Database Marketing: A 24-point Checklist
Are you using all the essential database tools available today? Check this list to be sure
April 2007 By Arthur Middleton Hughes
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We have learned a great deal from database marketing in the last two decades. The following is a list of the 24 essential techniques used in database marketing. Anyone who works in marketing today has to be familiar with, and be able to use, all of these methods. Test your knowledge with this checklist.
#1—LTV
Customer lifetime value can be
calculated in any industry, B-to-B or B-to-C. It is used to guide direct marketing strategy. In the early days of database marketing, few marketers knew how to calculate it or how to use it. Today it is widely practiced.
#2—RFM
RFM (Recency, Frequency, Monetary Analysis) is a highly successful way of predicting which customers will respond to promotions. This segmentation tool has been around for 50 years, but many marketers still do not understand it or use it properly.
#3—Customer Communications
Personalized customer communications, based on information in a database, can be shown (using tests and controls) to increase customer retention, loyalty, cross-sales, upsells and referrals. They are effective, and the principal reason why you build a marketing database.
#4—Appended Data
It is possible today to append data to any name and address file to learn age, income, home ownership, presence of children and about 40 other valuable pieces of information about any household. This information can be used to create customer segments and guide strategy designed to create powerful customer communications. Similar information, such as SIC code, number of employees and annual sales, can be appended to B-to-B files.
#5—Predictive Models
Using appended demographic and behavioral data, it’s possible to create models that accurately predict which customers are most likely to defect and which are most likely to respond to new initiatives. Modeling, combined with customer communications, can be a powerful technique that can increase response and reduce attrition.
#6—Relational Databases
Putting customer databases in a relational form makes it possible to store an unlimited amount of information about any customer or prospect, and retrieve it in an instant in a hundred different ways. Relational databases are essential to modern database marketing.
#7—Caller ID
Linked to a customer marketing database, Caller ID permits a customer service representative (CSR) to pull up a customer’s complete record before taking a call. As a result, the CSR can speak to the customer as if she knows her, bonding with her and building close rapport. This helps deliver on the promise of database marketing.
#8—Web Sites
A Web site with cookies can do almost everything that a live operator can do—and much more. It can show customers pictures of the product, instructions, background information and details, while enabling them to print this customized information. Web sites are not wonderful at selling. They are a tremendous research tool and customer bonding and ordering tool. No database marketer can really be successful without a personalized Web site with cookies or some other customer identification mechanism.
#9—E-mail
Despite SPAM, e-mail marketing has emerged as a powerful database marketing tool. The ability to contact customers immediately with transactional information (e.g., “Your product was shipped today. Here is the tracking number …”) makes for vastly improved customer relationships, leading to retention and increased sales.
#10—Tests and Controls
Since 1980 marketers have been sending out direct mail and measuring the response to each campaign. Today, we can use our databases to measure much more. Setting aside customers in a control group, we can measure with pinpoint accuracy the short- and long-term effect of any marketing initiative.
#11—Loyalty Programs
Most customers are delighted to participate in well-designed loyalty programs. Airlines have been successful with these programs, and their use has spread to supermarkets, hotels, retail stores and a variety of industries. They are part of the mix of retention-building services that database marketing has made possible.
#12—Analytical Software
It used to be that after a campaign dropped, you got canned printed reports showing what happened. Today, marketers have very sophisticated analytical software linked to their databases so that each analyst can do any type of standard or ad hoc report before, during and after a campaign. We now have “hands-on” marketing.
#13—Web Access to the Database
Today the marketing database is in a relational format on a server that can be accessed online by anyone in the company, from any location. Instead of a couple of analysts working with the data, it is available to management, sales, customer service, marketing and market research. Web access has made marketing databases a useful tool throughout the enterprise.
#14—Rented Lists
In the past, most companies kept their customer lists strictly private. Today, most lists are shared, exchanged or rented. As a result there are more than 40,000 lists on the market, which include data on more than 240 million American consumers and millions of businesses.
#15—Campaign Management Software
Direct marketing campaigns used to be generated by memoranda to a service bureau: “Select these groups, divide them into these segments with these codes, and fax me the counts.” The process of getting the mail out the door took three to six weeks. Today, marketers have campaign management software linked to their database so they can do the planning and the actual selections themselves in an afternoon. It cuts weeks off of the direct mail time, resulting in higher response rates.
#16—Address Hygiene
Modern service bureaus can take any large or small file of customers or prospects, reconfigure them into a common format, correct the addresses to U.S. Postal Service standards, consolidate the duplicates, apply National Change of Address and get the records ready for mailing or storage in your marketing database in one or two days after receipt of the data.
