RPM Consulting, LLC

Database Marketing Demystified

In database marketing, a computer file of a company's customers and prospects is created that supports marketing to individuals. It combines data mining with predictive modeling and desktop presentation tools, helping marketers develop actionable insights into customer behavior. The ultimate goals are to identify profitable relationships, keep profitable customers loyal, and develop more profitable, loyal customers -- from both customer and prospect databases. With database marketing:

  1. Marketing funds are spent cost effectively because they are concentrated on current customers and the best prospects, where you will receive the best ROI.
  2. Your company can improve its relationship with profitable customers and increase their loyalty.
  3. Results are measurable. The Marketing Director can now tell senior management, "We spent $50,000 on our recent database marketing communications effort, and produced over 500 new customer households contributing nearly $300,000 in profitability this year".
  4. Alternative offers and communications approaches can be tested to determine which are the most cost effective. Knowledge gained from one test is used to improve subsequent efforts. Sophisticated statistical approaches like neural network modeling can be applied so that learning never stops.
  5. The marketing database represents convenient, valuable management information regarding the customer portfolio. In this respect, it serves as a research and planning tool as well as a communications tool.
  6. Communications can be personalized to individual customers and prospects in such a way that those communications speak directly to the needs, wants and interests of each individual or company. This greatly increases the appeal and effectiveness of the communications.
  7. Specific promotions or offers can be directed to certain customers or prospects without having to make the same offer to everyone.
  8. Potential cross-sale and up-sale opportunities can be identified.

When we use the term database-targeted communications, we are referring to all the communications -- letters, mailing pieces, newsletters, brochures, telephone calls, company magazines, videos, faxes, e-mails, Web, etc. -- directed to the people whose names are stored in the database.

By contrast, conventional mass marketing is based on the following assumptions:

The right kind of awareness leads to positive customer attitudes.

Positive customer attitudes lead to behavior.

People do what they say they will do.

However, none of these assumptions is true! Yet, if these platitudes are false, why do so many marketers still believe them? Well, they sound logical. And, until very recently, it just didn't matter very much what marketing assumptions were used to guide financial institutions and other companies operating in a heavily regulated environment.

This is not the case today. New competition, merger mania and a deregulated environment have all exposed the lack of thought behind yesterday's beliefs. The futility and waste of relying largely on mass advertising, whose ROI cannot readily be calculated, is crystal-clear -- the marketing world has changed, and it is not going to change back.

But that does not mean everyone is jumping on the database marketing bandwagon. Far from it. The challenge of database marketing is strategic. A market of individuals, rather than of some great lowest common denominator mass, individually addressable and open to interactive communications, threatens the very existence of established marketing techniques and trade relationships. Database marketing represents profound change, and is profoundly unsettling. It replaces the abstraction of consumer attitudes with the concrete reality of purchasing behavior, and represents a prospect that threatens most traditional marketers -- who don't really understand information systems or the new media, and hope that it's all just a fad that will blow over. The real future lies with companies who can use the new two-way channels of communication to create customer-based relationships, reaching across a whole range services and products, and maximize their investment in both high tech information and high touch human resources.

Wherever and whenever database marketing has been correctly practiced, its belief system has been validated:

Past consumer behavior is the best predictor of future behavior.

To determine a customer's true worth, you must calculate lifetime value.

Customers are more important than non-customers.

Certain customers are more important than other customers.

Customers share certain characteristics, yet behave uniquely.

Simply put, in the Information Age, a great marketing database increases the net value of your company, and the value that can in turn be provided to members or customers and, yes, stockholders.