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NCDM Speaker: Database Marketing Lifts IBM Sales

LONG BEACH, CA — Most current direct marketing practices to acquire and retain customers are bombing out, according to an industry veteran speaking yesterday at the National Center for Database Marketing's summer conference here.

“From the recipient's point of view, we do not seem to be providing enough value in the message that we're sending … and hence they're tossing it out,” said Ernan Roman, president of Ernan Roman Direct Marketing, a consultancy in Douglas Manor, NY.

The statistics speak for themselves. The number of people registering with the Direct Marketing Association's Telephone Preference Service to opt out of getting telemarketing calls was up 65 percent in 2001-02 from the year before. In 2000-01 and 1999-2000, it was up 25 percent and 50 percent, respectively.

The DMA's Mail Preference Service also saw an alarming rise in mail opt outs: a 10 percent year-over-year growth going back to 1999-2000. And the DMA's e-mail opt-out database increased 176 percent to 552,000 in 2002, from 200,000 in the year before.

“And this was before all the press and legislation” sparking tens of millions of consumers to register with the federal do-not-call list, Roman said.

“The scary thing about this is how young e-mail is; it's a baby,” he said. “These numbers are very terrifying. We've got to realize that what we're doing is flawed, unproductive and it's dangerous.”

Unsurprisingly, response rates are not inching higher. Companies see a 1 percent to 2 percent average response — conversion to customers — through mail, with the figure leaning to the low end.

E-mail is no better. According to Forrester Research, e-mail garners a 3.5 percent average response — just open rates, not conversion to sale, which is a fraction of that. And only 2 percent of those who visit a site will buy, Roman quoted from a Net Effect study.

“Tonnage and throwing it against the wall is not working,” he said.

IBM Corp., an Ernan Roman client, has long known the perils of such “spray and pray” marketing practices. But a revamped database strategy resulted in $594 million incremental revenue over the control group.

The computer giant for five years has tested and rolled out a database strategy. The idea is to move from inferred data to one-to-one and involve the customer in the effort to produce personalized marketing.

IBM began its efforts after seeing a tremendous decline in its customer satisfaction ratings. Then-CEO Louis Gerstner tested the new database strategy first against large national accounts.

Gerstner reasoned that IBM's customer satisfaction ratings were so bad that the company had nothing to lose, Roman said. A rollout to all midsize and smaller accounts as well as prospects followed soon after.

Customer research showed increasing irritation with the volume of irrelevant, untargeted communication from IBM. For example, customers had 2,800 telephone numbers to call if they had problems.

Customers complained about how IBM changed coverage and flooded them with unwanted mail. The company was accused of not answering questions and frequently changing field sales representatives.

Roman cited the marketing outreach to just one director of engineering at an IBM client company. That person's profile listed an IBM RS/6000 product, graphics and application development against his name.

In four to six weeks, he received marketing communications on 35 different IBM merchandise, announcements, surveys and updates. He was inundated with e-mail, mail, fax and phone calls. And IBM could not even track how many of its sales reps had called this irate account.

Based on the customer's feedback, Ernan Roman pared communications to four issues: SMP announcements, RS/6000 application, development and graphics news.

“This is what he was interested in,” Roman said. “What came out of this was his self-profiling.”

Roman shared his strategies for IBM and how they improved its customer marketing.

Getting the strategies right was critical, he said. Testing the opt-in process was a must. He told attendees to involve customers in selecting their communication stream. This will help develop detailed customer profiles. Also, marketers should determine the desired frequency of communication and identify the customer's media preference and aversion.

Of course, there are legitimate fears. Letting customers self-select their means of receiving inbound messages may cause attrition. Marketers may not have enough names to make the quantities they desire. And that option is feasible only if the brand sells itself on its value, not just price.

Once strategies are in place, marketers should develop a personalized calendar of communication. Customers should be able to update their interest profile at any time. Access to additional information if needed should be handy as well. This option was a nightmare prior to the Web.

IBM's communications plan aimed to improve one-on-one dialogue with the customer or prospect and allow effective database mining. A reflection of that plan was the creation of 1-800-IBM-FOR-U. This centralized number took all inbound calls as a single point of entry.

When it was time to start marketing, IBM deployed mail, telemarketing and e-mail, in that order. The mail piece enclosed a business reply card, giving the customer the additional options of e-mail or visiting the Web site. This was followed by a phone call from a sales rep — not a pitch, but just to check in. And e-mail wrapped the communications process.

“Start with mail,” Roman said. “E-mail is for quickie transactions, both in business-to-business and business-to-consumer.”

Roman also told attendees his ideal schedule of how to time marketing outreaches. Start with public relations and follow a week later with print ads. With another week's interval, mail or e-mail drops should begin.

Within 24 or 72 hours of the mail or e-mail receipt, start outbound telemarketing. A follow-up mailer or e-mail should drop next. Outbound calls are intrusive, but also useful for a personalized touch.

Whatever the combination, it worked for IBM's marketing to accounts and prospects in the control group. Roman claims that based on the data cleansing and better targeting, IBM saw an 80 percent rise in sales over the control group. There was a 75 percent decrease in marketing waste and an 84 percent increase in qualified response.

“The response rate of 1.5 percent to 1.9 percent went up to 19 [percent] to 20 percent,” Roman claimed.

Other results showed an 82 percent conversion from responses to qualified leads of bona fide business opportunities. IBM also recorded a 17 percent rate of the market in pre-sales activity versus 8 percent previously. These were proposals in the pipeline. Perhaps equally important, customer satisfaction climbed 6 percent.

“IBM tracked financially each point swing,” Roman said. “A 1-point swing in customer satisfaction represents $300 million in revenue.”

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