Database marketing is a systematic approach to the gathering, consolidation, and processing of consumer data (both for customers and potential customers) that is maintained in a company’s databases. Although databases have been used for customer data in traditional marketing for a long time, the database marketing approach is differentiated by the fact that much more consumer data is maintained, and that the data is processed and used in new and more sophisticated ways. Among other things, marketers use the data to learn more about customers, select target markets for specific campaigns (through customer segmentation), compare customers’ value to the company, and provide more specialized offerings for customers.
Database Marketing is a powerful competitive weapon for companies – especially large ones. The growth of database marketing is rooted in the small business philosophy of staying close to the customers, under-standing and meeting their needs and treating them well after the sale.
Much corporate marketing is tied to big, general marketing or advertising campaigns with a single message – the same for everyone. This message may be based on the companies Unique Selling Proposition (USP). However, customers have different needs and a single USP spilled out to the whole market is no longer enough.
Messages must be tailored to specific segments of the market and ultimately to the market segment of one, the individual customer. Computerizing the customer database makes it possible to address messages more specifically and market additional products to each customer.
What is Database Marketing?
There is no universal definition of Database Marketing ( DBM ); try this one …
“DBM is an interactive approach to marketing communication, which uses addressable communications media (mail, telephone, fax, sales force etc) to extend help to its target audience, to stimulate their demand, and stay close to them by recording and keeping an electronic database memory of customer, prospect and all communication and commercial contacts, to help improve all future contacts.”
The characteristics of fully fledged database marketing are ….
1. Each actual or potential customer is identified as a record on the marketing database; markets and market segments are groups of individual customers.
2. Each customer record contains not only identification and access information but also a range of marketing information. It also includes information about past transactions and about campaign communications.
3. The information is available to the company during the process of each transaction with the customer, to enable it to decide how to respond to the customer’s needs.
4. The database is used to record customer responses to company initiatives.
5. The information is available to marketing policy makers to enable them to decide such things as which target markets/segments are appropriate for each product/service etc.
6. In large companies, selling many products to each customer, the database is used to ensure that the approach to the customer is co-ordinated; and a consistent approach developed.
7. The database eventually replaces market research. Marketing campaigns are devised such that the response of customers to the campaign provides information which the company is looking for.
8. Marketing Management automation is developed to handle the vast amount of information generated by DBM. This identifies opportunities and threats more or less automatically!
This is fully fledged marketing automation. Very few companies have succeeded in doing this; but many have it as their goal.
DBM presents many challenges to management. It requires careful maintenance of great volumes of detailed customer data. Accessing the data, interpreting it, and using it to drive or support the marketing function requires a long-term marketing systems development policy.
It also requires computing and marketing people to work together, often educating each other. And, it may well require most people in the company to forget their traditional way of doing business.
DBM will only work if dealing with customers is viewed as an on-going process (Customer Contact Process).
The Ladder of Loyalty
The ladder of loyalty is a key concept in DBM.
1. No awareness of company or product/service.
2. Awareness of company
3. Awareness of product/service
4. Positive perception
5. Recognition of personal benefit
7. Objections overcome
8. Sale of product or service
9. Entry into continued relationship.
DBM is used to move customers up the ladder.
The essence of database marketing is communicating directly with the customers and asking them to respond in a tangible way. It provides the means for the customer to respond and is set up to measure and fulfill the response.
It sets up or reinforces a relationship with the customer, which is “fulfilled” when we follow up a customer’s response to our communication. Fulfillment may be in many ways; a telephone conversation, sending literature, a sales visit, attendance at a sales seminar, exhibition or store, or sending products to the customer.
So DBM is a broad discipline, not a separate marketing communications medium, but a way of using any medium to elicit the desired response.
The Phases of Development of Database Marketing
In any business function, automation tends to go in phases. In DBM, we see four phases – these phases are not jumps, each covers a broad spectrum of approaches. They evolve into each other, but their philosophy is very different.
Phase 1. Mystery Lists.
In this phase, marketing databases are basic sales databases. They are often organized by product; a customer may appear many different times under different product categories. It may be hard to identify that it is the same customer. These databases tend to grow from accounts systems and they are hard to analyse for marketing purposes. There is usually conflict with other functions … they see no reason for changing database structure to meet marketing needs! Lists of potential customers are brought in and not integrated with the sales database/s. They may be used once, to identify potential customers for a particular product, and then discarded. Whether a campaign is successful or not does not affect the rest of marketing.
Phase 2. Buyer Databases.
In this phase, sales and marketing databases are well organized, but there may be many databases. If a company uses several channels of distribution, there may be a database for each channel. Customer focus is possible; we can identify the nature of our relationship with a particular customer across different products. Databases can be analyzed to develop strategy. Each database campaign is well planned and executed in itself, but may overlap, or even conflict, with other campaigns. Increased effectiveness without overall co-ordination leads to more conflict. The conflict may be within the marketing function; or with sales or inventory management.
From Phase 2, we learn which data are important, which kinds of data we need to use together, which conflicts and stresses we must resolve and how to use DBM professionally.
Phase 3. Co-ordinated Customer Communication.
In this phase, one database drives all customer communication and management. Computer systems are used to co-ordinate and drive campaigns. The emphasis is not on the database, though this is the powerful tool that makes it all possible. The emphasis is on customers. Our first questions are: who are our customers, what are their needs, and how shall we plan and co-ordinate all our communications efforts to meet them? In phase 3, we plan campaigns using the database. A campaign management system ensures that all involved in a campaign know the schedule. We review past performance, we test, we inform other functions of our proposed activity, we use automation to evaluate the campaign; all campaign information automatically enriches the database.
Phase 4. Integrated Marketing.
Many functions automate within closed loops but need information from other areas. It may never be possible to link every function automatically, but each functional subsystem automatically gets the information it needs from every other subsystem. But we can go a long way to ensuring that the critical links are made at key stages.
It is not possible to maintain a good database without a call center. Calling and talking to your customers and prospects is the only way to keep the information relevant and timely.