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DATABASE MARKETING

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In a brightly lit conference room in suburban Oakbrook, Illinois, Rob Jackson stands before a group of prospective clients. They are from a consumer products company that is interested in developing a database that can be used to sell more of its products to its end customers.

As director of marketing for Donnelley Marketing, Rob Jackson is explaining the basics of developing a marketing database. Using charts and overheads, and spicing his presentation with plenty of vivid examples, he outlines just how Donnelley can help the client turn its customer list into a powerful, interactive database that can expand its marketing power and increase sales dramatically.

WHAT IS A DATABASE?



Not so long ago, marketers of national-brand products like Ivory soap and Tootsie Rolls could rely on mass-marketing techniques to reach very large segments of the population. But demographic, social, and economic changes have led marketers to shift strategies.

Instead of selling one product to everyone, marketers now develop "niche" products that appeal to small segments of the population. But communicating with these groups can be a challenge, since the proliferation of niche magazines, television and cable networks, mailing lists, and newspapers have left advertisers with no single "mass" medium that can efficiently reach them.

What's the result? Marketers and advertisers are seeking other channels for product promotion. Cigarette marketers are searching for them with real urgency, as more and more advertising media are closed to them. Many of these companies are learning to cultivate a tremendously effective private promotional channel, database marketing.

The direct marketing agency Kobs, Gregory & Passavant defines database marketing as marketing to individual, known customers or prospects, using purchase history and lifestyle data to target relevant offers and rewards that increase response or brand loyalty more efficiently than other media alternatives.

Databases help collect information on the habits and preferences of customers and prospects, information that can help a marketer sell products that match a customer's particular taste. Using a database of customers whose demographic, income, and lifestyle characteristics accompany their purchasing history, a company can design powerful offers that address the ultimate target - an individual consumer.

Individualized marketing is the wave of the future. As Jerry Reitman, executive vice president of Leo Burnett, notes, 'Today it's necessary to understand the world in terms of segments. Instead of speaking to people in terms of their similarities, we must speak to them in terms of their differences. And in a world of differences, personal relevance is important." Direct response advertising coupled with database marketing can create messages and offers that are relevant to specific segments of the population or particular customers.

BENEFITS AND APPLICATIONS OF DATABASE MARKETING

An efficiently maintained database can accomplish a number of marketing goals. It can be used to
  • Generate and track leads for salespeople.
  • Identify and test opportunities for new products, services, and businesses.
  • Track the effectiveness of advertising among long-time or newly acquired customers.
  • Cross-sell existing products to current customers.
  • Construct a profile of current customers, enabling a company to identify potential new customers who resemble that profile.
  • Identify and predict purchasing trends.
  • Personalize marketing communications to customers.
Some of these applications like tracking the effectiveness of advertising can be executed with a "historical" database of customer purchase records. But database marketing generally entails taking an internal, historical database and adding outside information to it, to learn facts about customers or prospects than can't be generated internally. This extra layer of information is needed whenever predictive data-projected sales trends or response rates, for example, are desired.

SOURCES OF INFORMATION

In today's marketplace, information about consumers is easy to come by. The major sources are government census data, auto registrations and driver's licenses, telephone directory information, and data collected from responses to warranty cards and consumer surveys. All are captured by companies that specialize in providing demographic and psychographic information about American consumers. A company like Donnelley Marketing, for example, has information on more than 85 million households. Its customers can target the consumers they wish to reach by overlaying lifestyle data on their own customer records.

Demographic and psychographic information is available at three levels:
  • The Zip Code or census tract
  • The Zip-Plus-Four level, corresponding to a single residential block or building
  • Household or individual
At the household or individual level, "one-on-one marketing" is slowly becoming a reality, as marketers learn enough about a household to make an individualized pitch economically feasible. But what is clearly an unparalleled opportunity for marketers nevertheless makes other people nervous.

In 1990, Lotus Development Corporation withdrew "Market-place," a set of personal computer disks containing data on about 120 million households, after it received 30,000 protests about the program. In its wake, U.S. legislatures began to consider new laws to protect consumer privacy. In Europe, some countries already have national agencies overseeing the uses of personal information, while others are developing rules that would inform people about how their names are being used.

Whether database marketing gains momentum or is stopped in its tracks depends a great deal on how responsibly consumer information is used. It is up to direct and database marketers to apply consumer information in a way that is welcomed, not feared.

DATABASE CAREER OPPORTUNITIES

Every chapter of this book has discussed database opportunities, albeit briefly. That's because database marketing is an increasingly important part of direct marketing. There are even those who predict that database marketing will eventually replace direct marketing as the term for both the industry and the technique.

