by Ron Kahan

Many corporate marketing initiatives treat all customers as one body, one intellect, or one segment en masse. Customer marketing communication campaigns do, in many instances, send the same message, the same offer, and use the same medium to communicate with this largely disparate customer universe.

This is contrary to the strategic goal of database marketing: to use captured information to identify customers and prospects as individuals and build a continuing relationship with them -- to the individuals greater benefit and the greater profit of the corporation.

In this regard, the catalog and retail industries were the pioneers of database marketing. Prior to the development of mass marketing, merchants had truly personal services, one-to-one relationships and recognized the customers as individuals. The local merchant knew you and your family, what you wanted, how and when you wanted it. The shop owner kept you as a loyal customer by establishing a two-way communication with you while recognizing and appreciating your business.

Information, recognition, customized services and appreciation are the customer benefits that are fundamentals of database marketing.

In today's world of mass advertising and "big box" retail store chains, it's impossible for merchants to know each customer in this individualized fashion. Only with the aid of sophisticated marketing database technology can marketers capture, analyze and act upon the same interpersonal marketing opportunities first identified in these earlier and simpler times. The challenge for distributor-network dependant organizations is the same. It is imperative that the corporation maintain a centralized marketing database of information or run the risk of having customer information reside only at the distributor level.

There are two approaches to successful database marketing: cognitive and behavioral analysis. In this way, marketers can garner a clear understanding of what customers and prospects "look like" (cognitive) and how they act (behavioral).

Target marketers often go through extensive cognitive analysis of current customers by applying third party, compiled data variables to identify characteristic values. This can include both demographic (such as age, income, presence of children) and psychographic (such as lifestyle and interest) data elements. By defining characteristic parameters on current customers, these statistical models can then be focused on the non-customer universe to identify "like-kinds" of consumers for marketing solicitation. In theory, a very logical approach to refining the suspect (non-customer) market to a more likely prospect market. This is the entry-point into the practice of intelligent database marketing.

Despite the capacity of free thought, humanity as a whole is cursed with repetitive behavior and the formation of habits, making behavior therefore predictable. This is a positive human "affliction" for database marketers, presenting many opportunities on which to capitalize. It is the case that there is no greater predictor of future behavior than past behavior. This is intuitively the true premise of behavioral analysis. Behavioral analysis is just that, analyzing behavioral characteristics (buying habits) to predict future behavior.

However, from these data-driven marketing tactics is a growing concern about the capture and use of "private" information. With the proliferation of sophisticated data capture, organization, maintenance and access systems, consumer privacy is an issue to which all database marketers must be sensitive. It is imperative that database marketing practitioners be careful about which data fields of information they provide, to whom, and for what purpose(s).

Most consumers are aware of "mailing lists" compiled from telephone directories, but are most likely unaware of the multitude of channels that gather and make commercially available information about them and their household. Following are some examples of the most common consumer data sources:

• County courthouse home purchase information. Upon buying a home, the trust deed is filed with the county in which the home is located. This information is "public", meaning that it can be accessed by any interested party. In some cases, data compilers send teams of data entry personnel into county recording offices around the country to copy this information onto laptop computers. In other cases, the county has actually created a revenue source by providing this information electronically.
• Credit card companies & credit bureaus. For credit worthiness, this is how financial institutions can send "pre-approved" credit offers. Of course, the availability of credit card transactions depends on the financial institution issuing the card. Most of them, at a minimum, use this information internally for marketing purposes. Others make certain pieces of information commercially available to marketers. However, being at the heart of the consumer privacy issue, those that do provide access to this information only provide summary-level data about types or categories of purchases, rather than data down to the item level.
• Subscription files. Magazine publishers were among the first to make their subscriber (customer) lists available for marketing purposes. Subscribe to a sports magazine and expect offers from sporting goods retailers.
• Warranty cards. Ever wonder why a toaster manufacturer wants to know so much about your lifestyle and household characteristics? Many warranty cards all have the same return address to a data entry house which compiles, merges and maintains this volume of consumer information.
• Government records. Public documents such as marriage licenses, birth certificates, auto registration and the census are accessible in many states.
• Utilities. The new connection of telephone or gas/electric service is sometimes available from the carrier as a new move-in list.
• Mail order. Many catalogers share information about direct-mail buyers to bolster their own prospect lists.

