November 2004 - Piecing It Together

Understanding the important elements of a successful database marketing campaign and avoiding the pitfalls that can decrease the value and effectiveness of your data.

By David Lustig

Congratulations! You’ve created a comprehensive electronic marketing database for your company. But now, what are you going to do with it? Unless you know how and how not to use a marketing database, all your work will be absolutely worthless. And don’t kid yourself; even seasoned electronic retailer (e-tailer) and direct marketing professionals are guilty of making common mistakes with database marketing. But perhaps the first question should be: what does an electronic marketing database actually do for your business?

Although you may not realize it, database marketing actually begins when you open up the box of your newly purchased electronic appliance or equipment and pull out the product registration form, which asks for your name and contact information. But a comprehensive registration card will ask many telling questions-ranging from martial status, date of birth, where you purchased the merchandise and how you learned about it, to what influenced your purchase decision and what type of credit cards you used to make the purchase. Not only does this type of information make for a more complete marketing database, but it enables direct marketers to tailor their future marketing campaigns toward a specific demographic and offering special incentives or coupon offers that will prompt them to buy more products from your company.

However, while database marketing can do a lot for direct marketers and e-tailers, it has to be executed properly to be effective. “Database marketing helps direct marketers acquire new customers more efficiently and in a targeted fashion,” explains Taleen Ghazarian, vice president, CRM strategy and planning for Epsilon of Wakefield, Mass. “A mass media acquisition strategy is great at reach and awareness, but poor at precision. With a mass-media approach, you’re going to hit some people exactly within your target audience, but you’re also going to spend money reaching people completely outside your target. Database and direct marketing allows an acquisition marketer to take the profile of a valuable customer and use those characteristics to specifically and uniquely target look-alike prospects. That way, you can focus your acquisition dollars on cultivating prospects with the highest likelihood of becoming valuable, profitable customers.”

“Transforming a customer list into a comprehensive database resource, [which] is readily accessible, data rich, robust and complete with advanced statistical modeling capabilities, enables marketers to understand their individual customers in great detail,” says Holly Hammond, president of Gnames Advantage LP of Irving Texas. “It also provides an ideal and powerful marketing platform [that] effectively [enable] marketers to predict repeat sales opportunities by level of profitability, and segment/select their individual customers accordingly.

“At the same time, this intimate level of customer knowledge enables marketers to identify external sources of prospective customers that most closely resemble their best customers, all from a variety of new channels-such as E-mail, direct mail, bank statements [and] package inserts, to name a few. Most can realize enormous marketing cost savings, as well as higher response rates and revenue.”

“In today’s competitive environmentt, you can’t sit and wait for prospective customers to find you and then decide to purchase,” explains Rus Rempala, senior consultant with David Shepard Associates Inc. in Dix Hills, N.Y. “Like other marketing organizations, “e-tailers” now must be more proactive about acquiring and converting new customers.”

At the same time, Rempala says economic conditions require maximizing returns on what is invested in marketing efforts. Whether you consider budget outlays, staff time or forgone alternate opportunities, new customers are not acquired for free and available resources are limited.

“The implication for e-tailers is that if they are to survive, they need to become fairly sophisticated direct marketers,” Rempala adds, “and they need to do so quickly.”

From a strategic standpoint, Rempala contends e-tailers and direct marketers must learn to measure, or at least estimate, new customer acquisition costs by acquisition source. Unless you understand the effectiveness of alternative acquisition sources, or acquisition strategies, you don’t have the ability to intelligently manage the allocation of your new customer acquisition budget.

“What’s more, in addition to measuring cost per new customer, it’s equally important to be able to measure, or at least estimate, the long term value of the customers you are acquiring. Unless the average present value of the average customer exceeds the cost of acquiring the average customer, the new customers acquired will be inherently unprofitable. From a tactical standpoint, becoming a sophisticated direct marketer means using a variety of targeting technologies to focus new customer acquisition efforts for the greatest effect.”

