Class 2 1

Marketing 8001:Database Marketing

Class 2

Discovering and Utilizing Reliable Patterns in Customer Data

Class 2 2

Today’s Agenda

• Reminder• Our Class• Class 2 Materials• Review of Class 1• A Well-Known DBM Example: Credit Risk

Management with FICO Score• Where is DBM Most Applicable?• SAS and SAS Class Exercise• Frozen File Variables• Next Week (Homework 1 assignment due)

Class 2 3

Reminder

• Keep up with readings– LSB– D&D– Missou Media Pack

• Material in readings and Power Point slides can be on exams, even if not covered in class

• Bring questions about readings and SAS to class or contact me

• SAS is the tool we’ll use to do much of what is presented in D&D text

• Do not wait until Tuesday to do homework, unless you’ve mastered SAS

Class 2 4

Our Class

• Some students in our class have taken SAS Certification class...please feel free to help whenever appropriate

• Reasons For Taking Course– Learn SAS– Learn about quantitative analysis of data,

especially marketing data– Learn about database marketing (DBM)– Learn about marketing

Class 2 5

Class 2 Materials

• Download Class 2 files to desktop…C:\M8001– Class 2 PowerPoint => Class2_SP2008.ppt– SAS program for SAS Class Exercise (file with .sas

extension)• SP2008M8001Class1SASExercise.sas

• Download datasets to C:\M8001on your desktop• HLResponseDataPrimSampleSP2008.txt• HLPrimaryFFSampleSP2008Class1.sas7bdat

– Word document for SAS data analysis class exercise• Class2SASRunQuestionsSP2008.doc

Class 2 6

Review of Class 1

• Gist of Course…Learn how to find and capitalize on reliable patterns in customer data.

• Database marketers use data to make decisions because data can reduce uncertainty in decisions.

• This is not something theoretical…testing effectiveness of a marketing treatment almost always involves less risk than guessing.

Class 2 7

Review of Class 1

• One premise of DBM => Data can be used to identify and target best prospects for offers

• Customer Targeting Exercise in Class 1– We decided we could…

• Rent list profitably• Promote 50% of best names on list with

contribution of $20M, versus promoting all 1.0MM names and losing -$50M

Class 2 8

Review of Class 1:Review on Your Own

• SAS– Data step…input and manipulate data– Procedure step (“Procs”)…sorting, printing, statistics, etc.– SAS requires SAS datasets for calculations (.sas7bdat)– Observations in rows, variables in columns…same as Excel!– Variables can be numeric or character…character are difficult– SAS reads entire record into memory, does what you tell it, then

goes to next record…after all records, goes to next Data Step or Proc

– Remember the semi-colon (;) at end of every SAS statement– Lean SAS by using it– Use “comments” in code and save SAS programs– Remember to back-up critical programs & data

• SAS online documentation => http://v8doc.sas.com/sashtml/

Class 2 9

A Well-Known DBM Example: Credit Risk Management with FICO Score

Class 2 10

What Are The Types of Variables in the Model Used to Calculate a Credit Score?

• Types of Variables Rel. Importance– Amounts Owed 30%– Payment History 35%– New Credit 10%– Types of Credit Used 10%– Length of Credit History 15%

• Obviously, credit history drives these models• Later in course we will develop predictive

models and describe the relative importance of each predictor variable in the models.

Class 2 11

Where is DBM most applicable?

• Where customers are different in terms of value to the organization…– For financial companies, this might mean

creditworthy customers or current customers with high savings or investment balances

– For a travel catalog firm…repeat buyers of men’s and/or women’s clothing and travel accessories

– For a statewide telephone company… customers who place many, long distance (high margin) phone calls.

Class 2 12

Where is DBM most applicable?

• In organizations with…– Production and logistics flexibility

• Credit card companies already have a large customer databases

• Amazon’s and L. L. Bean need to create a comprehensive database

– Capability to customize communications with customers

• Credit card companies, mortgage lenders already communicating with individual customers on monthly basis, catalog marketers send catalogs.

Class 2 13

Is DBM Appropriate Strategy?

Class 2 14

Is DBM Appropriate Strategy?

Class 2 15

Is DBM Appropriate Strategy?

Class 2 16

Is DBM Appropriate Strategy?

Class 2 17

Is DBM Appropriate Strategy?

Class 2 18

DBM Not Just for Profit-Making Firms…Can Be Used by Non-Profits for Donor Marketing

• Charitable organizations– Nature Conservancy, American Heart Association

• Educational institutions– Universities…and alumni organizations

• Arts organizations– Symphonies, Museums

• Community organizations– Boy Scouts

• Political Organizations– Democratic and Republican Parties– Political constituencies

Class 2 19

Potential Benefits of DBM• Reduced Costs & Improved Profitability

– Customer retention usually less costly than acquisition– Marketing costs lowered– Loyal customers buy more – Improved retention and LTV– Up-selling and cross-selling

• Improved Customer Satisfaction– Fewer ‘irrelevant’ offers…reduce “junk mail”– More ‘good’ offers– Trust (emotional) and rewards (tangible)

Class 2 20

SAS and SAS Class Exercise

Class 2 21

SAS Windows & Icons

• Open SAS• Editor -- Data step and Proc programs• Log – Program execution documentation

