Private Databases: The High-Volume Mailer's Answer to a Shrinking Universe
At last year's List Vision, an annual one-day seminar on list marketing held by the Direct Marketing Association, the underlying message of the keynote address was clear: The maturing of the list-rental market has brought the industry to a difficult juncture that requires marketers to do more than pay lip service to list analysis. Today's successful direct marketing companyand the list broker advising ithas to overcome shrinking universes, the over-mailing of multi-buyers, fewer available lists due to company mergers and the growing number of sliced-and-diced masterfiles to find the names that will perform.
According to keynote panelist Don Mokrynski, founder and president of list management and brokerage firm Mokrynski & Associates, the soft economy has produced a list environment that requires direct marketers to dig deeper to get more out of the lists that have performed well in the past, as well as find pockets of opportunity in marginal performers.
But this kind of file-whittling means upping your usage of list-processing services, often a costly part of the rental equation when ordering multiple lists on a regular basis.
For marketers who can justify it, a private database is an answer. Just as it sounds, a private database is a prospecting file that a marketer creates from multiple rental lists, taking the whole file or only certain segments. Instead of renting the individual lists and running a merge/purge on them every time the marketer plans to mail, the lists are merged into a single database the
marketer can pull from over a specified period of timethus eliminating the need for merge/purge processing and run charges on every mail drop.
Additionally, the marketer only pays for the names it mails and at a discounted rate that takes into consideration the volume of business promised to the list owner.
The benefits of such an alliance can be great, but with any promise of significant ROI comes high risk. To make a private database work for all partiesthe list owner, the list manager and the marketera few factors must slide into place.
You must mail with enough frequency and volume.
What makes this arrangement attractive to list owners and managers is the likelihood that a marketer will rent more of their names, either now or in the future. But what they secretly fear is that the marketer will end up taking fewer names and not mailing enough to match the revenue the list owner might have gotten had it not joined the private database.
"No list owner wants to ship out 60,000 names [for a private database] and get a rental of only 5,000 for the year," affirms Greg Grdodian, vice president, B-to-B list management at list management and brokerage firm Edith Roman Associates.
The companies most able to make a private database pay off for all involved are those with an audience that's not too specific, and those that can mail
frequently and/or regionally for a large annual volume, says Grdodian. He points to seminar marketers, credit card companies and general merchandise marketers, like CDW, Global Industrial Equipment and Quill, as prime examples.
Add to this list large publishing companies with multiple titles in general
interest categories, says Ralph Stevens, managing partner of MKTG Services, a list management and brokerage firm.
Another signal that a private database is a good fit for your needs is if you rent the same lists over and over, says Stevens. Not only can you be confident that the lists work for your offer, but also that you have a good sense of how many names you tend to net in a merge/purge. This helps you more accurately estimate the amount of business you will bring to each database participant.
Remember, says Grdodian, the more list owners you ask to submit names to the private database, the more difficult it is to assess how much rental activity you can commit to each participant; again, your volume has to be significant enough to go around.
While private databases sound as if they're a better deal for the marketer than the list owner, Grdodian cautions managers and owners to think carefully before walking away from a private database offer.
"The pool of mailers right now isn't gigantic, so list owners need to keep their clients. Some mailers only use private databases, which means list owners won't get their business otherwise. It may be less revenue up front when they negotiate the deal, but more profit in the long run as they become a preferred partnerit's a calculated risk that depends on how well you think your list will perform over time," he says.
Another consideration, says David Waldman, CEO of list brokerage and media buying firm Eclipse Direct Marketing, is the potential for the marketer to findthrough enhancement and modelingthat an owner's list is not a marginal performer, but one of its best prospecting tools.
Of course, the exact opposite may happen, in that the marketer may discover pretty fast that a list cannot be made to work for its offer.
Your broker and service bureau must be skilled in building databases.
A big reason why companies that could benefit from the advantages of a private database shy away from this practice is the awesome amount of work and expertise it takes to build the database and then manage it through rentals and subsequent builds.
The average private database takes about three weeks to build, says Waldman. That's a lot of man-hours and money down the drain if you don't do it right.
And if you mess up the build, Grdodian laughs, a list owner is not going to give you another output of its housefile.
Besides needing to code each housefile for accurate selectability, segmentation, enhancement and merge/purge processing, every list owner's file also needs to be tagged in a way that allows the service bureau to track usage and provide detailed reporting to the marketer and list managers so that payment can be rendered in an accurate, timely fashion.
Good coding allows you to pull the right names for your mailing needs and know that you are being fair to your database participants, Grdodian explains.
The main goal in using a private database is to leverage your cost savings on list-processing fees to undertake enhancement and modeling efforts that better help you identify your best prospects; so the database has to be built and maintained to support your timetable for list analysis, selection and mailing, while meeting the different expectations of all participating list managers and owners. That's quite a few companies to keep happy.
