Many marketers have been confused by buzzwords used to describe database marketing, including CRM, one-to-one and relationship marketing. Some CRM proponents seem to argue that all you need for successful marketing is a huge data warehouse and advanced drill-down software.
What a mistake!
Let’s step back and see what we are trying to achieve with our marketing. We want to encourage customers and prospects to modify their behavior in profitable ways. We want them to:
· Make their first purchase.
· Purchase more, and more often.
· Become more loyal, less price-sensitive, and not defect to the competition.
· Refer others who become customers.
How do we do this? By communicating with them. We can use mass marketing, direct mail, e-mail, telephone, point-of-purchase displays and office visits. The idea in database marketing is that we collect information about customers and prospects and use it to personalize our communications. Well-crafted communications resulting from information in a database usually result in higher response rates and sales per dollar spent than mass marketing messages.
Communications resulting from a database can use the person’s name and purchase history in ways that customers appreciate and respond to:
· Since you bought Richard Rhodes’ “Dark Sun,” you may be interested in his new book, “Why They Kill.”
· We have an upgrade for the Version 4.0 that you bought last year.
· Since you had so much fun cruising to Greece last year, you may be interested in our new cruise to Scandinavia this summer.
The marketing method looks something like this: Marketer ¢ Database ¢ Software ¢ Messages ¢ Customer.
The marketer uses the database and related software to create personal messages to the customer. Responses from the customer are fed back into the database, where the software is used to do back-end analysis to determine how successful each group of messages were in comparison to control messages. The marketer measures response rate, sales, return on investment, retention rate and lifetime value. Things that don’t work are discarded. Things that work are redoubled and expanded.
The point is that the only thing that touches the customer is the message, not the database and not the software. The messages are created by skillful, imaginative and diligent marketers. The database and software are essential, but they are only aids to a proficient marketer.
Too often, CRM proponents make it sound as if the database (or data warehouse) and their wonderfully user-friendly software will increase sales and retention. They will not, and they cannot. Without a talented marketer, the warehouse and software are useless.
In most cases today, marketers have much more data available to them than they actually need or can use in developing messages. Small purchases made more than three months ago seldom can be used profitably in marketing messages. Yet, a data warehouse is often designed to hold all transactions over three years or longer.
Proponents of CRM say they will send “the right message to the right person at the right time.” It is unlikely that such messages could be developed using data in even the most elaborate data warehouse. “Joe Williams will buy Product X within the next 90 days.” No warehouse can possibly contain the kind of information that would lead this statement to be true for more than a very small fraction of the customers. You cannot predict the future of an individual with data in a warehouse.
What you can do is predict the actions of a segment. “Thirty percent of the 10,000 customers in Joe Williams’ segment will buy Product X within the next 90 days.” This statement can be true. You can keep data in a database necessary to predict the actions of a segment. With this information, you can develop communications to those in Joe Williams’ segment. These messages will be meaningful to 30 percent of the recipients, even though they do not all buy from you.
To be successful in marketing, therefore, you need clever marketers who can use their database and software to predict the actions of people in segments, developing messages to these people based on these predictions. Don’t go overboard buying huge data warehouses. Focus on the information necessary to support skillful marketing messages aimed at customer segments. A marketing database usually can be developed for about 10 percent of the cost of a data warehouse, but have the same effect on customer behavior, when used by a diligent marketer. It’s the message that does the trick, not the warehouse.