While positions such as data analyst, programmer, or database manager require a statistical or computer programming background, there are many jobs in the database field that are not technical at all. And although it is important to understand available technology and have a basic grasp of analysis and modeling techniques, knowledge of the range of data sources and very sharp marketing skills is even more essential.

It is generally acknowledged that in the early 1990s, database technology is outpacing database applications. Some feel that only a fraction of database marketing's potential is being tapped. It will take clever marketers and creative’s to carve out new applications for database-driven marketing and creative programs.

In the early 1990s, such people are hard to find. "When we needed to hire someone to run our UK office's database consulting division, we interviewed seventy-three candidates before we found one person with the background we were looking for," Patrice Lyon of Ogilvy & Mather Direct laments. People who offer a blend of analytical skills, data knowledge, and marketing sense will be highly sought after through the decade.

Today, positions in database marketing are available in
  • Direct marketing and catalog companies.
  • Package goods companies.
  • Banks and financial services firms.
  • Direct marketing agencies.
  • Data collection companies.
  • Management consulting firms.
  • Database agencies.
  • Software companies and data base vendors.
Let's examine each one.

Direct Marketing and Catalog Companies

Direct marketing and catalog companies have access to a great deal of transaction-based information. Whenever a customer orders a pair of waders from L.L. Bean, for example, the details of that purchase-quantity, color, size, method of payment-are recorded. Astute marketers can use these customer records to study marketing trends and refine selling approaches.

Data specialists who maintain and massage in-house files can extract information that helps focus and improve company marketing strategies. A product manager or a merchandise manager may ask data specialists to compare the profiles of two different types of customers in order to determine how best to sell to each one. Direct marketing firms can also use their databases to
  • Communicate with and activate inactive buyers.
  • Send special promotions to their best buyers.
  • Remind purchasers of bulk products to order again.
  • Thank customers for orders, send "anniversary mailings" that acknowledge their tenure as customers, and help maintain a steady communication between company and customers.
Package Goods Companies

As the mass market declines, even package goods companies are catching database fever. For decades they were content knowing a great deal about the market segments that purchased their products but very little about the individuals who made the purchase decisions. Today, many of the biggest companies are actively collecting consumer names and constructing marketing programs to attract new buyers and reward loyal users.
Major marketers like Procter & Gamble are using their databases to
  • Welcome new customers.
  • Convert nonusers and competitive users to customers.
  • Increase the purchase frequency of light users.
  • Reward heavy users.
Cigarette makers are relying heavily on databases now that broadcast advertising is no longer allowed and a ban on print cigarette advertising is being considered. Using coupon offers, they are building large databases of smokers with whom they can communicate. This cost-effective "private marketplace" can be reached without wasting effort on nonsmokers. Promotions to the database can also be conducted without immediately alerting competing brands, as coupon campaigns in magazines and newspapers inevitably do.

Banks and Financial Services Firms

Banks and financial services companies, such as credit-card marketers, insurance companies, and investment groups, accumulate sensitive financial data in the process of conducting their business. This valuable information must be used with discretion. Merrill Lynch, for example, allows its brokers to use client financial information in-house, but does not allow its use in mailings for fear of offending clients who may feel that confidentiality has been betrayed.

But banks are using their transaction files to set up all types of direct marketing programs. Some identify the services that a customer is or is not using, so that other services can be cross-sold through direct mail promotions. Other banks are tracking the dates on which large deposits, such as paychecks or bonuses, are deposited, and designing mail promotions for CDs, mutual funds, and other investments that will arrive just before the big check is deposited.

Direct Marketing Agencies

As direct marketing agencies are asked to consult on database strategy, they are hiring personnel with database expertise.

For example, while Leo Burnett is focused on creating cohesive messages that work across a variety of media, the Chicago-based company maintains a significant database group to provide clients with strategic advice on how to grow and get more from a database. In some instances, Burnett clients who don't want to maintain an in-house database have asked Burnett to locate a qualified vendor who can manage the database and help them understand how to use it.

Ogilvy & Mather Direct's Dataconsult division provides a full range of information management services for O&MD clients. Its staff can assist in building a database from the ground up, or examine a client's database and recommend new ventures or businesses it can launch.

Data Collection Companies

Two major players in the data collection field-R. L. Polk and Donnelley Marketing-started out by publishing city address and telephone directories. Over the years, these directories have evolved into electronic databases that contain information about almost every household in the U.S. Metromail is another large vendor of information data.

