Are You Equipped?
Most successful data-driven companies outsource the construction of their marketing databases. Why? Because it is cheaper and faster, and the product is better. To use a ridiculous example: It would be possible to go to auto parts suppliers and assemble a company truck from spare parts. Since it's more than likely that no one in the company has ever done this before, it would take a year or more, be quite expensive and would certainly not perform as well as a production model bought from GM, Ford or Chrysler. But as an advantage, your staff would now know how to build a truck from spare parts. The problem with this approach is that most companies are not in the truck-manufacturing business. They are in some other lines of work. Building a truck would be a costly diversion from their core businesses. And, during that year, these companies could not use their trucks to make deliveries.
The same principle applies to building a marketing database from spare parts. No one in most companies (including the IT department) has done this before. Since there is a learning curve associated with each process, it takes a long time. It takes time to study the available software packages (there are scores of them), as well as to install and learn to use the ones chosen. When the database is finished, it's not likely to work as well as one built by some experienced service bureau that already has built dozens of marketing databases and has a trained technical staff whose only work is building and maintaining these structures. Finally, you cannot get any benefit from the home-grown database during the year or more needed to build it. You get the benefit only after it is up and running.
Once your database is up and running, it can be migrated to in-house maintenance at any time. However, if the database is built correctly, your marketers could be so happy with the results of using it that they will forget about wanting to maintain it. When you are driving a new BMW down the interstate at 75 mph, who wants to stop and become a garage mechanic?
What Some Companies Have Done
Many companies believe they have to build their marketing databases in-house on their own mainframes. And some have been successful. Kraft General Foods, for example, built its huge customer base on its internal mainframe. The majority of large corporations, however, have outsourced their customer databases, and even Kraft finally realized its mistake and turned to outsourcing. Why is that?
• Few company computer systems are built for marketing. They exist for payroll, inventory, billing or manufacturing. These operations pay the bills and control the data-processing priorities of the company. The marketing department must sit in the dugout when these heavy hitters step to the plate. Marketers soon find they cannot get from the MIS staff the priority attention to their functions that they need to do their jobs.
• In-house MIS staffs seldom have the specialized software and experience needed to do database marketing. Merge/purge, geocoding, statistical modeling, online access, ad-hoc counting and selecting are a few of the tools that are needed for database marketing-and they are seldom available on in-house company computers.
• Most computer operations, like payroll or inventory, are stable systems that run for years without change. Marketing is dynamic. The software requires constant testing, modification, retesting and shifts in approach. The MIS department will not understand having to devote hundreds of hours of program-development time on a monthly basis to your marketing database. "Why can't you guys make up your mind?" often is the MIS team's refrain.
• As a result, it will take you much longer to get your database up and running, and cost you much more to build and maintain your system in-house.
The solution, of course, is to find an experienced service bureau to build your marketing database. If you get the right one, it will have built databases for many others and can bring a wealth of experience to the table. Develop a tight contract that puts you, as the marketer, in control. You will be able to specify and hold your contractor to timetables and quality standards that you could never do with your in-house MIS staff.
And once your database is successfully built and running, it can always be migrated to your in-house computer, if you choose to go that route. But in the crucial formative years, you cannot afford to rely on a part-time, pickup job done by an inexperienced in-house crew.
Case Study of a Database Build
The marketing staff of a large telephone company wanted to build a database of its 1 million yellow page advertisers. The plan was to have the database up and running in six months so the company could use it as a lead-generating and tracking system for its sales force. The marketing staff received funding approval for a pilot test of the idea. The database was built by an outside service bureau in a three-month period. It enabled the marketing team, for the first time, to know who its most profitable customers were-and to compare the level of advertising by different industrial classifications. It worked and provided the marketing staff with exactly the insights it wanted.
The next step was to develop a long-term contract to keep the database updated on a monthly basis using a tape from the MIS billing file as the key input. Seeing a reduction in its key role in the company, the in-house MIS group said it could build such a database itself, and what's more, do the job cheaper. The external contract was canceled.
To build the database in-house, the MIS staff had to install new and unfamiliar database software, new merge/purge software, and postal presort software. It had to create a new online access system so that users could work directly with the database. Millions of dollars were spent on acquiring this new software and learning how to use it. The work went slowly because the MIS team had many other more high-priority projects, all of which took programmer time and funding away from the marketing database. Four years later, the database had not been built. The key individuals on the marketing staff who had initiated the program had left the company. The project was canceled.
This experience is not at all unique. Contrast this story with the database experience of companies like Microsoft, Pizza Hut, Western Union or Nestle. All of them have large data centers, yet they have elected to have their marketing databases built and maintained at outside database service bureaus.
Arthur Middleton Hughes is vice president/solutions architect at KnowledgeBase Marketing, which builds and maintains marketing databases for companies. He is the author of "Strategic Database Marketing," 3rd Ed. (McGraw-Hill 2006), and he serves as senior strategist for e-mail marketing firm, e-Dialog. He can be reached at firstname.lastname@example.org.