Straight Talk: Database Basics
Marketer-turned-consultant-and-instructor Pegg Nadler, proprietor of Pegg Nadler Associates Inc., has seen first hand the response-boosting effect database marketing can have on direct mail efforts. Working with the databases of such direct mail powerhouses as Consumer Reports, Smithsonian Institution, Hachette Magazines and U.S. News & World Report, Nadler has watched database marketing grow from its fledgling beginnings in the late 1980s when mailers preferred to saturate the market than target it, to its current status as a must-have tool for success in all direct response channels, especially direct mail. Nadler now pauses to reflect on the shortcomings of RFM, the myth of the "average" customer, the need for analytics and the power of seeing the big picture.
TG: What are the benefits of database marketing?
PN: First, it's going to greatly improve your segmentation. It will push you beyond what you can do in standard RFM. But you are only going to be able to do this if you have a database that captures customer history and performance so you will know when they are buying and not buying. Also, it is going to help you ... have a comprehensive understanding of what you should be putting in the mail and [how] you can begin to speak to customers in very different ways, based on their behaviors.
A database marketing program is going to be a winner when you are using it to get a handle on who your best customers are, who your most profitable customers are, who is most likely to attrite and who nets the least profitability. You will get an understanding of who will buy, who won't buy, [whether] you should be staggering how often you are mailing to different types of people based on what you know about their history. When you use a marketing database, you learn that there is no "average" customer. You are able to look at your file in terms of clearly defined customer or prospect groups.
TG: What common mistakes do mailers make when working with their database?
PN: Mailers simply use their database as a prospecting list and won't move beyond that. They are cherry-picking names and not diving deeply into all of the information that a database offers. If they continue to favor straight segmentation over what they should be doingi.e., heavy analytics, developing models, really spending the time to understand not only what campaigns have performed well, but who is buying and not buying and what their overall profitability has been over timethen they aren't making good use of their database. Many mailers build a database because they want to be able to determine lifetime value, but they don't ensure they have the data that will allow them to track it; or they are not ... monitoring what is happening to their customers.
TG: What should be on every mailer's data "wish list"?
PN: You should be collecting all of the ways that a customer interacts with your company over time. Look at all activitydirect mail, Web, in-storeand tie that to name, address, purchase history, return information. So you aren't just thinking about what may be offered in the mail or one product line or one division, you are keeping it all in one central database. Then, there is the data that you can and should be purchasing to append the database. You should be buying and collecting as much as you can, as long as it's going to relate back and give you a fuller understanding of your customer. It doesn't make any sense to collect data if you aren't going to use it to change or drive your product development, creative packages or your campaign strategy.
Demographics also are important. If you are just collecting activity, that will give you an understanding, but until you put that into an overall picture of how old or how young your customer is, whether or not there are children in the household ... what his or her purchasing habits with other companies are, it's only going to give you half of the picture. Given that option, do you want to see in black-and-white or in color? The more you understand your customer groups, the more effective you can be in developing your tests and figuring out what is going to make someone excited enough to spend money with you.
TG: What final advice would you offer to mailers?
PN: First, make sure you are taking the time to analyze campaign data. It's so important for mailers to get out of that campaign-by-campaign mentality where you ... haven't stepped back to see what it all means. ... Make sure you update your data frequently, and audit the quality of your data.
Second, use your databases to move beyond segmentation and into modeling because that's where you are going to see the biggest lift. Finally and most importantly, customize your messages and determine your offers based on the information in the database.