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Its margin on product was about 53 percent, out of which it had to take the cost of the catalogs and about 10 percent for ful llment. Sejal recommended two methods for building sales with a database: 1. Building a customer database and using it to determine the pro les of the most pro table customers, then using those pro les to mail catalogs to companies whose pro les matched the pro les of these pro table customers 2. Using emails to communicate with customers, leading to increased cross sales, larger order size, increased frequency of orders, and increased retention
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The method that Sejal proposed was this: Once the database was built, append D&B data and use analytical software to determine the pro le of the most pro table customers. Each customer pro le would include these data: SIC codes Total purchases in the past 12 months Key product groups purchased Total employees and total sales Using this analysis, marketers at the cataloger could develop a market penetration report for each pro le. The penetration report would look something like Table 12-4. Table 12-4 Market Penetration
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Pro le group A B C D E F Total Company customers 10,221 8,874 3,341 2,116 1,984 445 26,981 U.S. universe 109,334 99,447 45,331 69,004 83,556 4,801 411,473 Market penetration 9.35% 8.92% 7.37% 3.07% 2.37% 9.27% 6.56%
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This report clearly identi ed those companies that were the most likely prospects for further sales. Using these pro les, the company could acquire the names of prospects that matched the SIC codes and other data in the pro les. Using these numbers as a base, what results could the cataloger expect from the prospect mailings Certainly not the 6.2 percent received on the existing catalogs. Those were sales to existing customers, many of whom had been purchasing from this cataloger for years. Sejal estimated that with the new mailings, the cataloger would get about one-third of the sales rates that it got from the regular catalog mailing. As a result, he predicted that the cataloger would get a response in the rst year from about 2 percent of those who received a catalog. How many catalogs should be mailed Sejal proposed three scenarios: a conservative, a bold, and an aggressive one. In the conservative scenario, the cataloger would mail to about 150,000 new names each quarter, or 600,000 during the year. The bold total would be 1 million per year, and the aggressive would be 1.6 million in total. Putting everything together, Table 12-5 shows what Sejal projected for the results of the rst year s increased mailings. As a result of the new database and mailing strategy, the cataloger would gain between $3 and $7 million in sales, spend $200,000 for the database and software, and still make a substantial pro t. Many companies expect to lose Table 12-5 First-Year Results
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Conservative New mailing Response rate New customers Average order Revenue Name rental ($100/M) Catalogs @ $1 Ful llment @ 10% Database One-time DB costs Cost of goods (47%) Total costs Net pro t Investment Return on investment 600,000 2.20% 13,200 $250 $3,300,000 $60,000 $600,000 $330,000 $200,000 $140,000 $1,551,000 $2,881,000 $419,000 $1,000,000 1.42 Bold 1,000,000 2.00% 20,000 $250 $5,000,000 $100,000 $1,000,000 $500,000 $200,000 $140,000 $2,350,000 $4,290,000 $710,000 $1,440,000 1.49 Aggressive 1,600,000 1.80% 28,800 $250 $7,200,000 $160,000 $1,600,000 $720,000 $200,000 $140,000 $3,384,000 $6,204,000 $996,000 $2,100,000 1.47
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money in their rst year of database marketing and recoup it later. This study shows that for this company, it was not necessary to predict a loss. Furthermore, this chart includes only new sales. Sejal assumed that the cataloger would also continue to get the existing annual sales of about $14 million.
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