The video rental market is essentially flat, with few seasonal peaks apart from the Easter holidays. Demand-drivers tend to cancel each other out - with good weather in the summer (bad for video) being compensated for by the presence of children on school holidays (good).
It is also volatile - consumers are likely to dip in and out of the market, with little indication as to why. This all makes it difficult for video rental companies to predict and manage demand.
Because of this, rental chain Blockbuster has implemented a data-driven direct marketing programme, Premier, to make the switch away from generic, new release-led marketing, to customer-focused promotions. These aim to find, and hang on to, its top renters, driving them in-store more often and increasing their average monthly spend.
The programme, run through marketing agency Armadillo Associates, began a little over two years ago, when Blockbuster realised the need to improve the quality and quantity of data it held on its five million-strong customer base. Based as it was on the information customers give when they take out membership, it was limited to basic communications details such as name and address.
"We actually only finally started to capture basic demographic data, date of birth, and gender last autumn, believe it or not," says Blockbuster head of marketing Geri Birt. "The problem was our point of sale system, which, as with most retailers, was never designed for marketing applications, so we've had to upgrade it."
In addition, Blockbuster now captures e-mail addresses and mobile phone numbers with a view to opening up other communications channels.
"Before Premier, our mailing programme was less about the consumer and their needs, and instead centred around the new Blockbuster releases," she adds. "They were quite successful, but they didn't form part of a CRM programme."
In order to reach out to its high-value customers, the company scored the data it held to enable segmentation. Scoring was based on transactional history and expected future revenue potential. The focus was on its most active customers - defined as three-month active - and split into deciles.
This work was outsourced to statistical management specialist Results.
The focus was on the top scoring cell, based on present and future value, calculated over an initial three-month period. Their behaviour over the following three months ratified the scoring process.
"You see people who naturally drop out of a certain cell, and people who migrate upwards," notes Birt. "We may not understand why it happens, but at least we know that our scoring is relevant and accurate and it lets us attach a value to them."
The aim was to move more customers up to the highest renting cells, and to retain more of those who are already there. Blockbuster used a card-based benefits programme, the Bonus Card, which allowed the recipient unlimited 'rent-one-get-one-free' offers during a six- or eight-week period.
"When we switch this kind of activity on it really does drive significant frequency," she says - with a concomitant increase in sales for other products, such as Blockbuster's useful sideline in cinema-style treats like Doritos, Haagen-Dazs ice cream and Coca-Cola.
Transactional information is the most valuable. "We capture everything at line level," she says. "We know exactly what you're spending, what's in your basket, what movie you've rented, whether you've bought a bottle of Coke. We can also use the database to add value to our third-party partners. It means that Coca-Cola, which doesn't have a database of its own, can use the relationship to deliver direct messages to our customers."
This transactional data helps Blockbuster to mail to its high-spending customers by preference (DVD or VHS, or games rather than movies) and potentially by genre preference, which adds another lifestyle element to the project.
"We've yet to be wholly convinced of the value of the lifestyle data, however," she admits, "although we continue to explore it."
Five major mailings took place during the first iteration of the Premier programme, involving 3.9 million pieces. The numbers speak for themselves - more than two million additional transactions (see box, left).
It's clearly a programme that will stay the distance and Birt stresses that Blockbuster will not rest on its laurels.
"We're very focused on where we want to take CRM. It's an ever-evolving process, and we are currently updating it. We still have a long way to go - there's a lot more to do in the way of testing and modelling that we'd like to achieve."
- In a flat market where video rental is usually driven by product-driven marketing campaigns and consumer demand is volatile, Blockbuster wanted to develop its consumer database to build a relationship with high-spending video renters and keep them coming in-store.
- To reduce rental churn, build relationships with top customers and provide stability and growth for the business - and deliver substantial ROI.
- By analysing and modelling its five million-strong database, Blockbuster targeted the top 20 per cent of its members - some 900,000 consumers - with a series of five mailings between April 2001 to March 2002. The offer was an unlimited rent-one-get-one-free "Bonus Card", aimed to lock in rental behaviour and drive footfall. No-mail control cells aided evaluation.
Over the course of the campaign, non-responsive customers were deselected, while customers moving up into the high-value group were added.
- Over a 60-week period, the Blockbuster Premier programme generated an uplift in visits from targeted customers of 15.9 per cent, representing precisely 2.07 million transactions. This gave the Premier campaign a return of some 1,000 per cent on the initial investment. Ongoing returns are in the region of 600 per cent, including the value of credits given away.