What Is Database Marketing?

"Managing a computerized relationship database system, in real time, of comprehensive, up-to-date, relevant information on customers, inquiries, prospects and suspects, to identify our most responsive customers for the development of high quality, long-standing relationships of repeat business by developing predictive models which enable us to send and receive desired messages at the right time, to and from the right persons giving us the result of pleasing our customers, increasing response rates…lowering our cost per order…and building our profitable business."

National Center for Database Marketing

Ariss Kahan's Definition of Database Marketing:

Using captured information to identify your prospects and customers as individuals and building a continuing relationship with them -- to their greater benefit and your greater profit.

Caveat: Database Marketing works best if the customer wants to be on the database because there is a benefit.

The more effort a customer invests, the greater their stake in making the relationship work. Starting over with a competitor = reinventing the relationship.

The Benefits of Database Marketing:

• Increase market penetration
• Reduce customer attrition by building loyalty
• Increase sales by developing long-standing relationships of repeat business
• Leverage cross-sell & up-sell opportunities
• New product/benefit development
• Understand the cost of every advertising/marketing campaign
• Eliminate waste through target marketing
• Identify most responsive (best) customers
• Send marketing communications profitably by sending messages to predicted responders
• Increase response
• Lower cost per order and reduce bad debt

Successful Database Marketing requires a dialogue:

This dialogue can be viewed as an interaction continuum of information, knowledge and loyalty. Database marketing interactions yield profit through dialogue.

Database Marketing: Higher Response...Less Cost:

"The common wastefulness of the mass advertising of the past is giving way to the newly affordable to locate and communicate directly with a company's best prospects and customers. As the cost of accumulating and accessing data drops, the ability to talk directly to your customers and prospects, and build one-to-one relationships with them, will continue to grow. A rising tide of technological change has brought this golden moment of opportunity."

Stan Rapp & Tom Collins

The Indisputable Business Logic of Database Marketing:

Instead of focusing on selling one product/service to prospects, we can focus on selling more products to one customer (or customer segment).
Increasing market share is more expensive with less margin.
Increasing share of customer is less expensive with greater margins.

What does it mean to be Customer-Centric?

What do customers want? According to a national survey conducted by an independent market research firm in 2001, along with quality and value, the answers are:

• Customized Attention
• Special Services
• Convenience
• Information
• Recognition

All of these desires require the ability to move and analyze marketing information using database technology.

Two Kinds of Customers:

1. Transaction Buyers:
   • Comparative Shop Every Purchase.
   • Always Looking for Better Deal.
   • No Loyalty.
     
2. Relationship Buyers:
   • Looking for a Reliable Company
   • Price is Secondary

Migration from transactional buyers to relationship buyers is the goal.

Customers, Prospects & Suspects

• Customers are defined as consumers or businesses that have made a purchase.
• Prospects are defined as consumers or businesses that have not yet made a purchase, but may have made an inquiry about your products/services or have a propensity to be responsive to sales promotions because they "look like" your customers and/or inquires.
• Suspects are defined as consumers or businesses that have not made a purchase or inquiry about your product/services, and it is unknown whether they have a propensity to respond to sales promotions.

Basis for Customer-Centric Database Marketing:

• A 5% reduction in customer attrition boosts profits from 25% to 85% (Harvard Business Review)
• The average business is losing between 15% to 35% of its customers annually (Forum Corporation)
• 69% of this attrition is due to poor service interaction (Forum Corporation)

Customer-Centric Database Marketing produces results:

• 42% increase in revenue
• 35% reduction in cost of sales
• 25% reduction in sales cycle duration
• 40% reduction in service/support costs
• 25% increase in customer satisfaction rating
  - Insight Technology Group, 1998

Customer Lifetime Value:

The net profit that your company can realize on the average customer over a given number of years.

Two approaches: Cognitive & Behavioral Analysis

1. Cognitive Analysis:
   • Geo-demographics
   • Household level demographics
   • Psychographics
   • Firmagraphics
     
2. Behavioral Analysis:
   • Buying habits
   • Prospect and customer contact

It is more productive to apply cognitive analysis after behavioral analysis!

Behavioral Analysis -- RFM (Recency, Frequency, Monetary):
All customers are not created equal.

Behavioral Variables:

The order of influence for measuring customer behavior is:

• Recency of the last Order
• Frequency of Orders
• Average Order Dollar Amount

Truisms:

• Customers having a more recent purchase with a business respond better.
• A more frequent customer will respond better than a less frequent customer.
• The monetary amount spent portrays a level of trust, or of being more open to
  marketing messages (i.e. responds better).

