Boom and Bust

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Boom and Bust

• CRM as the Primary Tactic in Down Markets

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Beware of the Budget Cut!
Everyone is Being Asked to Cut, But is it the
Right Move for CRM?
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Topics for Today

• Overview of current economic environment
• Why now is the time to increase your marketing
  and CRM budget
• Making the case to senior leadership
• Ten things Victorias Secret is doing now to
  optimize CRM
• The Role of CRM in the Marketing Mix

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Overview of Current Economic Environment
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Economic Indicators Show Continued Weakness

• Consumer confidence has reached an all time low
  of 37.7
• Unemployment stands at 7.2 and is expected to
  increase

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Our Retail Indicator Index is at its Lowest
Point on Record

• Decline driven by rising unemployment, falling
  housing starts, and stock market declines

Increased Chance of Positive LLs
0
Data shown is 2006- 2009 only
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Retail Bankruptcy Rates Have More Than Tripled

• 32 retailers went bankrupt in the last recession
  in the last 12 months 96 retailers have gone
  bankrupt
• And many other retailers are seeing negative
  comps, negative traffic likes and decreased sales!

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Why Now is the Time to Increase Your Marketing
and CRM Spend
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This is When It Gets Interesting

• Be Fearful when Others are Greedy and Greedy
  when Others are Fearful
• --Warren Buffet

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Multiple Case Studies Indicate that Now is the
Time to Increase Your Marketing Budget

• 2002 McKinsey study- 1,000 industrial companies
  who spent more on advertising in a recession (on
  average, 9 more as a percentage of sales) often
  became industry leaders after the recessionary
  period
• McGraw-Hill Research analyzed 600 companies from
  1980-1985. Business to business firms that
  increased or maintained their advertising
  averaged significantly higher sales growth both
  during the recession and after.
• By 1985, sales of companies that were aggressive
  recession advertisers had risen 256 over those
  that didnt keep up their advertising

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Multiple Case Studies Indicate that Now is the
Time to Increase Your Marketing Budget

• According to the ARS Group, during the last
  recession (early 2000s) 25 of businesses
  aggressively increased media advertising
  expenditures these companies increased their
  market share 2.5 times the average business in
  the post recession period
• A 2003 Oregon State University and Marketing
  Science Institute study found that
• On average, increases in advertising spending
  increase a firms long term financial performance
• Increases in advertising during a recession
  provide a bigger boost to performance than
  increases in non-recessionary periods
• Advertising spending has a bigger effect in the
  consumer and industrial products industries than
  in service industries

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Examples of Brands Who Increased Marketing Spend
During a Recession

• Kellogg's and Post had equal market shared
  through the 1920s. During the depression Post
  made major advertising cuts while Kelloggs
  maintained. At the end of the depression,
  Kelloggs owned a dominant market share that has
  been retained
• Revlon and Phillip Morris increased advertising
  spend and both reported gaining market share
  during the mid 1970s recession
• Market Sense compared 101 household name brands
  during the recessionary period of 1989-1991. The
  brands Jell-O, Crisco, Hellmans, Green Giant and
  Doritos all cut advertising spending and saw
  sales drop (26-64). Jif Peanut Butter, Kraft
  salad dressing, Bud Light, and Coors each
  increased spend and saw sales increase (15 to
  70)

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Examples of Brands Who Increased Marketing Spend
During a Recession

• Pizza Hut and Taco Bell also increased their
  marketing budget, effectively gaining market
  share from McDonalds during the 1989 recession
• Coca-Cola added 350M to its worldwide marketing
  budget in 2001, increasing sales and net income
• In 2001, an advertising spend increase of 16 by
  Heinz increased market share 4ppts

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Making the Case

• Making the case for increased marketing spend to
  financial, bottom- line focused executives is
  tough in this environment
• How we positioned the message
• Cited previous case studies
• Benchmarked competitors
• Increased share of voice
• When a brands share of voice is greater than
  its share of market it is likely to grow its
  market share in the coming year1
• Less marketing messages in a customers mailbox
  and inbox means YOUR MESSAGE stands out
• Cited statistical analysis
• Increased incrementality suggests that customers
  would not be shopping without a marketing
  contact
• Shared stories of successful brands who increased
  marketing spend

1Source Millward Brown
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Making the Case

• These companies have indicated that they
  increased marketing spend in 2008 or will
  increase in 2009 (as a to sales)

