DIGITAL MARKETING HUB v2.0 - AdExchanger

Digital Marketing Hub v2.0
BMO Capital Markets
opment. Moreover, improved disclosure has markedly improved investor sentiment. With
M&A expected to slow, capital return to shareholders could accelerate. Upside risk to our rating
could occur from improved organic growth at Epsilon (where data sales have been a
drag), while downside could result from unexpected execution missteps in Brazil.
Company Description
Alliance Data Systems is a diversified marketing and payment services company, with a
particular strength in fast-growing loyalty marketing. Over the past decade, ADS has
evolved to offer major brands three different models that capitalize on data-driven strategies
(particularly transaction data) and ride the secular growth of loyalty marketing:
• Epsilon (27% of revenue) works one-on-one with brands for customer acquisition and
loyalty. The full-service engagement marketing firm offers strategy, creative agency services,
database services, analytics and campaign execution (e-mail, in-store, catalog,
online, call centers etc.). Epsilon is comprised of three divisions:
o
o
o
Epsilon Targeting specializes in giving a 360 degree view of customer lifestyles, attitudes
and behaviors using three proprietary data sets (transactional data, compiled
data and survey data). Abacus is a cooperative database (primarily retail cataloguing
data) which warehouses purchasing information on consumers and business buyers.
Online Audience Central is a DMP that brings together online and offline data
assets in a central audience management platform. Epsilon Digital Receipt enables
brands to deliver purchase receipts to consumers via email and combine, up sell and
cross sell offers with loyalty program and transaction data in real-time.
Marketing Technology combines Epsilon’s database expertise with cross-channel,
real-time contact strategies, to develop and host multi-channel database marketing
solutions. Its products include Sonar (deliver the most appropriate and meaningful
content across different touch points), Agility (consolidates a marketers’ data to create
the most current, accurate and complete view of its customers), Loyalty Marketing
Solutions, Customer Database Solutions and Acquisition Database Solutions.
Aspen is a direct marketing agency that was acquired by ADS in 2011. Services
include targeted marketing, consumer promotions and event marketing. Aspen’s acquisition
helped bolster Epsilon’s existing agency purple@epsilon.
• Private Label (47% of revenue) adds a credit card option to one-on-one marketing services.
Like Epsilon, this option features end-to-end marketing services, but also adds
transaction processing and credit from ADS’ issuer/bank subsidiaries (mostly World Financial
Network). The client base is traditionally focused on specialty retail clients like
Victoria’s Secret and Pier 1.
• LoyaltyOne (27% of revenue) offers brands entry into coalition loyalty programs
delineated by country. The coalition model helps loyalty marketing move beyond the
traditional “hardcore” customer. The majority of the segment is made up of the well
established Canadian program AIR MILES, which spans 130+ different marketers and
has 70% Canadian household penetration. LoyaltyOne is also active in Brazil where ADS
has invested in and is helping expand the dotz program throughout the country, expecting
to reach ~4 million members by year end. The company aims to reach AIR MILES like
economics on dotz by reaching 15 million members by 2015.
A member of BMO
Financial Group
69
June 7, 2012