With this level of consumer information available, consumers are rightly concerned about invasion of privacy. Some statistics from a recent consumer study show:

• 89% of consumers are concerned about threats to personal privacy
• 55% are "very concerned"
• 83% believe "consumers have lost all control" on the collection and use of this information
• 72% say "use of computers must be sharply restricted in the future"

On the other side of the equation, many consumers enjoy the convenience of conducting buying in ways that create this marketing data. A Privacy & American Business study showed:

• 70% of consumers approve of patronized companies sending additional offers
• 75% think it's O.K. to use this information as long as they have the option to "opt-out" from being on the database
• 67% favor the current mix of law, litigation and direct marketing industry self-regulation

There is legislation and law which restricts the use of "private" consumer information:

• 19th Century Concerns on Census use prohibits the use of census information at the household level...only statistical-level information is made available for marketing purposes.
• The Freedom Act of 1967 regulates third-party access to records with personal data, but only applies to data collected by the U.S. government.
• The Privacy Act of 1974 regulates the collection, creation, dissemination and use of consumer information.
• The Tax Reform Act of 1976 prohibits tax filing information for use other than taxes.
• The Fair Credit Reporting Act limits what can be reported, the use of credit information, and provides consumers with certain notice, disclosure and other protections.

In addition, 8,485 bills were filed in 1997 related to consumer privacy (up 28% since 1993) with only 1,799 (1 in 5) being passed. However, the current administration in Washington has shown strong, bi-partisan support for the legislation already in effect and the continued self-regulation efforts of the direct marketing industry.

The Direct Marketing Association (DMA) has developed (or co-developed) a number of self-regulatory policies and processes including:

• DMA Mail Preference Service allows consumers to put themselves on a "do not mail" list which member companies must use to purge names from lists.
• DMA Telephone Preference Service allows consumers to put themselves on a "do not call" list which member companies must use to purge names from lists.
• FTC rules governing telemarketing -- guidelines for marketing by phone.
• Recommended customer service practices.
• Guidelines for online privacy principles.

In addition, the DMA has created eleven Privacy Principles for members to follow:

1. Educate users and the public on issues associated with service.
2. Acquire data from reputable sources
3. Ensure accuracy of information
4. Use only public record information not prohibited by law
5. Engage a strict distribution policy of non-public data
6. Maintain data in secure facilities on secure systems
7. Create clear statements on types, sources, uses and collection of data and to who it can be made available
8. Always give a choice to individuals to limit access or use of data
9. Provide information about the nature of public records and publicly available data.
10. Create a very strict provision for data regarding children
11. Yearly assurance of compliance

Database marketing provides powerful tools and techniques for establishing one-to-one communications with marketers' prospects and customers. The underlying objective is to create highly targeted messages to those individuals who've expressed a desire for the communications. There are benefits to the individual by receiving the information, convenience, recognition, special services and individualized attention which database marketing enables.

Likewise, the database marketing benefits to the business are the reduced cost per order, an increase in response rates and the building of profitable, long-term relationships with customers. Both consumers and businesses have expressed the desire to continue the use of database marketing. Marketers must subscribe to ethical consumer information privacy policies to ensure this marketing strategy is available to them in the future.

Ariss Kahan Database Marketing Group, Inc. assists clients build customer relationships through proven and innovative database marketing techniques and marketing database technologies. They specialize in customer acquisition, retention, cross-sell and up-sell initiatives and can be reached at (303) 368-9800 or via e-mail at rkahan@dbmktg.com.