Why Marketing Databases Often Fail
Database marketing's goals are simple: improved customer retention, cross-selling, upselling and reactivation; better rates of customer acquisition; and accomplishing the above with a higher return on investment than other methods. Simple, perhaps. But too often doomed to failure.
Failure No. 1: Lack of a marketing strategy. A database and related software do not produce profits. They produce expenses. Profits are generated by personalized communications to customers that build loyalty and cross-selling.
Most successful strategies create a few practical customer segments and develop marketing strategies to appeal to the interests of customers in each segment. This requires gathering extensive knowledge about customers and using it to design relevant strategies. Many companies have not accumulated the information, created the segments or developed the strategies.
The basic strategy rule is simple: Put yourself in your customer's shoes. Ask, "Why would I want to be on that database? What's in it for me?" If you can't come up with a good answer, your database will fail.
Failure No. 2: Focusing on price, not service. Good database marketing builds loyalty. Discounts do not build loyalty. They get customers to think about how much they are paying instead of what great service they are getting. If you use your database to provide discounts, your database probably will fail because while everyone wants low prices, customers also want recognition, service, information, convenience and helpfulness. Use your database to further customer relationships and loyalty, and it probably will succeed.
Failure No. 3: Making a big production of database construction. A good marketing database of any size can be created and put into operation in six months.
Write an RFP and send it to several service bureaus. They can do the job (downloading data monthly from the legacy systems and creating the database) in six months for one-time prices that usually range from $100,000 to $300,000. They will put your database in a relational format on a server, allowing your marketing and sales team access through the Web. You will be able to do analysis, drill down, create campaigns and craft personalized customer communications.
Failure No. 4: Treating all customers alike. Some customers are gold. Some are worthless. Lavish services on the top 5 percent to ensure you keep them. Develop relationship-building programs for the middle three segments to encourage them to move up. Discriminate. Spend your resources where they will do the most good.
Failure No. 5: Not developing a retention program. Most companies are set up for acquisition, not retention. They focus on sales objectives and bonuses for bringing in new customers, and few have specific programs to keep the customers they already have.
This is a major mistake. Programs spent retaining customers return more profit than the same amount of money spent on acquisition. Customers like to hear from you. You can use direct mail, e-mail - even phone calls. Set aside a control group that does not get all these retention communications to prove to yourself, and to management, that the retention programs are working and producing the results you want.
Failure No. 6: Not using the Web. When the Web came along, many thought it would be a sales bonanza. It wasn't. But it has become essential to modern customer communications and can be used, in conjunction with your database, for profitable purposes.
Failure No. 7: Lack of tests and controls. Database marketing offers tremendous opportunities to test the effectiveness of various marketing strategies. Whenever you want to try something new, set aside a control group that does not get the program. Then measure the response rate and subsequent sales to the test group and the control group.
Failure No. 8: Not computing lifetime value. Lifetime value contains in one number a great many factors: retention rate, referral rate, acquisition cost, marketing costs, cost of goods and services sold, orders per year, average order size and the discount rate.
How did the last campaign, the survey, the newsletter or the rewards program affect the performance of a group of customers over the next two years compared with a control group that did not get these programs? We often find that the non-respondents to a promotion performed better than the customers who did not get the promotion at all. The customers looked at the promotion and did not buy, but their time spent looking at it improved their attitude toward our company, and their lifetime value.
Failure No. 9: Lacking a forceful leader. Success in any of the database marketing programs we have described require forceful leadership within the company. Someone has to devise the ideas and sell them to management. To make these things happen, you need to build a team composed of the marketing staff, customer service, tech support, telemarketers, your service bureau, your direct agency, MIS and your fulfillment group. You, the database marketing director, must be the leader of this team.
To succeed in database marketing, you need first to put yourself into your customer's shoes to understand why you would want to be on the database. Then design programs to make the customers happy. Think small: create lots of little tests (with controls) instead of one big test. Learn how to compute lifetime value, and use it to evaluate each strategy. Think fast: build your database in six months or less. Discriminate among your customers. Retain the best.