communicating a general brand message about the types of nutritional products everyone should use, but inefficient when trying to build customer sales by segment,” states Nelson.
Today GNC — which spends a whopping one third of its marketing budget on targeted marketing — pursues very specific customer segments with particular products to buy, on a predetermined timeframe. Based on customer RFM (recency/frequency/monetary) data, and other variables, GNC’s best customers get the most direct mail contacts, middle-tier customers get fewer contacts but more offers, and weaker customers get the least amount of contacts but stronger offers that will draw them back to the brand.
When a mail campaign is initiated, an Epiphany system segments customers, associates offers with target segments, and plans out the multi-channel, multi-touch campaigns. Then, the Trillium system refines the quality of the data available for consumption by assuring that the data ultimately populated into the tables (from which tools like Epiphany select records) is clean, standardized, valid, complete and de-duplicated. For example, the Trillium software deletes multiple mailings to the same person or household, and repairs and processes records with missing or erroneous information, making the campaign segmentation strategy more effective.
Customer data is mined at POS and via GNC’s Gold Card loyalty program; as of December 29, 2005, GNC’s new Web site, GNC.com, also feeds the database. “We see a direct correlation between this offer/contact strategy and increased direct marketing ROI,” remarks Nelson. “The biggest cost savings comes from how many contacts we give each segment. We’re actually putting more out in the mail but since it’s more targeted, it’s much more efficient.”
A Change in Outlook
The new strategy has changed GNC’s outlook from selling an SKU to building relationships. “Targeting an SKU tells customers too specifically about what to purchase. The more granular we get, the more difficult we make our ROI,” claims Nelson. “Instead, we pay more attention to the category in which customers shop than to the items they’re buying. Once we establish a customer relationship, we then offer more products within that particular segment to grow the category business.”
Like GNC, Casual Male Retail Group uses direct mail — sending about 40 million pieces of direct mail annually — to reach its target group of big and tall customers, which are thoroughly segmented by lifestyle, age and demographics.. To best respond to these sectors, CMRG partnered with NSB, to advance its POS and CRM capabilities, and provide a seamless connection between the two disciplines; and with SAS for SAS/STAT, the driver behind the statistical analytics for modeling purchase behavior, segmenting the database and pinpointing customers with the highest propensity for purchasing in a segment, to better target the mailings, and optimize the messages and mail stream.
Customer data is enhanced with traditional demographic overlays to further differentiate the big and tall customers more likely to buy Levis and a banded-bottom knit, for example, versus a t-shirt and baggy jeans, or sportswear versus a dress shirt.
When target shoppers enter the store, sales associates expand the database by capturing name, address, size, favorite brands, preferred technical features and other buying behaviors, entered into POS at checkout. “Our goal is to have 95 percent of transactions attached to a customer ID,” asserts Dennis Hernreich, executive vice president, COO and CFO for CMRG. “With comprehensive customer data and CRM capabilities inhouse, we can take targeted marketing to any level we need to in terms of analyzing behavior and segmenting the database, generating more relevant messaging, etc., and there are a number of projects we’re developing in this regard.”
One of those projects, based on extensive data collection, is developing marketing and merchandising triggers that tell a sales associate that the current customer usually buys 626 jeans, for example, and to offer a discount, or other basket-building strategies. “There are hundreds of variables we can use to create customized triggers to provide better, more relevant service that will influence consumer shopping,” states Hernreich. This is where the seamless integration between the NSB and SAS software is most valuable. “In addition, we can tailor our catalogs and direct mail pieces to a segment’s specific lifestyle preference, making the mailings far more targeted and efficient.”
Personalizing with PDAs
Project development also includes a handheld wireless PDA-type device that associates can use on the selling floor to capture data and receive tailored sales messages. Since shopping doesn’t occur at the register, and it’s awkward to suspend the sale at checkout to build the basket further, messages will flash on the PDA device as the consumer is still shopping, an application being tested now in several Casual Male locations.
“The major business benefit should be higher customer value, more frequent shopping, and higher spending, all equating to growing market share,” says Hernreich. “Measured against a control group, the expanded targeted marketing project is showing a significant lift, in the ballpark of 20 percent.” Future applications include feeding the data into an assortment planning tool at the store level. “The ultimate goal is to model customer preferences against instore assortments,” Hernreich says. “We’ve diagramed the process and have a tool in mind that we’re developing with JDA.”
“The biggest potential with all this technology is to break down the silos between marketing, store operations and merchandising so that the same direct marketing effort assists all three in serving our customers,” adds Geoff McGehee, director of database marketing for Casual Male.
Increased Exposure to Marketing Strategies
Pfaltzgraff also is taking steps to grow sales through more targeted marketing. Faced with an aging housefile and declining comp store sales, the 80-store chain today is adding new customers to the housefile and responding with more tailored marketing efforts that are increasing transactions size and purchase frequency.
The York, Pennsylvania-based company turned to Loyalty Lab’s Customer Relationship Manager Suite, now serving as the central hub for collecting data and processing transactions. As shoppers enroll for special marketing promotions (such as loyalty programs), the platform stores the data, tracks shoppers’ activities (web site usage, survey completions, transactions, etc.), and communicates automatically with shoppers via email, web-based signage or POS messaging. The messaging is based on pre-selected criteria and triggered by specific shopper activities. When a customer buys from a specific collection, a message might invite the customer to preview upcoming items in that same collection, or to a secret sale in the collection or compatible merchandise. The sale could be taking place on the Web or at their local store. Or, if customers buy instore, they can be targeted for email offers on compatible items for use on the Web site.
Live for less than a year, and “relatively easy to implement,” the major business benefits so far are “increased exposure to our marketing strategies, improved consumer loyalty, increased transaction size and frequency, better data on what drives our consumers’ purchasing decisions, and a more well rounded, multi-channel look at our customer base,” reports Barb Grafton-Stoner, vice president of catalog and Internet operations for Pfaltzgraff. “The biggest surprise was the very high redemption rate from one of our first targeted promotions.”
Future plans at Pfaltzgraff, Casual Male and GNC are to continue developing and deploying additional and more sophisticated targeted marketing programs that build categories, not SKUs, with better customer segmentation.