#17—Profitability Analysis
We used to know that some customers were more profitable to us than others, but it was hard to measure. Today banks, insurance firms, B-to-B enterprises and many others can compute the monthly profitability of each customer. They’ve discovered that many customers are unprofitable. As a result, they’ve changed their marketing and pricing strategy to increase their profits.
#18—Customer Segmentation
Today, companies have many customers—some in the millions. A database is needed to store their information. To develop marketing strategies for all these customers, you have to divide them into segments that usually are based on demographics and behavior. Success comes from creating useful segments, and developing customer marketing strategies for each segment.
#19—Multichannel Marketing
Customers buy through multiple channels: retail, catalog, Web, etc. We’ve learned that multichannel customers buy more than single-channel buyers. To be successful, you need a database that provides a 360-degree picture of your customer, coupled with strategies that recognize and communicate personally with the customer when she shows up in any of the various channels.
#20—Treating Customers Differently
All businesses have gold customers—a small percentage that provides 80 percent of your revenue and profit. With a marketing database, you can identify these gold customers. Then you can develop programs designed to retain them, and use resources you couldn’t afford to spend on all of your customers. Profits come from working to retain the best, and encouraging others to move up to higher status levels.
#21—Next Best Product
The database is used to determine what customers in each segment normally buy. From this, you can determine anomalies, such as customers who are not buying what the others are buying (usually because they are buying this product from somewhere else). This is their Next Best Product (NBP). The NBP is put into the customer database record, and then used by customer service and sales in communicating with customers.
#22—Penetration Analysis
Using a database and online analytical software, marketers can do their own penetration analysis. What percent of sales do you have in each ZIP code, SIC code, income level or age group? This is a versatile tool that can help you to locate retail stores, place advertising and direct your sales force.
#23—Cluster Coding
Claritas and other data solutions firms have divided U.S. (and Canadian) consumers into 66 different clusters with catchy names and similar spending habits. In many industries, using clusters with penetration analysis can help you identify who is buying your products and who isn’t.
#24—Status Levels
The airlines started it: platinum, gold and silver. Status levels based on customer value have spread to other industries. Customers now understand their status, and work to move up to a higher level to earn special benefits, rewards and services. In a democracy, it is an egalitarian method of customer differentiation that assists in building customer loyalty and company profits.
If you are not familiar with and using all 24 techniques in your work, you may not be getting the level of customer retention, cross-sales, upsells, referrals and profits that others enjoy.
Arthur Middleton Hughes is vice president/solutions architect at KnowledgeBase Marketing, a full-service data solutions firm based in Richardson, Texas. He can be reached at arthur.hughes@kbm1.com or at (954) 767-4558.
#1—LTV
Customer lifetime value can be
calculated in any industry, B-to-B or B-to-C. It is used to guide direct marketing strategy. In the early days of database marketing, few marketers knew how to calculate it or how to use it. Today it is widely practiced.
#2—RFM
RFM (Recency, Frequency, Monetary Analysis) is a highly successful way of predicting which customers will respond to promotions. This segmentation tool has been around for 50 years, but many marketers still do not understand it or use it properly.
#3—Customer Communications
Personalized customer communications, based on information in a database, can be shown (using tests and controls) to increase customer retention, loyalty, cross-sales, upsells and referrals. They are effective, and the principal reason why you build a marketing database.
#4—Appended Data
It is possible today to append data to any name and address file to learn age, income, home ownership, presence of children and about 40 other valuable pieces of information about any household. This information can be used to create customer segments and guide strategy designed to create powerful customer communications. Similar information, such as SIC code, number of employees and annual sales, can be appended to B-to-B files.
#5—Predictive Models
Using appended demographic and behavioral data, it’s possible to create models that accurately predict which customers are most likely to defect and which are most likely to respond to new initiatives. Modeling, combined with customer communications, can be a powerful technique that can increase response and reduce attrition.
#6—Relational Databases
Putting customer databases in a relational form makes it possible to store an unlimited amount of information about any customer or prospect, and retrieve it in an instant in a hundred different ways. Relational databases are essential to modern database marketing.
#7—Caller ID
Linked to a customer marketing database, Caller ID permits a customer service representative (CSR) to pull up a customer’s complete record before taking a call. As a result, the CSR can speak to the customer as if she knows her, bonding with her and building close rapport. This helps deliver on the promise of database marketing.
#8—Web Sites
A Web site with cookies can do almost everything that a live operator can do—and much more. It can show customers pictures of the product, instructions, background information and details, while enabling them to print this customized information. Web sites are not wonderful at selling. They are a tremendous research tool and customer bonding and ordering tool. No database marketer can really be successful without a personalized Web site with cookies or some other customer identification mechanism.
