Database Marketing: Technology-Enabled Advantages in the Nineties

Synopsis

Marketing has changed more in the last five years than in the prior twenty-five. Firms that have been successful competing in a mass market environment are now striving to understand how to compete
in a new paradigm known as “one-to-one marketing.” This new marketing model engages customers in a series of dialogues. Critical information is gained in these exchanges that allow the firm to
customize product and/or service offerings to the specific desires of the customer.

Technology is a key success factor in the adoption of a “segment of one” approach. New techniques such as data warehousing, multi-tiered processing and distributed platforms are being coupled
with powerful data-mining tools to provide unprecedented levels of access to data. The effective use of this powerful customer-specific information is a new point of differentiation for the firm.

The article combines historical context with a marketer’s perspective regarding concepts such as data collection and use. The author also outlines categories of data that should be collected,
suggests how to convert it into actionable information and predicts trends for tomorrow. These insights help position the information specialist to be more responsive to the needs of his or her
organization.

Prologue

The phrase “database marketing” has become the mantra of marketers and users everywhere. Consultants and industry “experts” are traveling the landscape singing the praises of this year’s
“silver bullet.” In many quarters phrases such as “database marketing” and “one-to-one marketing” have become the buzz phrases du jour. With competitive pressures dramatically rising in all
industries, it is easy to be caught up in the fervor of the moment. As information or technical specialists, your users may already be seeking your assistance in building a database marketing
infrastructure. Understanding the driving forces behind the rise in popularity of database marketing will help your responsiveness and effectiveness in working with your user and business partners.

There are at least three major items that cause this dramatic shift in the marketing realm.

  • Addressability of customer data provides marketers with a unique means of identifying customers at the individual level.
  • Development of database and other technologies allow analytical review and information management at unprecedented levels.
  • Consumer sophistication and heightened expectations have “raised the hurdle bar” for all companies.

What series of events has caused these factors to change?

Marketing: A Recent History

Marketing has changed more in the past five years than it did in the prior twenty-five. The most significant element of the changing environment has been the evolution from mass production, mass
media and mass marketing to mass customization, focused media and targeted or “one-to-one” marketing.

The mass production capabilities of post World War II America led to a “product” orientation that drove national mass marketing programs and advertising. American troops returned home to a
country with high employment and pent up consumer demand that followed years of depression and war-time rationing. U.S. factories, unlike their European counterparts, were spared from bomb damage.
They responded by producing goods that were sold via national radio, television and other mass media channels.

Today represents a new era in marketing. Products are more plentiful, better built and, therefore longer lasting. Consider the number of homes with multiple television sets, stereos and other
electronic devices. Americans now expect products to be built with their special needs in mind. Not only must the product meet consumer expectations, but their time tables also. Time-starved
individuals demand, expect and are willing to pay for service and convenience. Direct marketers now use catalogs, telephones and the internet to offer convenience and service in a place and time
convenient manner.

A relevant example of an industry reacting to these societal trends is the grocery industry. The “corner grocer” once provided individualized service to hundreds of households based on the
relationship personally established with each shopper. Soon, supermarkets displaced the corner grocer. Serving several thousand households, large companies brought tremendous selection and
aggressive pricing to the consumer. Advertising messages were essentially mass market fliers and ads “targeted” based on geographic distribution. Analysis began on a “market basket” basis and
merchandising techniques became sophisticated, yet the stores did not know their customers by name. This of course is now changing. Most major supermarkets offer some type of “value shopper”
program. In exchange for your name, address and purchase history, the store incents you with coupons, certificates and other items of value (discounts, turkeys, etc.). All of this data is collected
and analyzed. Armed with new conclusions, the marketer will provide a variety of programs. The most recent chapter in the grocery story is the use of the internet by Peapod® and others to
provide at home delivery of your weekly shopping trip in a highly personalized manner

Mass Market vs. One-to-One Marketing: The Key Differences

There are serious differences between the mass market paradigm and the new one-to-one marketing mode. Robert C. Blattberg and John Deighton, who wrote one of the earliest pieces on this topic,
likens mass marketing to “a battleship that shells a distant island into submission” with its constant barrage of ads and “one way” messages. In contrast, one-to-one marketing engages the
customer in a series of dialogues to best understand their desires. The company then leverages the database as a means of gaining personal insights and using these insights to satisfy customer
needs in a personalized manner. The best selling book, “The One to One Future” by Don Peppers and Martha Rogers brought these concepts to the attention of marketing managers everywhere.

There are several ramifications to the firm when embracing a “one-to-one” strategy. Traditional mass marketing companies differentiate based on products. One-to-one companies differentiate by
customers and, in fact, organize their management structure by customer “portfolios”. The move to customer portfolios typically results in different support from product management and the IT
organization. Products become a manufacturing function that leverages base/core designs and customizes features and benefits based on the customer segment who will purchase the product. The IT
organization must provide the talent and infrastructure necessary to build the database and provide access to all who need to use it. Additionally, systems that support mass customization of
products may require enhancements.

