This article is compiled from the book “Optimal Database Marketing” (Sage Publications Inc., 2002).
Marketing databases let marketers reach customers and cultivate relationships more effectively and efficiently than ever before thanks in part to technological advances. They provide a means to establish and enhance relationships, if they are designed properly and used correctly. This is often not the case.
However, through some basic understanding of the issues surrounding the build and use of a customer database, direct marketers can put themselves in a position to best exploit this valuable company asset. Here are 10 of the most common mistakes made by direct marketers regarding the establishment and use of a customer database and the information it contains:
1. Having no methods or procedures for monitoring the vitality of the customer base over time. Statistics such as retention, reactivation, conversion and percent new-to-file allow a direct marketer to more easily determine the success of various strategies, head off problems before they become inevitable and capitalize on opportunities.
2. Lack of proper standards regarding data hygiene, including householding the file prior to the delivery of promotions, NCOA processing, etc. Mailing inefficiencies and potential customer service problems are the result. According to the Direct Marketing Association’s List Database Council/Research Department’s 19th Annual List Usage Survey, only 61 percent of responding companies use NCOA processing. Scrub that data.
3. The perception that all response models are created equal. Many managers don’t realize that 75 percent of the analyst’s time should be spent becoming intimate with the customer data through data manipulation and massage to ensure its predictive power is exploited fully.
4. Misunderstanding of how to properly use a gains or lift chart when making a promotional decision, and basing decisions on cumulative, not incremental, gains. One should think of the buckets of a gains chart as nothing more than unique customer segments and determine which ones individually met your requirements for the mailing effort.
5. Lack of basic knowledge regarding database architecture, hardware and software. Lacking even a basic knowledge, a marketer is not in the best position to establish marketing specifications for the database that are reasonable and maximize effectiveness.
6. Little knowledge of the rules in establishing promotional or list tests, and a lack of understanding of how to read test results. Testing is the foundation upon which direct marketers build their businesses. With a database, names can be selected for certain treatments and comparisons on the customer’s reaction to these treatments made.
Based on these results, in conjunction with marketing cost and revenue figures, the most profitable decision can be made. Without knowledge of proper test planning and analysis, one is not in the strongest position to help the company grow. Learning the proper way to design and analyze marketing tests is not difficult; it simply takes discipline.
7. Underestimating the effort and skill set required for a database build. Such a project is complex and time-consuming. Specific steps are required, such as determining current and future data requirements and business rules, specifying ad-hoc reporting needs, determining maintenance schedules, evaluation of resource needs for the build and ongoing maintenance of the database.
8. Not monitoring or inadequately monitoring promotional intensity over time. E-mail communications, acknowledgments, product inserts and even name rental all add to list fatigue.
Customers can handle only so many communications and promotions without it harming response. Your best customers are also likely someone else’s best customers. Through some simple testing, you can gauge the effects of overpromoting your customers and determine the most appropriate strategy.
9. Lacking a standard segmentation scheme to measure and track customers over time and yield more efficient campaigns. You use these segments in part to monitor customer vitality and migration over time and to develop stable and reliable forecasts.
10. Purging customer records after 24 months or less of inactivity. Most marketers do not understand the implications of doing this. When purging such data, you cannot properly measure customer lifetime value and make comparisons between marketing programs.
You also become less efficient in future mailing campaigns, and you cannot create analysis files to use in determining what uniquely separates responders from non-responders or renewers from non-renewers for tests conducted more than two years ago. At a minimum, a direct marketer should make all key data on inactives available for future analysis for at least four years. If database storage space is an issue, then store and save such inactives to tape.
Having a customer database is great. But if it is not used fully or properly, it will become a costly overhead and eventually be considered a failure by upper management.