Recency, Frequency, Monetary (RFM) Analysis:

• Used for Marketing to Customers
• Always Improves Response and Sales
• Better than any Cognitive Model
• The Most Powerful Segmentation Technique

RFM analysis implementation process:

• Test a cross-section of all customer segments for a positive return on investment.
• Any RFM cell with a response rate greater than break-even will be profitable, so Mail it!
• Roll-out of the campaign would then be delivered to profitable cells.
• Cognitive profiling would then be performed on the top of the customer base in order to narrow the marketing focus.

Do you employ the Break-even Calculation?

The Direct Response Break-Even Calculation:

All direct marketers should be performing this BEFORE they commit any budget dollars.

Figuring the Break-Even Response Rate

Break-even is when: Total Mailing Cost = Total Net Profit
Break-even Response Rate = Per Piece Cost ÷ Per Sale Profit

What is a Marketing Database?

A marketing database captures, organizes and stores data from operational and external systems to provide a robust repository of integrated, historical, cross-organization data for intelligent end-user access. It assimilates heterogeneous data sources to provide a single source of data from which to perform analysis.

Operational or legacy systems are used to carry out the functions of a business (insert, update, delete). Conversely, a marketing database is only used for analysis and decision support functions, not operations.

Fundamentally, a marketing database allows an organization to regain control and access information in order to more proactively and effectively manage marketing strategies, providing opportunities for a competitive advantage.

Top Ten Things to Consider When Developing A Marketing Database:

1. In-house vs. Outsource
2. Open vs. Closed (Proprietary) System Architecture
3. Internal Resources
4. Financial Resources: Budget
5. Third-Party Data
6. Billing Systems Information and Other Source Data
7. Centralized vs. Decentralized Structure
8. What products and transactions will be analyzed? (A telecom example)
9. Update Frequency
10. Timing

Top Ten Reasons Why Marketing Database Projects Fail:

1. Dictated by IT Department
2. Not Fueled by Real, Documented Marketing Strategies
3. Using a Legacy System
4. The Monster Project
5. Company, Not Customer Focused
6. Bad Data
7. No Corporate Continuity
8. No Follow-through
9. No Tracking or Testing
10. Lack of Flexibility

Database Marketing: Two Kinds of People

1. Constructors:
   • People who build databases
   • Merge/Purge, Overlay, Update, Segment
   • Understand hardware and software
     
2. Creators:
   • Understand strategy
   • Know how to make profit with a database
   • Know how to build loyalty and repeat sales

You need both kinds of people for successful database marketing!
Ariss Kahan is bi-lingual - we understand how to communicate effectively with both constructors and creators!

Most Often Listed Requirements of the Marketing Database:

• Profiling, modeling and segmentation of customers and prospects
• Campaign tracking
• Store historical purchase information
• Timely access to information
• Empower marketers
• Reduce IT burden related to marketing initiatives
• Data integrity and hygiene

Selling Management:

Use ROI and Payback Models with Cost Offset by Opportunities for Revenue Enhancements and Expense Reduction:

• Increased Market Penetration
• Customer Retention/Churn Reduction
• Higher Penetration of Ancillary Products (Up-sell and Cross-sell)
• Improve Response Rates from Targeting (predictive response)
• Scheduled Triggers (events) and New Product Development Opportunities
• Bad Debt Reduction
• Implications for Non-development

  Expense Reduction in:

  • Telemarketing Costs
  • Direct Mail Costs
  • Administrative Costs of Acquisition

How's Your Strategy?

A winning strategy always includes testing. Testing challenges the established “control” until a new control can be established. It is only through ongoing testing that one can derive the benefits of a “structured sense of learning”. Achieving profitable lift and sustainable results should be the target.

Campaign Overview:

1. Will your plan be focused on generating leads or closing sales?
2. Are your strategy and targets built around maximizing Return on Investment (ROI)?
3. Does your strategy fall within realistic price and margin constraints?
4. Is your primary objective based upon proper performance standards? Is it realistic?
5. Is there a life-time value from cross-sell and up-sell opportunities?
6. Does your plan consider customer retention?
7. Should your profit expectation for straight acquisition be break-even?
8. Do you have any meaningful performance data for lists, offers or packages?
9. Are the supporting systems already in place that will maximize sell-through?

Campaign Details:

1. Is your list criteria/selection optimized and appropriate for your offer?
2. Is your copy focused upon the customer and narrowed to your main purpose?
3. Have you made an emotional argument directed to the target's self-interest?
4. Is the offer appropriate, is it compelling, is it reinforced throughout the copy?
5. Is the packaging "accessible" and the offer easy to act on?
6. Is your time horizon realistic?
7. Does your production and delivery fall within your capacity to respond?