Not so coincidentally, these three companies are also the nation's largest list compilers. Why the overlap? Because thanks to computers, the lists they make available for rental can also be used to enhance a database.

The other major data collection agencies are the three major credit-reporting agencies: TRW, Equifax, and Trans Union Corp. Logically, each one has access to the sensitive financial information about U.S. consumers prized by marketers.

Management Consulting Firms

Because they began as accounting firms, major management consulting firms such as Andersen Consulting and Ernst and Young were already involved in finance and data processing. Moving into database management and consulting was a natural extension for these companies, which hire analysts, programmers, and marketing strategists to work with clients in an effort to maximize profits from a database.

Database Agencies

Database agencies, such as Epsilon and MARC, are marketing-driven rather than technology-driven. While they can offer data management, statistical analysis, and modeling, and although they rely on up-to-date technology to do so, they focus on offering strategic marketing and creative advice. These agencies can actually create, execute, and manage a database marketing program.

At present, only a handful of agencies offer a full complement of marketing and technology services, but this is an area that will grow in the years to come.

Software Companies and Database Vendors
Database vendors selling the file formats on which databases are constructed, and software companies writing the application programs that let users access information, need technical people to develop their products, and sales representatives to market them.

One rep who has sold both hardware and software notes that "sales representatives must understand the technical specifications of their product or service, as well as the needs of the company they are calling on. Most of these companies also employ consultants who help end users design and install a system so it generates the results it wants. Both consultants and sales representatives must work with users to make sure the system or software fits the company's needs. If it doesn't, it quickly becomes 'shelfware'-software or applications that cannot be used because they were done improperly or are no longer needed when finished."

A CAREER IN DATABASE MARKETING: ROB JACKSON

How did Rob Jackson launch his career in database, a field that didn't even have a name when he started his first job?
After graduating with a degree in marketing, he cut his teeth in advertising and promotion as an agency account executive on the national Burger Chef account. After three years, he left the agency and moved to ITT Educational Services, a chain of schools that offers post-high school training in fields like auto mechanics and electronics. There, he helped design and implement a marketing program that attracted new students to the programs offered by the schools. By generating new leads for each program and tracking how many new students actually enrolled in the program, Jackson in effect ran a database-driven enrollment program.

Next came a stint at Wickes Corporation, a manufacturer of pole-frame buildings like garages and auto dealerships. As ad manager for the building division, he developed a program to generate business for fifty company-owned branches. Again, a database was used to capture information about prospects and track the percentage of conversion to sales.

After two direct marketing jobs and a stint in a sales promotion agency, Rob and a partner created Integrated Target Marketing. Their company's goal was to use customer information to drive marketing programs for both consumer and business-to-business clients. After three and a half years in business, he decided to go out on his own as a consultant. Trying to drum up business, he approached May & Speh, a database company that was using Integrated Target Marketing's services. May & Speh refused to hire him as a consultant but offered to take him on full-time.

"It never occurred to me to join that kind of business," says Rob, "but I was tired of meeting payroll and shouldering all the obligations that go with the territory in a small business." After working at May & Speh, Rob moved to Donnelley Marketing, where he is happily employed as director of marketing.

On a typical day, Rob might meet clients, work with technical and analysis specialists to work up a proposal for a company interested in developing marketing database, or represent Donnelley at an industry convention. Or he might supervise the production of sales resources like the brochures and catalogs that promote Donnelley's services. His activities vary, but they all focus on helping clients apply Donnelley Marketing database services to their marketing.

He notes, "in my previous positions, databases were important, but they didn't drive the job. Now, I'm fortunate to be in a spot where database is the prime action agent. I firmly believe that database marketing will grow more important, especially as the distinctions between general advertising and direct marketing are erased.

"We're going to see more and more companies 'closing the loop' and becoming full-service database marketing companies like Epsilon. Epsilon offers its clients creative and marketing services, as well as technical help in database construction, analysis, and modeling. Epsilon can develop a database, then create and implement a communications program that targets individuals on the database, capture and analyze the response, and repeat the whole process. Epsilon is not just a database vendor-it is a strategic marketing partner to its clients."

SALARY RANGES

Junior analysts who perform the computer programs that drive database marketing and data sources who source data earn between $30,000 and $35,000. Senior analysts earn $35,000 to $50,000, although those capable of performing sophisticated modeling functions on state-of-the-art software can command very high salaries, upwards of $80,000.
Database managers who manage programs for major marketers earn between $50,000 and $100,000, and some stars in the field earn a great deal more. Database consultants can earn upwards of $100,000.
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