– Always check for errors

• Output – Display results of Procs• SAS Explorer – Remember to look at every

SAS dataset• Toolbar…be careful not to use the “new”

icon by mistake

Class 2 22

SAS Files

• .SAS7BDAT– “SAS dataset” that SAS can read & process– Double-clicking on file name (or right click on file and

select “Open with SAS 9.1”)• Opens SAS• Places SAS file in VIEWTABLE (names in rows, variables in

columns)• In Viewtable…“Table View” most useful• In Viewtable…Can choose Column Labels or Column

Names

– Non-SAS files (.txt, .xls, .sav, .por, etc,) must be read in data step, imported or Proc Convert

Class 2 23

SAS Files

• .SAS– SAS program– Double-clicking on file name (or right click on

file and select “Open with SAS 9”)• Opens SAS• Places SAS code in Editor window

Class 2 24

SAS Class Exercise

• Large SAS program with multiple steps• When you write SAS code, create a series

on smaller steps, not one big program like this!

• Lots of comments• Data steps and Procs are some of the

ones we’ll use this semester…copy, paste and adapt. Save this SAS code!

• Need SAS code from Blackboard• SP2008M8001Class1SASExercise.sas

Class 2 25

SAS Class Exercise

• Need data from College of Business Server

• HLResponseDataPrimSampleSP2008.txt• HLPrimaryFFSampleSP2008Class1.sas7bdat

• Need Word document for SAS Class Exercise

• Class2SASRunQuestions.doc

Class 2 26

SAS Class Exercise: Background

• Random sample of Healthy Living Primary names (DM publisher’s primary market segment) was tested with one-shot book title.– Primary segment defined as previous buyers of at

least one health book

• Each tested customer’s masterfile record was written out and saved at the time of selection (before the promotion) called…– Names-saved file (aka “frozen file”)

Class 2 27

SAS Class Exercise: Background

• For analysis or modeling with a response variable we need…– Customer data from database saved/written

out before the promotion• Because most databases are updated frequently

– Response data after the promotion

• For descriptive analysis without a response variable…can create an analysis file by writing out names from the database

Class 2 28

SAS Class Exercise

• Let’s execute the SAS code step-by-step together so we can see how SAS works.

Frozen File VariablesAGE AGE

CORPD12M TOTAL DOLLARS PAID CORPORATE LAST 12 MONTHS

CUST_ID HOUSEHOLD ACCOUNT NUMBER

FEMALE FEMALE GENDER

HLPRIME HEALTHY LIVING PRIMARY 1-0 FLAG

HL_PULL HEALTHY LIVING HISTORICAL PULL

HL_QAIRE HEALTHY LIVING QUESTIONNAIRE RESPONSE

INCOME LE-HOUSEHOLD ESTIMATED INCOME

LE_HFOOD LE_NATURAL HEALTH FOOD

LE_SUBEV LE-SUBSCRIBE EVER TO EXTERNAL HL MAGAZINE

MDIVDOL MAGAZINE DIVISION DOLLARS PAID

NBDIVRET NUM BOOK DIVISION PRODUCTS RETURNED

NHLBKBUY NUM HEALTHY LIVING ONE SHOT BOOKS PURCHASED

NOLMAT6M NUM OUTSIDE LIST MATCHES TO FILE LAST 6 MONTHS

NOSPPY36 NUM ONE SHOT PRODUCTS PAID LAST 36 MONTHS

PSLOCORP NUM CORP PROMOTIONS SINCE LAST ORDER

TLHLPAY TIME SINCE LAST HEALTHY LIVING PAYMENT

TLORCORP TIME SINCE LAST CORP ORDER

NEXT WEEK

Class 2 31

Homework 1

• Need assignment from Blackboard– Homework1_SP2008.doc

• Need data from Blackboard– HLPrimarySampleForHomework1SP08.sas7bdat

• Remember, the .sas7bdat extent tells your computer and SAS that the dataset is a “SAS Dataset”

Class 2 32

How to Calculate Response Rate Indices

• DBMers focus on types of customers who order and pay or order profitable products– High order rates– High payment rates– Low bad debt rates– Low rates of return– High paid order rates (order and pay)

• Use testing to identify…– Overall response rate for a list segment of names– Effective promotion package elements

Class 2 33

How to Calculate Response Rate Indices

• DBMers use response indices to quantify differences in response rates and other customer actions for names who have different characteristics

• Response index is response rate for names with a given characteristic divided by the response rate for a comparison group…– For customer characteristics, usually response rate

for list segment to which the names belong– For marketing mix factors…control group rate

Class 2 34

How to Calculate Response Rate Indices: Example

• Firm tests random sample of 50,000 names.

• Overall order rate is 2.00%

• Order rate as a percent => – (Number of customers who ordered /

50,000) * 100

– (1,000 / 50,000) * 100 = 2.00%

Class 2 35

How to Calculate Response Rate Indices: Example

• What is Order Index for names that had paid us $100 or more in the past 12 months?– Use data in the sample from the database to

identify names that had spent $100 or more in the last 12 months

– Calculate their order rate– Divide their order rate by overall order rate

• Let’s say their order rate was 2.66%• Order index = 2.66% / 2.00% = 1.33

Class 2 36

How to Calculate Response Rate Indices: Example

• In some firms, indices are multiplied by 100…so, 1.33 become 133

• Only way to tell is from the magnitude of the number and presence/absence of a decimal point

• Indices are used to tell marketers about their best or worst customers.