Database marketing started in the mid-1980s. It began because computers and software became sophisticated and economical. It was possible to store information about customers and use the information to build lasting relationships. As a result, it was possible to increase sales and profits by:
• Changing buying behavior.
• Promoting cross sales, repeat sales and upgrades.
• Computing customer lifetime value and using it in strategy evaluation.
• Creating referrals and customer loyalty.
Don Peppers and Martha Rogers, founders of Peppers and Rogers Group, Norwalk, CT, made a fortune by taking database marketing one step further to one-to-one marketing. The only problem was that few companies ever achieved one-to-one marketing. They used models to create customer profiles, segmenting customers into profitability or preference groups, and developed a different strategy for each group. But devising a different strategy for each person was beyond the capability of any but the most sophisticated marketers.
Then came the Internet. It took several years before most marketers realized the potential of the Web, but when they did they saw that it is the greatest database marketing vehicle ever. The Internet makes it possible to do things only dreamed about in the old database marketing days.
Using cookies, you can recognize a customer whenever she returns to your Web site and greet her by name. Wouldn’t you love to do this whenever a customer walks into your store? This opens a new world of relationship-building possibilities.
For example, some companies customize their Web sites for each customer. Since a company knows what the customer has bought, or even better, what she is interested in (as a result of an online survey) it can spruce up the first page that she sees with items of interest to her. How does a company know this will increase sales? The Web offers tremendous opportunities for tests and controls that provide proof.
A company that has 100,000 customers who visit its Web site can create a control group for 20,000 of them. This control group will not have a personalized Web page, but will see the same Web page that everyone else sees. The other 80,000 in its test group will have personalized pages. If the personalization is working, the test group’s purchases will be greater than those of the control group. The exact value of the personalization can be learned in a week or so, depending on how often people typically visit the site. This increased value can be measured against the cost of the programming to create the personalization, resulting in a sound return-on-investment calculation.
The theory of control groups is basic to database marketing, but is seldom rigorously followed either there or on the Web. There are good reasons. First, marketers and their management are always interested in meeting some sort of a sales quota for the season in question. Setting aside 20,000 customers does not fit into a marketing marathon. The other problem is that most marketers are simultaneously testing five or six marketing ideas at once. A database system has to be complex enough to manage six tests and six control groups at once. The Web simplifies this, however. Since test results on the Web are often known within a week or two, it is possible to conduct far more tests than in the old direct mail database days.
One of the most impressive changes has occurred in customer communications. In the past, the best that a marketer could do was to send an occasional thank-you letter to his best customers. Today, there has evolved a very efficient group of communications concerning each sale:
• On the Web site, when the submit button is pressed, the screen says, “Thank you for your order, Susan,” and describes the order. While Susan is reading this message she receives an e-mail from the company also thanking her for the order and telling her what to do if she wants to change or cancel it. She gets a series of additional e-mails:
• Your order will be shipped on …
• Your order was shipped by United Parcel Service. The tracking number is …
• Did your order arrive satisfactorily? What was your opinion of the product and the ordering process?
No one company, not even Nordstrom, can match this series of relationship-building communications using direct mail. And the communications are basically free. There is no cost for e-mails sent by a company’s database to its customers.
Companies are learning that the response to any advertisement or offer should include a toll-free number and a Web response option. There are several important reasons for this:
• The costs of Web response are low.
• Customers grow to prefer this sort of response because they never get put on hold, they can contact you at any time, they can print out an order confirmation and they get an e-mail confirmation.
• Customers enter their data directly into the Web, which should be connected directly to the customer database. This means that your reaction to their responses can be instant: an e-mail thank you and a shipment within a few hours. That cannot happen with any other response mechanism.
Probably the greatest change in database marketing because of the Web is in customer service. Toll-free numbers with customer service representatives have advanced in the past 15 years. All CSRs today are equipped with computers so they can dig for the information requested by customers. They read the answers off the screen over the phone to the customers. Then they type into the customer database what happened during the call.
With the Web, all of this has changed. Companies are giving customers Web access to the same screens that the CSRs see. Customers do their own searches and get their own answers. What’s more, if the company is clever about it, customers can get more information over the Web than they could ever get from a live operator. Companies are putting numerous pages of technical data, product specifications, descriptions and details on their Web sites with adequate indexing, enabling customers or prospects to get any information they want or need. Why is this valuable?
• There is no long-distance call for which to pay.
• There is no customer service representative to pay.
• The system is always open for business.
• You can track what information people want and who wants it.
• Once the system is set up, the variable costs are almost nothing.
Unfortunately, despite the tremendous advantages of the Web, most companies are not there yet. If you call a catalog company, the toll-free sales representative can tell you that the item you want is out of stock. If you click the same item on the company’s Web site, more than likely the Web will take your order and notify you in a few days that the item is not available.
For the Web to succeed, it must have up-to-the-minute information and must be smart enough to do what a phone operator does — suggest an alternative right then and there. This requires sophisticated software, but the costs are not astronomical. Marketers cannot let information technology manage the Web site. It must be designed and managed by marketers who understand the thinking of customers.
Some companies are using collaborative filtering to make product suggestions to their customers on the phone and on the Web. This software, linked to your customer database, determines what kind of items you like based on your preferences or previous purchases. That is how Amazon.com is able to make profitable book and CD recommendations whenever you visit its site.
Many catalogers are moving to put their entire catalogs on the Web with photographs and descriptions of each product. Most companies that have done this have been disappointed with the response. What is wrong? Try it yourself. Take any catalog and look up an item. Then go to the cataloger’s Web site and find the same item, starting from scratch. It will take you 10 times as long, and the picture will not have the same clarity and color. You cannot beat a good catalog with the Web, nor will you be able to. The Web wins in simplicity and speed of ordering the product once you know what you want.
Rules for Success
Despite the obvious benefits of the Web, most companies have not figured out yet how to use it in their sales and relationships with customers. Catalogers, for example, find that not more than 15 percent of their sales come through the Web. Hundreds of dot-coms have crashed and burned with unworkable Web business plans. What are the rules for success in this field?
• The Web is a powerful channel for customer communications and sales, but it should not be the only channel.
• Companies that have an established business (warehouses, delivery systems, stores, business contacts and customers) can increase their businesses with Web contacts and sales. Few Web-only companies will survive.
• Collecting e-mails with permission to use them is one of the most valuable activities in which you can engage. You should collect them using all possible customer contacts.
• Web response is so much less expensive than phone response that you must provide this option in all cases. Give them a toll-free number and a URL on every form, catalog, product and communication.
• Web sites must be managed by marketing and not by IT if you are going to be successful in e-commerce and customer relationships. If IT is running it now, go to top management and show them this article.
• The Web is an ordering medium, not primarily a sales medium. It will never replace printed catalogs, direct mail offers, radio, television, print ads, stores, malls, newspapers, magazines or books. Give customers a catalog, but put your URL at the bottom of each page to receive their orders.
• Use tests and controls to prove that what you are doing is profitable.
• Arthur Middleton Hughes is vice president of strategic planning at MS Database Marketing, Los Angeles, which builds databases and Web sites for major companies. Hughes is the author of “Strategic Database Marketing 2nd Ed.” (McGraw Hill, 2000). Reach him at [email protected]