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24 essential techniques used in database marketing.
1) 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.
2) RFM (Recency, Frequency, Monetary Analysis) is a highly successful way of
predicting which customers will respond to promotions. It has been around for fifty
years, but even today many marketers do not understand it or use it properly. It is a
versatile tool that has helped to make database marketing successful.
3) 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, up sales and referrals. They are effective and they work. They are
the principal reason why you build a marketing database.
4) Appended Data. It is possible today 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 forty 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 business to business files: SIC code, number of employees and annual
sales.
5) Predictive Models. Using appended demographic and behavioral data, it is possible
to create models that predict, accurately, which customers are most likely to defect, and
which customers are most likely to respond to new initiatives. Modeling, combined with
customer communications, can be very powerful technique that can increase response
and reduce your attrition rate.
6) 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.
7) 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 up
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 close rapport. This helps deliver on the
promise of database marketing.
8) Websites. The web has revolutionized database marketing. A modern website, with
cookies can do almost everything that a live operator can do, and much 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 website with cookies.
9) Email. Despite the SPAM, emails have emerged as a powerful database marketing
tool. The ability to contact customers immediately “Your product was shipped today.
Here is the tracking number…” makes for vastly improved customer relationships
leading to retention and increased sales.
10) 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
pin point accuracy the short and long term effect of any marketing initiative.
11) Loyalty Programs. Most customers are delighted to participate in well designed
loyalty programs. Airlines have been outstandingly successful in these programs. Their
use has spread to supermarkets, hotels, retail stores, and a variety of industries. They
are part of the mix of retention building services that database marketing has made
possible.
12) Analytical Software. It used to be that after a campaign, you got canned printed
reports showing what happened. Today, marketers have very 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 the results printed on his PC
printer. We have “hands on” marketing which has made database marketing very
powerful.
13) Web Access to the database. Today the marketing database is in a relational format
on a server which is accessed online over the web by anyone in the company, from any
location. Instead of a couple of 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.
14) Rented Lists. In the past, most companies kept their customer lists strictly private.
Today, most lists are shared, exchanged or rented. As a result there are more than
40,000 lists on the market, including data on more than 240 million American
consumers and millions of businesses. Sharing of lists created the catalog industry, and
has spurred the growth of hundreds of other direct response industries.
15) 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 the
mail out the door took three to six weeks. Today, marketers 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 weeks off of the direct mail time,
resulting in higher response rates.
16) Address Hygiene. Modern service bureaus can take any large or small file of
customers or prospects, reformat them to a common format, correct the addresses to
USPS standards, consolidate the duplicates, apply National Change of Address (to
determine the new address if people have 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.
17) 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, business to business enterprises, and many others can compute the monthly
profitability of each customer. They have discovered that many customers are
unprofitable. As a result they have changed their marketing and pricing strategy to
increase their profits.
18) Customer Segmentation. There used to be so few customers that sales and
marketers could keep needed information about them in their heads. Today, companies
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 have to divide
them into segments usually based on demographics and behavior. Success comes from
creating useful segments, and developing customer marketing strategies for each
segment.
19) Multi-channel marketing. Customers buy through multiple channels: retail, catalog,
and web. We have learned that multi-channel customers buy more than single channel
buyers. To be successful, you need a database that provides a 360 degree picture of
your customer, coupled with strategies that recognize and communicate personally with
the customer when she shows up in any of the three channels.
20) Treating customers differently. All businesses have Gold customers – a small
percentage that provides 80% of your revenue and profit. With a marketing database,
you can identify these Gold customers. Then you develop programs designed 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.
21) Next Best Product. The database is used to determine what customers in each
segment normally buy. From this, you can determine anomalies: customers who are not
buying what the others are buying (usually because they are buying this product from
somewhere else). 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. It can be a powerful tool.
22) Penetration Analysis. Using a database and on line analytical software, marketers
can do their own penetration analysis. What percent of sales do we have in each zip
code, or SIC code, or income level, or age group? This is a versatile tool that can help
you to locate retail stores, place advertising, and direct your sales force.
23) Cluster Coding. Claritas and others have divided US (and Canadian) consumers
into 66 different clusters with catchy names and similar spending habits. In many
industries, using clusters with penetration analysis can help you identify who is buying
your products, and who isn’t. It can be a creative tool to use in improving your marketing
and sales.
24) Status Levels. The airlines started it: Platinum, Gold, and Silver. It has spread to
other industries. Customers now understand their status, and work to move up to 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 which
assists in building customer loyalty and company profits.