At a minimum, he says, this requires understanding who your customers are in terms of demographics, lifestyle, lifestage, purchase behavior and trends, consumer attitudes, decision-making process and purchase triggers, marketing communication channel preference (mail, phone and the Internet), your share of their total purchases, total purchase potential, and why they bought your product.

Customer profile information, Rempala adds, can be used in many ways to configure outbound customer acquisition efforts. Some examples include tailoring offers and creative materials, choosing rental lists, selecting likely prospects from compiled databases, deciding on local markets for media buys and identifying likely marketing partners.

But the contents of the list not only has to be up to date, its contents have to go after the market you are trying to reach. Katie Fabiszak, director of marketing for the DataFlux Corp. in Cary, N.C., suggests, “Forget the fancy promotions and eye-catching advertising.” says Fabiszak “If the list is not good, marketing programs or campaigns will fail. Most direct marketers make the same, common mistake: they assume that the data in their marketing database is accurate and reliable. In truth, databases are populated from a number of different data sources, both internal and external, such as sales systems, Website, partners and third-party vendors.

“When data is gathered from so many disparate sources, it is inevitable that the formats will be unique and that no common ‘data standard’ exists. The result is a database that is nothing more than a bunch of poorly constructed data. A data management solution helps direct marketers to inspect, correct and control the data that enters the database. By doing that, the direct marketer can feel confident of targeting the right customer at the right time with the right offer.”

Rempala agrees, saying that common mistakes include not developing a marketing plan with quantified objectives, not tracking and evaluating marketing program results, not tracking customer activity over time and not measuring or projecting customer value.

“It’s very difficult for e-tailers to measure and project the value of customers by acquisition source,” says Rempala. “In fact, it’s very hard just to measure and project the value of the average customer-even without regard to source.

“In truth, it should be no more difficult for an e-tailer to measure customer behavior by source code, by campaign or by enrollment group than it is for a traditional direct marketer. Unless you’re tracking customer behavior in multiple ways, you have no way of knowing the real profitability of the business you are managing, nor do you have any way to evaluate the impact of alterative marketing strategies.”

There are many important parts that have to be integrated into an effective database marketing campaign. Epsilon’s Ghazarian puts segmentation and targeting, the ability to understand the similarities and differences in value and behavior and using that insight to allocate marketing investments appropriately, at the top of the list.

Then there is relevance, Ghazarian adds. Using information about the consumer-preferences, needs, attitudes, past behavior, past promotion responses-creates a better, more personalized customer experience through relevant messaging, value propositions and offers. Other factors she says, include: integrating marketing communication strategies across channels and customer touch points, being permission-based, relentless testing and measurement discipline and finally, operationalizing.

“Typical components,” adds Hammond, “include objectives, definition of strategies, and tactical plans to implement the strategies and meet the objectives. However, even before planning, it is most important to select a fully competent and resourceful data, database development and mining, and database marketing partner.”

A plan is only as good as its ability to be implemented, Hammond continues, so it is vital to select a partner that can deliver the best combination of the most valuable data available, the best data processing capabilities, the best research/analytics available, brokerage for all direct media channels, with truly state-of-the-art modeling methods and the proven expertise to effectively support and successfully exploit the database assets.

“Beyond the creative elements and messaging,” Fabiszak says, “a good database marketing plan must acknowledge and address the issue of data quality before any communication with the customer base. Customer data is a fluid, dynamic asset. As people move, change jobs or buy new products, the quality of your existing data goes down. You need a continual data management plan that can help you monitor your data over time. When incomplete data hits the system-or data becomes outdated or invalid-a monitoring program can flag these records for attention. This allows you to maintain a high-quality database of customers and prospects that can be the foundation of a successful direct marketing program.”

Which brings the next question; “Who do you turn to?” The answer can be surprisingly simple and straightforward; a vendor with a good reputation that can tailor a database to what you need.

“Professional and comprehensive database resources can be created risk free and without up front costs by reliable vendors who know exactly how to develop and mine these assets,” explains Hammond. In addition, knowledgeable vendors can effectively leverage the database assets on an extremely controlled and intelligent base that will maximize revenue enhancement opportunities and offset any out of pocket costs.”

