Database marketing is a technological means to manage relevant dialogues with customers and prospects. It collects and organizes information about a company’s individual customers and prospects and uses that information to engage in relationship marketing. As the repository of all customer transactions and information, the database serves as the foundation for segmentation, account management and new customer acquisition.
Marketing Lists
In the most basic application, the target audience of a marketing effort is generated from a computer database of prospect names that either reside within a company’s house file or is rented from an outside source. The list is profiled by various attributes so segments can be selected based on the characteristics of companies that are most likely to respond to given tactics. When a response is received from an individual, this information is recorded in the database. Over time, this response information will be very valuable for future targeting. True database marketing however, relies not only on the selection of a target audience, but also on a systematic series of contact using a variety of media to move prospects through the hierarchy of effects. Each interaction in the series of contacts provides the marketer with increasingly more feedback from the customer, allowing them to continually refine their efforts.
Advantages of Database Marketing to Businesses
Due to the nature of the business markets, there are some unique advantages afforded by database marketing. Because the universe of business customers and prospects is limited, there is opportunity to focus on target companies and build a more complete database of contact history, purchases and preferences. Data is also more readily available because much of the business is on open accounts and continued availability of third party firmographic data is not likely to be threatened by the increasing restrictions of consumer privacy legislations. Furthermore, because of the larger sales amounts predominant in business transactions there is a significant margin available for developing highly customized messages and offers. This type of personalized communication is necessary in cultivating the relationship over the extended sales cycle of a business purchase.
In the past, database marketing was only achievable for large companies with the resources and access to mainframe computers. However, the evolution of desktop software tools and affordable data storage have contributed to the proliferation of database marketing among smaller organizations. The functionality of today’s software commonly exceeds what most small and medium-sized companies are able to implement, so a simple but proven software package is typically adequate. Surprisingly, many comapnies often neglect to use database marketing; or if they do they fail to evaluate what database marketing resources they already have available before making expensive investments in technology.
Relationship Marketing
Any customer database can be divided into three groups: high, average and low value customers. Dividing customers into these segments allows marketers to focus marketing efforts on the segment that will deliver the highest return on the marketing investment. For most business-to-business enterprises the top group of “gold” customers is usually well known and managed directly by the field sales force. It is the middle group of profitable customers where the database can be used to reach these customers through a combination of direct response and personal sales visits. Relationship marketing can be employed to address those who are looking for a relationship with a dependable supplier who remembers their purchase history and offers solutions to meet their individual needs. Relationship buyers recognize they could save money by shopping around but also value the relationship they have established with dependable suppliers that acknowledge the relationship and take good care of them.
It is important to limit the scope of the database. More data is not necessarily better. Having too many options makes it difficult to determine what is important. Filling the database with every bit of customer data available creates additional work, pollutes the database and compromises the data integrity. Instead the focus should be on demographic and behavioral characteristics including purchase behavior of the market segments that will be targeted in the next 12 to 24 months. Define the buying committee members by title and function and identify the appropriate required behavior. When entering the data it is important to use functional titles in addition to business titles since most commercial databases have overlays based on functional titles. All business marketing is composed of those who make decisions and the companies they work for. By combining business title and function, communication to these individuals becomes more focused.
Purchase history is obviously a critical touch point and one of the most accessible pieces of data available to a company. There is a wealth of useful information that can be gleaned from a customer’s transaction history:
- Recency – customers who purchased most recently are more likely to respond to the next offer.
- Frequency - customers who purchase more often are more likely to respond to the next offer.
- Monetary value – customers who spend more dollars are more likely to respond to the next offer.
- Product purchased – understanding the customer’s application of the product allows marketers to develop cross and up selling opportunities.
Monitoring the performance of marketing channels and gleaning information from sources like customer service, technical support and the sales force affords marketers a more complete picture of their target market and helps to identifying new potential customers. Basic customer information such as products purchased, individual’s name, functional title, organization, number of employees, locations years in business, location codes and new or moved business indicators will show up in various systems (e.g. accounting, marketing, sales and customer service). It is critical to integrate a customer’s information into a unified record so one can gain a complete view of the customer.
Database Management
A study by The Sales and Marketing Institute showed that 72% of business people change one or more of the key data elements on their business cards over a 12 month period. Therefore data hygiene is an important and ongoing process. The first step in data hygiene is to ensure it is entered error free in the first place. Data entry should reside outside the sales group. When data entry falls to the field sales force they either do not enter the information or they enter incomplete information. Within small and medium-sized businesses, customer service and support functions are better suited to data entry because of their orientation to the customer, high contact frequency and immediate access to update customer information.
No database is perfect. But the successful implementation of any database relies on a systematic approach to managing the data and capturing information changes as needed. Maintaining an accurate database can be a daunting task. Typical SMEs do not have the resources to dedicate to this task full time. In these cases, one can segment the customer file by sales and concentrate data collection and maintenance efforts on the more valuable sales segments. As an example, periodic outbound phone inquiries can be used to reach top customers, where e-mail or postcard can be used for lower tiered segments. A self-service Web site can also be employed to invite customers to keep their data updated. Whenever using mail to contact the file and update the data, using first-class postage allows the undeliverable pieces to be used to update the file.
In addition to updating changes to customer files internally, the customer database should also be sent out for regular automated updates. A variety of service bureaus can provide address standardization and data hygiene such as correcting inaccurate fields, standardizing data formats and elements, and adding/correcting postal codes. A separate process is advisable to eliminate duplicate records. Mailing duplicate records wastes resources, increases costs unnecessarily and risks angering over-contacted customers. Data hygiene processes do not usually provide corrected data on titles, fax numbers, phone numbers or e-mail addresses; these are data-append services that must be requested separately.
Database analysis is the process of learning more about customers and prospects. This is achieved through collecting, integrating and analyzing data relevant to the business. Similar to marketing research, database marketers use the breadth of data collected on customers to discover patterns related to a particular objective. Using classical statistical analyses they attempt to predict future behavior based on recognized patterns of past behavior. A properly functioning marketing database allows marketers to monitor the effects of their tactics. This information helps to identify best practices and implement them in future endeavors. It is an iterative process of testing, learning, adapting and re-testing.
The single most important benefit of database marketing is its ability to target marketing efforts. Transaction history along with demographics, data enhancements, marketing research and the customer’s own feedback are taken into consideration to develop relevant messages that can be effectively delivered to customers and prospects.
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