Analytics Put Epsilon, Merkle, Allant, Targetbase Atop Forrester Study

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Epsilon is in the sweet spot of market demand, but The Allant Group and Merkle are close behind, thanks largely to their analytics-led service models, according to a Forrester Research report released this week.


In "The Forrester Wave: Database Marketing Service Providers, Q1 2006," by principal analyst Eric Schmitt, Forrester assessed the database marketing service provider market and compared leading outsourcers. The last Forrester Wave report was published in 2003.


"The first key takeaway [of the report] for direct marketers is that there is a healthy and growing universe of marketing services companies lining up to help them," Schmitt told DM News. "Unlike the back-office service bureau model of the past, many outsourcers now take a more business-oriented approach that emphasizes analytics and marketing results."


Another key point, he said, is that firms looking to outsource database marketing should note that approaches and capabilities vary drastically among suppliers.


"Outsourcing contracts are often complex, and mis-set expectations are common," he said. "Organizations that want strategic or analytical help must be prepared to pay for it. On the other hand, firms that just want traditional data processing services can often reduce their existing spend by shopping aggressively."


And, he said, "as we predicted in 2003, e-mail acquisitions have been all the rage over the last few years, but there are still few examples of deeply integrated multichannel database solutions yet."


Forrester evaluated providers late last year across 125 criteria such as current offerings, including a "look at the two hottest value-add services areas: analytics and marketing strategy," Schmitt said in the report, as well as fulfillment, media and agency services, creative, contracts and pricing.


The 10 companies evaluated represent 450 managed database relationships, or 36 percent of all U.S. managed marketing database relationships valued at $150,000 a year or more. The report profiles Acxiom, Allant, BeNOW/Equifax, Donnelley Marketing Group, Epsilon, Experian, Harte-Hanks, KnowledgeBase Marketing, Merkle and Targetbase.


"Epsilon sets the bar for the industry," Schmitt wrote. "The Epsilon model is a highly disciplined approach to selling, staffing, building and managing database services. The second (reason) is an integrated, business-friendly delivery model, reinforced with deep analytical expertise."


The report also said Epsilon's recent acquisition of Bigfoot Interactive adds e-mail and online marketing technology to a toolbox that "already contains acquisition marketing, loyalty management and state-of-the-art data processing software."


Still, the report considered Merkle, Allant and Targetbase in the zone.


"No coincidence that the three nearest runners up to the market sweet spot each use an analytically led approach and earn above-average customer satisfaction scores," Schmitt wrote. "Merkle's passionate, open-ended approach continues to wow many clients, although client interviews reveal a recent delivery track record with some soft spots. Allant's comprehensive analytical solutions are focused on customer retention -- and represent major innovation. Now it must demonstrate that it can support large-scale data processing and operations requirements. Targetbase has a very small roster of clients, but they are prone to raving about its virtues as a strategic, one-stop shop."


Acxiom's technology-based strategy remains both a strength and a liability, according to the report.


"For high-end technical requirements and rock-solid reliability, the company remains the go-to provider, but overall client satisfaction has slipped below the industry average," Schmitt wrote. "BeNOW's pragmatic delivery formula is much the same -- though analytical services are playing a larger role -- and it has sustained outstanding customer satisfaction even as it doubled its client roster."


Since his last evaluation, "Harte-Hanks has added e-mail capabilities and demonstrated that it can deliver modern, integrated database solutions, [and] KnowledgeBase offers a more full-service approach than it did in the past and has accumulated deep experience in the healthcare industry."


The report also said, "Experian has the breadth of capabilities, experience, and resources to put together a strong database marketing organization." It also said Donnelley "has a strong B2B track record and has proven itself a capable supplier to catalogers."


The report also examined why companies outsource to database marketing firms:


* Manage, process and source data. Two-thirds of firms that outsource cite "access to outside technology and/or data processing" as a reason they outsource database management. Typical outsourcing relationships start with the design and build of a customer repository, usually hosted at the provider's data center. Post-build, the relationship includes maintenance, backup and other IT tasks. Processing services for customer data hygiene, integration, matching, deduplication, enhancement and scoring are common. Many clients also look to outsourcers for data or data sourcing services.


* Support marketing operations. On average, firms devote 37 percent of outsourcing spending to operational support. In some cases, this means access to campaign management tools from companies like Unica or reporting and query services. Operations support can extend through fulfillment. Some outsourcers print and presort direct mail, deliver e-mail and process bouncebacks, and help with call centers or Web sites. Others buy media and develop creative.


* Deliver analytics and strategy services. Whether firms are considering a new outsourcing contract or just adding to an existing relationship, analytical capabilities are critical. Demand is also becoming more strategic: For every buyer that wants a simple bolt-on response model, another seeks long-term solutions based on notions like lifetime value, multichannel testing and online/offline data integration. Analytics deliverables include customer segmentation, modeling and data mining services as well as direct access to data, visualization and exploratory analysis via tools like Alterian.


The report also said that since Forrester began looking at the market for database marketing services in 2002, demand has grown steadily, and the indicators point to more of the same.


"Fully half of companies that already outsource a database plan to increase their 2006 spending on outsourced database marketing services, while just 10 will decrease it," Schmitt wrote.


Schmitt told DM News that buyers should select an outsourcer based on the capabilities of their specific account team.


"Front-line positions like business analyst are key: Without the right talent and chemistry there, the odds that the relationship will be successful drop dramatically," he said.


Melissa Campanelli covers postal news, CRM and database marketing for DM News and DMNews.com. To keep up with the latest developments in these areas, subscribe to our daily and weekly e-mail newsletters by visiting www.dmnews.com/newsletters


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