#9—E-mail
Despite SPAM, e-mail marketing has emerged as a powerful database marketing tool. The ability to contact customers immediately with transactional information (e.g., “Your product was shipped today. Here is the tracking number …”) makes for vastly improved customer relationships, leading to retention and increased sales.
#10—Tests and Controls
Since 1980 marketers have been sending out direct mail and measuring the response to each campaign. Today, we can use our databases to measure much more. Setting aside customers in a control group, we can measure with pinpoint accuracy the short- and long-term effect of any marketing initiative.
#11—Loyalty Programs
Most customers are delighted to participate in well-designed loyalty programs. Airlines have been successful with these programs, and their use has spread to supermarkets, hotels, retail stores and a variety of industries. They are part of the mix of retention-building services that database marketing has made possible.
#12—Analytical Software
It used to be that after a campaign dropped, you got canned printed reports showing what happened. Today, marketers have very sophisticated analytical software linked to their databases so that each analyst can do any type of standard or ad hoc report before, during and after a campaign. We now have “hands-on” marketing.
#13—Web Access to the Database
Today the marketing database is in a relational format on a server that can be accessed online by anyone in the company, from any location. Instead of a couple of analysts working with the data, it is available to management, sales, customer service, marketing and market research. Web access has made marketing databases a useful tool throughout the enterprise.
#14—Rented Lists
In the past, most companies kept their customer lists strictly private. Today, most lists are shared, exchanged or rented. As a result there are more than 40,000 lists on the market, which include data on more than 240 million American consumers and millions of businesses.
#15—Campaign Management Software
Direct marketing campaigns used to be generated by memoranda to a service bureau: “Select these groups, divide them into these segments with these codes, and fax me the counts.” The process of getting the mail out the door took three to six weeks. Today, marketers have campaign management software linked to their database so they can do the planning and the actual selections themselves in an afternoon. It cuts weeks off of the direct mail time, resulting in higher response rates.
#16—Address Hygiene
Modern service bureaus can take any large or small file of customers or prospects, reconfigure them into a common format, correct the addresses to U.S. Postal Service standards, consolidate the duplicates, apply National Change of Address and get the records ready for mailing or storage in your marketing database in one or two days after receipt of the data.
#17—Profitability Analysis
We used to know that some customers were more profitable to us than others, but it was hard to measure. Today banks, insurance firms, B-to-B enterprises and many others can compute the monthly profitability of each customer. They’ve discovered that many customers are unprofitable. As a result, they’ve changed their marketing and pricing strategy to increase their profits.
#18—Customer Segmentation
Today, companies have many customers—some in the millions. A database is needed to store their information. To develop marketing strategies for all these customers, you have to divide them into segments that usually are based on demographics and behavior. Success comes from creating useful segments, and developing customer marketing strategies for each segment.
#19—Multichannel Marketing
Customers buy through multiple channels: retail, catalog, Web, etc. We’ve learned that multichannel customers buy more than single-channel buyers. To be successful, you need a database that provides a 360-degree picture of your customer, coupled with strategies that recognize and communicate personally with the customer when she shows up in any of the various channels.
#20—Treating Customers Differently
All businesses have gold customers—a small percentage that provides 80 percent of your revenue and profit. With a marketing database, you can identify these gold customers. Then you can develop programs designed to retain them, and use resources you couldn’t afford to spend on all of your customers. Profits come from working to retain the best, and encouraging others to move up to higher status levels.
#21—Next Best Product
The database is used to determine what customers in each segment normally buy. From this, you can determine anomalies, such as customers who are not buying what the others are buying (usually because they are buying this product from somewhere else). This is their Next Best Product (NBP). The NBP is put into the customer database record, and then used by customer service and sales in communicating with customers.
#22—Penetration Analysis
Using a database and online analytical software, marketers can do their own penetration analysis. What percent of sales do you have in each ZIP code, SIC code, income level or age group? This is a versatile tool that can help you to locate retail stores, place advertising and direct your sales force.
#23—Cluster Coding
Claritas and other data solutions firms have divided U.S. (and Canadian) consumers into 66 different clusters with catchy names and similar spending habits. In many industries, using clusters with penetration analysis can help you identify who is buying your products and who isn’t.
#24—Status Levels
The airlines started it: platinum, gold and silver. Status levels based on customer value have spread to other industries. Customers now understand their status, and work to move up to a higher level to earn special benefits, rewards and services. In a democracy, it is an egalitarian method of customer differentiation that assists in building customer loyalty and company profits.
If you are not familiar with and using all 24 techniques in your work, you may not be getting the level of customer retention, cross-sales, upsells, referrals and profits that others enjoy.
Arthur Middleton Hughes is vice president/solutions architect at KnowledgeBase Marketing, a full-service data solutions firm based in Richardson, Texas. He can be reached at arthur.hughes@kbm1.com or at (954) 767-4558.
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