Mass marketing companies depend upon a constant stream of new customers, while segment- of-one focuses on a continual stream of new business from existing customers. Product-oriented mass marketers
will seek economies of scale while segment of one managers seek economies of scope. That is, relationships with each customer must be broadened and deepened. This results from the increased
knowledge of the particular customer desires and wants learned during the dialogs.

The Firm’s Most Important Asset

The single most significant change is the emergence of the customer database as the firm’s primary marketing resource. Armed with the intelligence gained from a never ending stream of customer
input and dialogue, the marketer can proactively offer products and services at the right time to the right person. In a more direct manner than at any time in history, customers will shape the
firms that serve them. It will not be enough to provide products and services that the company is good at doing. Rather, the firms will be compelled to provide the services whether internally
produced or externally contracted. This will hold true for niches that are perceived to be too small to be served profitably today. Serving very narrow “slices” of the market will become viable
as marketing efficiency improves. Communications with small and or diffuse targets will improve with increasing precision. Additionally, customer feedback from marketing actions such as responses
to offers, campaign management, etc. will become more accurate.

The Changing Rules of Marketing

This environment will result in the marketing function becoming far more accountable for results. “Brand awareness” and other metrics used in a mass market scenario will become ignored. When your
actual customers can be identified, lifetime value of the customer to the firm will become the dominant measure. This will result in measuring marketing efficiency by changes in the asset value of
the firm’s customer base over time.

The discipline of marketing will begin to feel more like engineering. Consider the impact of the earlier discussion. Statistical analysis will be used for modeling and identification of prospects.
Pinpoint communications and feedback loops will increase precision of the data. Financial results will be measured at the individual customer level. Net-net, marketing managers will need to learn
statistical modeling of dynamic systems if they are to interpret marketing responses to interactive marketing initiatives.

How the Changes in Marketing Flow into the IT Organization

The new marketing environment is technology-enabled. Please note that it is not technology-driven. No one invented the new database technology and then sought a use for it. Technology has fostered
the firm’s ability to actually execute marketer’s desires. Sears Roebuck mailed out its first catalog featuring watches and jewelry in 1888. By 1895, the Sears catalog had grown to 532 pages with
a wide variety of items. Today, catalog retailers including L.L. Bean, Lands’ End, Fingerhut and Speigel, are enabled by a variety of technologies to pinpoint prospects and grow personal, customer
relationships.

There will be profound changes in the IT Organization if the marketing environment is truly changing as outlined. Skill set issues abound. Does your team possess the “hard skills” such as
relational database, client server and networking competencies needed to implement an infrastructure that can support this dynamic environment?

Considerations for Building a Successful Database

The construction and nurturing of the customer database is the initial step in developing a segment of one approach for your company. Other technology issues concerning product development,
customization, distribution, etc. are beyond the scope of this discussion.

There are several considerations when developing your database capabilities:

  • Executive support. As with other major initiatives, a project champion with the appropriate level of executive authority is essential to maintain active involvement from all participants.
  • Data integrity. The parable about building your house on sand versus rock is alive and well. Bad data results in bad analysis and poor customer service. Develop a series of scrubbing,
    cleansing, and matching (de-duping) routines. Data integrity levels should be measured on a recurring basis and reported to assure attention is given to this critical area.
  • Entity level records. Determine the appropriate buying unit. Is it at the individual customer or household level. For business to business marketing, is this at the department, subsidiary or
    parent level relationship?
  • Consistent definitions. Drive your users to define essential data elements. For example, in banking is “balance” average, collected or “spot”. In retail, is “units” actual or gross, etc.?
  • Ease of use. The database should be accessible by marketers and not merely a few centralized power users. Also, it should take advantage of the current GUI tools that are on the market.
  • What to include. Data should include customer demographics, purchase information, channel or service usage and other data gleaned from your company’s systems. Also, you should purchase
    syndicated data that can be appended to your customer records to provide a clearer picture of the customer. Response data from mailings and other product offers are essential.
  • Lifetime value. This is the key measure of your customer’s value to the firm. Marketing databases should be able to calculate this measure.

Chances are that the competition has already begun building and using a database. Given the urgency of the situation and acceptance of these concepts by management, a two track approach may be
necessary. First, use your current infrastructure as best you can to gain some “quick hits” by pursuing the “low hanging fruit”. Perform some broad based segmentation and initiate a program
that is measurable and demonstrates the power of database marketing. On a concurrent track, launch your database design and build. Do it in a fashion that leverages rapid development and provides a
series of deliverables as opposed to a long term development effort.

The road to one-to-one marketing is an exciting journey. Information specialists have an opportunity to enlighten and enable their marketing colleagues. Enjoy the journey!

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About Alan Trivilino

Alan B. Trivilino is the Senior Vice President for marketing in the Customer Value Management organization of PNC Bank's Regional Community Bank.  He holds BA degrees in Business Administration and Political Science from Grove City College, PA and received his MBA from the University of Pittsburgh’s Katz School of Business.

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