By Gwen Moran, Entrepreneur Magazine
February 14, 2000 1:38 PM ET
Mention database marketing, and many entrepreneurs will shoot you a "been there, done that" look. In fact, even the newest business owners have likely taken a stab at sending a mailing or two. However, advances in computer software, increased understanding of relationship marketing and a marketplace demanding more personalized attention than ever have combined to create an environment where new and improved database marketing deserves a second look.
In a nutshell, database marketing is simply using the information in a database to more effectively reach out to your customers. Although the term is sometimes used interchangeably with "direct mail," database marketing is actually much more far-reaching.
Just a few years ago, the extent of most in-house databases and software was a random capture of names and addresses. Now, off-the-shelf software packages, such as ACT! 2000 (Symantec, $200 street) and GoldMine 5.0 (Gold-Mine Software Corp., $200 street), make it easy to capture and organize vast amounts of information about your customers. That data allows you to communicate with your customers via mail, fax and telephone. But such information also allows you to develop a model of your typical customer to better aim your advertising and marketing dollars, create interactive online services and promotions, predict trends, cross-sell, and build stronger relationships with clients and client prospects.
"Maintaining a database of your customers is essential not only for direct outreach, but to examine who your customers are and how to best reach them," says Paul Chachko, senior vice president of New York City-based 24/7 Mail, a cutting-edge direct and database marketing company. "It's the power to say, 'This is my market. This is my consumer. These are the media I should use to reach them.'"
Gwen Moran is Entrepreneur magazine's monthly "Fast Pitch" and "Marketing Smarts" columnist.
Managing your database
Depending on the size of your database, you can likely manage it in-house. Whether you use contact management programs like ACT! 2000 or GoldMine, an off-the-shelf database software package like Access 2000 (Microsoft, $339 street) or a custom-designed program, you'll need to decide what information will be most useful to you. According to Chachko, the most critical information for all entrepreneurs includes such basics as company names and addresses, contact names, phone and fax numbers, and e-mail addresses. Other important information to consider includes sales history, seasonal needs and preferred products or services.
However, Chachko suggests entrepreneurs go a bit further in their fact-finding. For businesses that market to consumers, it's also important to capture information about the size of each customer's household and his or her occupation, hobbies, favorite media, likes, dislikes and other lifestyle information. For business-to-business marketers, gather information about the size and industry of the customer, the level at which buying decisions are made and other details, such as the business's own purchasing process and seasonal product consumption.
"This gives you a template to go out and find other customers just like the best customers you have now," says Chachko. "Such information allows you to understand who's buying your product or service and where to find them."
Gathering the data can be as simple as providing an on-site questionnaire, creating a form on your Web site, or requiring your sales or customer service staff to collect information. If asking your customers lots of questions makes you uncomfortable, you can turn to outside sources for help. Large information-services companies, such as Experian Information Solutions Inc. or Harte-Hanks Data Technologies, can provide much of the information you need, for a varying fee.
These companies warehouse huge national databases compiled from such varied information sources as warranty cards, online questionnaires, magazine subscriptions, telephone surveys and public records. Often, you can supply basic information, such as names and addresses, and these services will provide you with additional background, including interests, shopping habits, credit cards, magazine subscriptions and the like. Such information is usually priced on a per-thousand basis at $50 to $20 0 as the criteria get more specific.
As your database grows, it's important to limit access to it for several reasons. First, having too many employees who don't fully understand the format of the database or the protocol of entering information could potentially damage the integrity of the data. In addition, a good database is an important company asset; if an employee moves on to one of your competitors with a copy of your database, the consequences could be devastating. Similarly, if you contract with an outside database management or marketing company to manage your database, consult with your attorney to add a confidentiality clause to your contract.
Analyzing the information
Once you've built your database, it's time to analyze (or "mine") the information that's in it. Database mining is the specialty of Gordon S. Linoff and Michael J.A. Berry of Data Miners Inc., a data mining and consulting firm located in Boston and New York City. Their latest book, Mastering Data Mining: The Art and Science of Customer Relationship Management (John Wiley & Sons), explores how data mining can lead to better relationships with customers -- and more sales for your business.
According to Linoff, in data mining, businesses look for clear patterns within the data they've collected. "We should begin thinking of our customers as a portfolio and about optimizing the opportunities there," says Linoff. "The process is like playing a game of 20 questions -- ask a bunch of questions, arrive at a conclusion."
