We have learned much from database marketing in the past two decades. The following is a list of the 24 essential techniques in database marketing. Anyone who works in marketing must be familiar with and be able to use all of these methods.
LTV. Customer lifetime value can be calculated in any industry, business-to-business or business-to-consumer. It is used to direct marketing strategy. In the early days of database marketing, few knew how to calculate it or how to use it. Today it is widely practiced. It is powerful and it works.
RFM. Recency, Frequency, Monetary Analysis is a highly successful way to predict which customers will respond to promotions. It has been around for 50 years, but even today, many marketers do not understand it or use it properly. This versatile tool has helped database marketing succeed.
Customer communications. Personalized customer communications, based on data in a database, can be shown (using tests and controls) to increase customer retention, loyalty, cross sales, upsales and referrals. They are effective. They are the main reason you build a marketing database.
Appended data. It is possible to append data to any name and address file to learn age, income, home value, home ownership, presence of children, length of residence and about 40 other valuable pieces of information about any household. This information can be used to create customer segments and guide strategy designed to create powerful customer communications. Similar information can be appended to BTB files: SIC code, number of employees and annual sales.
Predictive models. Using appended demographic and behavioral data, one can create models that accurately predict which customers are most likely to defect and which are most likely to respond to new initiatives. Modeling, combined with customer communications, can increase response and reduce your attrition rate.
Relational databases. Putting customer databases in a relational form makes it possible to store an unlimited amount of information about any customer or prospect, and retrieve it in an instant in a hundred different ways. Relational databases are essential to modern database marketing. Marketers need to understand the principles involved.
Caller ID. Set up originally as a call routing device, Caller ID linked to a customer marketing database permits customer service to get a customer’s complete record on the screen before taking a call. As a result, the CSR can speak to the customer as if she knew her, bonding with her and building rapport. This helps deliver on the promise of database marketing.
Web sites. The Web revolutionized database marketing. A modern Web site, with cookies, can do almost everything a live operator can do and more, showing and enabling customers to print pictures of the product, maps, instructions, background information and details. Web sites are not wonderful at selling. They are a tremendous research tool and customer bonding and ordering tool. No database marketer can be really successful without a personalized Web site with cookies.
E-mail. Despite spam, e-mail has emerged as a powerful database marketing tool. The ability to contact customers immediately (“Your product was shipped today. Here is the tracking number.”) vastly improves customer relationships, leading to retention and increased sales.
Tests and controls. Since 1980, marketers were sending out direct mail and measuring the response to each campaign. Today, we can use our database to measure much more. Setting aside customers in a control group, we can measure with pinpoint accuracy the short- and long-term effect of any marketing initiative.
Loyalty programs. Most customers are delighted to participate in well-designed loyalty programs. Airlines have been outstandingly successful in these programs. Use has spread to supermarkets, hotels, retail stores and various industries. They are part of the mix of retention-building services that database marketing has made possible.
Analytical software. It used to be that after a campaign, you got canned printed reports showing what happened. Marketers now have sophisticated analytical software linked to their database so that each analyst can do any type of standard or ad hoc report before, during and after a campaign, with results printed on his PC printer. We have “hands on” marketing, which has made database marketing powerful.
Web access to the database. Today the marketing database is in a relational format on a server accessed over the Web by anyone in the company, from any location. Instead of a few analysts working with the data, it is available to management, sales, customer service, marketing and market research. Web access has made marketing databases a useful tool throughout the enterprise.
Rented lists. In the past, most companies kept their customer lists strictly private. Today, most lists are shared, exchanged or rented. As a result, more than 40,000 lists are on the market, including data on 240 million U.S. consumers and millions of businesses. Sharing of lists created the catalog industry and spurred the growth of hundreds of other direct response industries.
Campaign management software. Direct marketing campaigns used to be generated by memoranda to a service bureau: “Select these groups, divide them into these segments with these codes and fax me the counts.” The process of getting mail out the door took three to six weeks. Marketers now have campaign management software linked to their database so that they can do the planning and the actual selections themselves in an afternoon. It cuts direct mail time by weeks, boosting response rates.
Address hygiene. Modern service bureaus can take any large or small file of customers or prospects, reformat it to a common format, correct the addresses to U.S. Postal Service standards, consolidate duplicates, apply NCOALink (to determine the new address if people moved) and get the records ready for mailing or storage in your marketing database in one or two days after receipt of the data. This service has made modern database marketing possible.
Profitability analysis. We used to know that some customers were more profitable to us than others, but it was hard to measure. Today, banks, supermarkets, insurance firms, BTB enterprises and others can compute the monthly profitability of each customer. They found that many customers are unprofitable. As a result, they changed marketing and pricing strategies to increase profits.
Customer segmentation. There used to be so few customers that sales and marketers could keep needed information about them in their heads. Companies now have many more customers, some in the millions. A database is needed to store the information. To develop marketing strategies for all these customers, you divide them into segments usually based on demographics and behavior. Success comes from creating useful segments and developing customer marketing strategies for each.
Multichannel marketing. Customers buy through multiple channels: retail, catalog and Web. We have learned that multichannel customers buy more than single-channel buyers. You need a database that provides a 360-degree picture of a customer, coupled with strategies that recognize and communicate personally with the customer when she shows up in any of the three channels.
Treating customers differently. All businesses have gold customers – a small percentage that provides 80 percent of revenue and profit. A marketing database lets you identify them. Then you develop programs to retain them. You use resources that you could not afford to spend on all of your customers. Profits come from working to retain the best and encouraging others to move up to higher status levels.
Next Best Product. The database is used to determine what customers in each segment normally buy. From this you determine anomalies: customers who are not buying what the others are buying, usually because they are buying this product elsewhere. This is their Next Best Product. The NBP is put into the customer database record and used by customer service and sales in communicating with customers.
Penetration analysis. Using a database and online analytical software, marketers can do their own penetration analysis. What percentage of sales do we have in each ZIP code, or SIC code, or income level or age group? This versatile tool helps locate retail stores, place advertising and direct the sales force.
Cluster coding. Claritas and others have divided U.S. and Canadian consumers into 66 clusters with catchy names and similar spending habits. In many industries, using clusters with penetration analysis can help identify who is buying your products, and who isn’t. It can be a creative tool to improve marketing and sales.
Status levels. Airlines started it: platinum, gold and silver. It spread to other industries. Customers now understand their status and work to reach a higher level. Companies provide special benefits, rewards and services for higher-status customers. In a democracy, it is an egalitarian method of customer differentiation that helps build customer loyalty and company profits.