For example, says Waldman, some list owners are squeamish about keeping their names in the private database for longer than 30 days; one list owner's one-month deadline for extraction from the database could occur just before another list owner is set to update its file with fresh names. If you don't carefully coordinate your build and list analysis schedules with list owners' update schedules, you might end up with fewer names to enhance and model than you wanted.
"Marketers should build the database with the functionality in mind to be flexible to the needs of different list owners. With the growing concerns of privacy and 'do-not-contact' lists, this is even more important to consider than in the past," Waldman adds.
You must negotiate a mutually agreeable valuation for cost per thousand, minimum usage and duplicates.
Usually, a marketer will approach the owners of lists it already rents for inclusion in a private database. Thus, it will have a pretty good idea of how many names it is likely to rent from each list, and what it can afford to pay to each owner.
New lists, says Grdodian, require a bit more guesswork and a healthy attitude on the part of the list owner to give the database a try.
Similar to a regular list rental, pricing is on a cost-per-thousand (CPM) basis. Waldman, who has brokered numerous private databases for clients, likes to negotiate a flat CPM rate that includes all selections his client might need to make the file work.
It's best to arrange payment on a quarterly basis, says Waldman, to simplify accounting practices. But, you still would provide list managers with monthly usage counts.
He adds that many list owners do not oppose multiple usage on names in the private database, as long as marketers pay for each use. Obviously, this needs to be part of price negotiations.
Two tricky areas to navigate in your contract are minimum usage and credit for duplicates. Some list owners prefer to safeguard their rental income by requiring the marketer to commit to renting a minimum quantity. The fee is billed on a pre-arranged schedule, with any extra usage paid as the names are used.
Waldman cautions marketers not to agree to a minimum-usage requirement unless it's the only way you can get the list in the database and you can be sure you will rent the agreed-upon count. You don't want to find out a list does not work well, and be committed to paying for 50,000 names.
If you can, he advises, rent such lists for merge/purge purposes only, but not to add to your database.
When it comes to accounting for duplicates, Grdodian notes that these names are given a fractional allocation across all database participants whose lists produced the duplicate, either by the CPM rate or the number of names submitted to the database. In other words, if a name showed up on six different lists, the marketer would credit one-sixth payment to each list owner.
Another option, he adds, is to give a random allocation to all participants, in which every list owner with a duplicate gets an average credit over time. This can be more difficult to allot, and is not the favored method.
You must communicate effectively with the list manager.
As with any business arrangement that expands boundaries past the norm, trust is an important component to long-term success.
What helps list managers trust this venture is getting your usage reports and payments on schedule, says Grdodian.
Savvy list managers will watch your usage counts carefully, adds Waldman, prompting you to keep the numbers up if it looks like you are starting to slip. Remember that the list management company gets only a small, standard commission on names rented, so it's got a financial stake in its clients' list getting maximum usage.
A good relationship also supports two more benefits of using a private database: No last-minute denials on usage and a more expedited process for campaign drops. Grdodian explains that by clearing your overall offers
and mail schedule with list managers in advance, the campaigns that
follow each database build run more smoothly since you don't have to
coordinate approvals for each drop as it comes up.
Waldman adds that it's important to make sure the list manager is in the loop on all campaign changes you make that could affect the list owner's decision. This respect is a two-way street, though. A list owner needs to notify the marketer whenever it alters promotional techniques or undertakes any database activity that might affect the kinds of names in its housefile.
You must know when you're going to want to freshen the databaseand how.
While most rental files are refreshed on a quarterly basis, Waldman finds private databases benefit from the most frequent updates.The real measure, though, is how often you can feasibly mail to your market.
"Your market should dictate this, not your circ. plan. Circ. plans should be adjusted for more mailings if you move into a private prospecting environment," says Waldman.
Since you're only paying for and mailing the names you need from a private database, the ideal situation is that you are able to effectively mail more names more often.
But which names you absolutely need are based on your knowledge
of how your offer performs under certain circumstances. For example, Grdodian suggests, if one of the files in your private database is a publishing list that contains active subscribers, you may not get any better performance with hotline names from a monthly update.
Besides knowing when is the optimal time to freshen the database, you have to determine how you want to approach each new build. You can do this in one of two ways: Add only a list owner's new names, or replace the whole file.
The most inexpensive option, says Waldman, is to keep the prior names supplied in your next build and just add the newer names that have come onto a list owner's file. Thus, you only pay run charges to get the new section of the file.
As your private database matures, so will your experience in working the
ongoing negotiate-build-update process to fuel a robust mail program that has the full support of your participating list owners and managers.
For more information: Greg Grdodian, Edith Roman Associates, (800) 223-2194; Ralph Stevens, MKTG Services, (561) 999-9595; David Waldman, Eclipse Direct Marketing, (212) 931-8344, ext. 11.