Linoff uses a cross-selling model that Data Miners built for a bank as an illustrating example. The financial institution's challenge was in matching specific items from its large menu of products and services to the appropriate existing customers. Since offering all the products and services to all the customers would confuse them and likely result in the customers buying nothing, Data Miners developed profiles of those customers who were likely to buy certain products. This allowed them to create cross-sell models or "best next offer" models. By analyzing buying patterns within existing data, the company could then offer specific products to customers who matched the profiles for each product or service. The result: more than double the previous level of sales success.
The database guru does have a few mining cautions, however. First, your results will only be as good as the data going into your file. It's important to find the right people to manage the database -- those who understand the reasons for the database as well as the complexities of maintaining it. Finally, make sure that common sense is the main ingredient in developing your models. If you build a bad model, you could spend big bucks chasing the wrong customers.
Putting the data to work
All the best data in the world won't help you unless you actively put your database to work for you. In addition to creating customer profiles and models, you can search your database for trends. Some off-the-shelf contact management programs have templates to assist you in predicting your customers' needs before they arise -- and that means you'll be ready when they're likely to reorder a product or stock up for a seasonal need.
Chachko suggests that gaining the customer's permission before reaching out can increase your effectiveness dramatically. Such "opt in" or permission marketing begins with asking customers about products and services they're interested in. By gaining permission to send customers more information about these products, they're more likely to be receptive to follow-up messages.
Those follow-ups can take many forms. In addition to mass mailings, which traditionally have low response levels, you can use your database for a variety of applications, including:
- Sending specific e-mail notifications of new products, Web site updates or special offers;
- Mailing customized price or information sheets;
- Using the data to conduct phone outreach based on reorder trends for your customers, reminding them to reorder products before they run out of inventory or to schedule a service appointment that's coming due;
- Creating a simple questionnaire on your Web site to help you ensure that products or services of interest to a customer are brought to his or her attention each time that customer logs on to the site;
- And capturing a sales history to examine what sales offers have been most successful and repeating those promotions while eliminating or changing those that had little to no impact on purchases.
At the individual levels, database marketing can assist you and your salespeople in adding a personal touch to your outreach efforts -- like sending that A-list customer tickets to see her favorite sports team play.
The applications of a strong database will become increasingly important as the Internet and electronic communication play larger roles in interacting with customers. Start capturing this critical information now so you'll be ahead of the competition when the great marketing opportunities of the future arise.
One company's experience: A wine-win situation
No one has to tell the Vaynerchuk family about the growing importance of database marketing. Owners of the Wine Library in Springfield, New Jersey, and winelibrary.com, an upscale retailer of wine, liquor and accessories, they credit good data for their exponential growth -- 30 percent or more each year for the past three years.
"We've always tried to maintain a good sense of who our customer is," says Gary Vaynerchuk, 24, store owner and content creator for the Web site. "Because our marketing vehicles are very expensive, capturing information online as well as offline has made all the difference in reinforcing who our customers are and what media they're watching and listening to."
Through the Web site, Vaynerchuk captures information such as names, mailing addresses, e-mail addresses, wine preferences and how the visitors heard about the site. He then uses the information to send customized messages about new product offerings and other information that might be of interest to the customer. Employees also capture information in-store, including basic customer contact information and sales history.
"We've actually had people come into the store with printouts from the Web page and the information we've sent them," says Vaynerchuk. "That's one way we know it's working."
Because state regulations prohibit shipping wine and spirits out of state, Wine Library focuses on attracting in-state customers and luring the attractive Manhattan market, a mere 20 minutes over the border. They're careful to keep track of customer preferences and alert key customers of special products. The retailer markets non-alcoholic goods, such as its newly expanded lines of glassware and accessories, to out-of-state customers.
According to Vaynerchuk, database marketing is successful on many levels, helping the company narrowly target and cross-sell customers while refining national marketing efforts. This, says Vaynerchuk, is the power of information.
More database resources
- Data Mining Techniques: For Marketing, Sales and Customer Support by Gordon S. Linoff and Michael J.A. Berry (John Wiley & Sons) offers an overview of turning the information in your database into gold.
- Permission Marketing: Turning Strangers into Friends and Friends into Customers by Seth Godin and Don Peppers (Simon & Schuster) delves into the strategies of several companies that successfully practice permission marketing, including Amazon.com, American Airlines, Bell Atlantic and American Express.
- The Direct Marketing Association (212-768-7277) offers a number of publications on direct mail, database marketing and related topics.