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10 Things Victorias Secret is Doing Now to
Optimize CRM and the Business During this
Recession
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1 Trending the Long Term Control Group

• Trending the 12 month holdout group allows us to
  observe natural baseline shopping patterns
• These patterns help inform our contact strategy
  for a season
• Lower baseline shopping more CRM

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2 Increasing the Size of the Database

• This is the time to increase your share of voice
  (SOV)
• Invest in building the customer file to garner
  more contacts
• We are adding cell phone matching capabilities to
  identify more customers at POS
• We are also investigating media deals that
  involve sharing of names

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3 Considering Alternative (Less Expensive)
Channels of Delivery

• We are hoping to test
• Inserting our direct mail piece on top of
  newspaper deliveries
• Inserting into existing Victorias Secret
  catalogs
• Using concierges to deliver our CRM pieces in
  high tourist areas
• Bulk drops
• We are increasing the number of email contacts
• Bounce backs, although less elevated, are also
  a less expensive delivery mechanism that targets
  high quantities of existing customers including
  those not captured on the database
• Bounce backs utilize stores for distribution

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4 Focusing on Current Customers with Minimal
Spend on Lapsed and Prospecting

• Our first priority is to retain existing, high
  quality customers
• We are mailing higher deciles of our statistical
  response/spend model more frequently
• We are focusing on our Angel Credit Card
  customers with the introduction of new benefits
  and double and triple point events
• We are not stopping reactivation and prospecting
  initiatives but we are decreasing spend in this
  area
• This strategy is more productive short-term but
  may have lasting effects on the size of the
  customer file if the use of this strategy is
  prolonged

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5 Rewarding Loyalty

• For those customers who continue to be loyal and
  maintain their spend and trips, its important to
  reward that behavior
• They will spend even more after the recession
• We sent VS branded gifts (40 value) to our best
  customers this past holiday season
• We did the same thing in Holiday 07 and saw a
  significant increase in 12 month spend

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6 Researching the Customer- The Motivators have
Changed

• Previous motivators may have included things such
  as style or color, but now quality, life of a
  product, or how it helps my family is more
  important
• This knowledge is important in message
  positioning
• We are undertaking a 3-month study to help better
  understand what is in our customers and
  non-customers lingerie drawers and what
  influences her to purchase certain products

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7 Over-Hauling the Customer Contact Strategy

• Re-build your models- The primary drivers of
  response and spend may have changed
• As our average transaction size (ADS) has
  decreased were considering adjusting our models
  to weight more heavily towards customers with a
  likelihood to increase their ADS
• Monitor customer cycle time (time between trips)
• Intercept those customers whose cycle time is
  increasing to help prevent attrition
• Earlier intervention increases the likelihood of
  retaining the customer
• Add more contacts per customer as you monitor the
  12 month baseline holdout group

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8 Getting more Aggressive with Offers

• This doesnt mean the discounts have to bigger
  instead the offer must have more perceived value
• We are considering adding more beauty samples to
  some of our gift with purchases
• Our gift with purchase bags will be larger (but
  not cost more)
• Study the archives, what didnt work before may
  work now

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9 Featuring Value Messaging on the Creative

• Once again, this does not need to focus on
  discounts
• We are calling out special in-store deals that
  are featured at a great price in addition to our
  champion offers
• Body Bare Bra at 29.50
• Buy 4 items, get one free
• Beauty set pricing

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10 Looking for Creative Sources of Funding

• Look for funding/partnerships in unusual sources
• Partnerships (hotel chains, banks, entertainment
  groups)
• MC/Visa/Amex
• List exchanges
• Use excess product for Gifts with Purchase events

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So How Does this Impact our Marketing Mix?
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Marketing Dollars Shifting To CRM

• The segmented approach of our CRM programs allows
  us to speak in a more relevant voice to the
  customer than other forms of marketing
• CRM is also measurable, and contains a strong
  call to action
• The more productive and efficient nature of CRM
  moved us to
• Increase CRM spend 10 in Fall 2008
• Keep CRM spend flat to LY in Spring 2008
• We are shifting dollars from television media to
  print and CRM
• We are increasing contacts by reducing production
  costs
• CRM is our primary marketing tactic in Spring
  2009!

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Questions?Feel free to contact meAmy
StevensonAVP, Customer MarketingVictorias
Secret Storesastevenson_at_victoria.com