Data Flux’s Fabiszak feels that marketers often spend the bulk of their time concerned about the message behind the promotion or campaign and wanting to know the best way to communicate the offer to the customer and how to effectively represent the brand in this campaign. But if the message never reaches the recipient-or if a recipient receives multiple copies of the same promotion-the effectiveness of your database marketing campaign is compromised.

“The cost of bad data extends beyond the money wasted on undeliverable or duplicate messages,” says Fabiszak. “Marketers need to validate the effectiveness of their promotions, often through response levels or leads analysis. By using a data management technology to correct and verify customer contact information, you can communicate with more customers or prospects during the campaign. This gives your message more opportunities to work-and more chances to get a favorable response.”

At the Heart of Database Marketing

For nearly 20 years, Arthur Middleton Hughes has been designing and maintaining marketing databases. A graduate of Princeton University with a Masters Degree in public affairs, he taught economics at the University of Maryland for more than three decades. Currently, he is vice president and a solutions architect at KnowledgeBase Marketing in Richardson, Texas.

Hughes’ book entitled, “Strategic Database Marketing, 3rd edition,” will be published in 2005. Following are excerpts, with permission by the book’s publisher, McGraw Hill.

“Every company today must participate in electronic marketing. It is no longer a novelty. It is not something to leave to the IT department or some technical staff. Electronic marketing today is mainstream marketing.

“That does not mean that electronic sales are anything to write home about. Online retail sales (not counting travel) are predicted to rise to 2.9 percent of all retail sales by 2007. Include travel and the total is 4.4 percent. Online sales have been growing at about the rate of 26 percent per year for several years, but they started from nothing. My guess is that by 2007, these numbers will be higher than predicted. Web sales differ by industry. Some catalogers have reached numbers like 35 percent of sales through the Web. Amazon has shown what can be done in selling books, music and videos. But on the whole, the aggregate sales numbers are small,” Hughes says.

He contends that consumers are slowly getting used to buying online and they don’t realize what is out there until they actually have to look for something that is hard to find. Then he says, “Once they do the work of finding something on the Web, many of them get hooked.”

“After a while they look on the Web first, before the yellow pages, and before jumping in the car and driving around,” he says. “That happened to me. It started with books and DVDs, of course; then vitamin pills. Then I found a company that would move my automobile from Virginia to Fort Lauderdale -something that I had no idea could be easily done. Now I look first on the Web for anything I think I need except for groceries.”

“The Web is not a selling medium, it is an ordering medium,” emphasizes Hughes. “An entire industry based on Web advertising and sales was created, wasted hundreds of billions of dollars, and then died within five years. What did we learn from this? The Web is a passive medium, not an active one like television, radio, telemarketing, direct mail or retail stores. It is not a very powerful advertising medium, but as an ordering medium, it can be superb. It cuts the cost of a customer contact down; it can be tied to a database so that each customer sees something different, customized for him or her, when it is clicked on.

“The heart of database marketing is not the database, but the customized and personalized communications with customers that are created using the database. Communications work. They keep customers from defecting. They make people happy (and angry as well). They help to sell goods, to increase loyalty, referrals, cross sales, frequency and order size. Without an active and creative communications program, the database is worthless.”

Hughes adds that database marketing is not about discounts. In mass-marketing campaigns, he says, they work. But not in database marketing because the basic idea in database marketing is to build a close personal relationship with each customer that is based on quality, service, friendship, loyalty and communications. You would not give a neighbor $5 for helping you to carry a chest of drawers up your stairs. It would be an insult. Instead, you offer a cup of coffee or a beer, and 15 minutes of chat around the kitchen table. That is the kind of relationship that database marketing creates.

“Electronic marketing is mainstream marketing,” emphasizes Hughes. “Your company must become proficient at it. Keep in mind, however, that actual Web sales will be a small percentage of your total sales and your Website will be a starting point for customer research leading to sales through other channels: phone or retail visit. The Internet has enabled database marketing to deliver on its promises. The idea was always to use the database to communicate with customers and make them happy.”

David Lustig is a contributing writer for Electronic Retailer magazine. Please send comments or questions to [email protected].


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