Optimal Database Marketing Drozdenko & Drake, 2002 1.

Optimal Database Marketing Drozdenko & Drake, 2002

1


2

Chapter 2

Databases in the Marketing Planning Process and the Organization


3

• To further explore basic concepts and applications of marketing databases.

• To examine the process for evaluating the feasibility of using databases in the marketing plan.

• To demonstrate the utility of the database as a strategic integrating element of an organization.

Chapter Objectives


4

Review of Marketing Databases

• A Marketing Database is a file containing information about customers or potential customers that enhances marketing functions.

• The goal in establishing the database is to allow customer information to be accessed and manipulated rapidly and accurately in order to meet customer needs and organizational objectives.


5

Examples of Databases

• A very simple database may be the customer information retained in the memory of a street vendor.

• He knows the first name of a customer, how she takes her coffee, and how much cream cheese to put on her raisin bagel.

• Retaining this information helps him serve his customers more personally and quickly so that they can get to work on time.


6

•Problems arise with a mental database when the customer base increases.

•With thousands of customers and many customer characteristics, it becomes impossible to hold their characteristics in memory.

Examples of Databases


7

Storing Customer Information

:

•Merchants have always retained information about customers. Without a computer, information about customers could be stored in:

• Memory

• Index Cards

• Rolodex


8

Storing Customer Information•Many hair styling organizations now have computerized databases of customers.•A hairstylist may record customer names, addresses, phone numbers, appointment dates,coloring and treatment formulations, and hair care product purchases•This information makes the organization more responsive to the needs of individual customers.


9

Hypothetical Database of a Shoe Reseller (25,000 names)

• Many other data fields and variables could be added to this database such e-mail addresses, phone numbers and a complete history of purchases.

NAME ADDRESS LAST PURCHASE AMOUNT

P. James 4 Oak Lane Pappagallo-162 129.50

K. Lang 7 Maple St. Easy Spirit-200 68.90

T. Clark 3 Pine Drive MootsieTootsie-87 48.88


10

More Complex Databases May Contain Information on…

Customer Demographics• gender• age• income• family characteristics• occupation, etc.


11

Customer Psychographics• activities• interests• opinions• hobbies• recreational activities• political and social opinions



12

Customer Purchase Behavior• previous purchases by product

category• payment history• purchase frequency• purchase amount



13

Customer Databases versus Other Marketing Databases

• In this book we are primarily concerned with databases that contain information on individual customers. That is, the customer database allows us to reach customers directly.

• Prospecting databases also contain data on individuals, but these individuals are not customers. When individuals from the prospecting database respond to an offer, their names are moved to the customer database.


16

How Marketing Databases Fit into the Marketing Planning Process

• Many organizations develop some type of marketing plan as a means of reaching organizational objectives and satisfying customers.

• It is important to consider how marketing databases may fit into the planning process.

• The plan allows for a systematic evaluation of the utility of the database for reaching organizational objectives.


17

Some Advantages of Strategic Planning• Points to potential and existing problems,

opportunities, threats in the market environment• Defines organizational strengths and weakness• Plots the acquisition and use of resources• Details methods to obtain goals and objectives• Assists in implementation of strategies• Regulates growth• Establishes roles and functions of departments and

individuals• Makes better use of resources• Establishes tasks and timing• Helps achieve personal goals of individual

employees• Stimulates thinking and communication within the

organization


18

Comments on Strategic Planning

• Argument against strategic planning for entrepreneurs and businesses in the “new economy.”

• Strategic thinking versus the planning document.

• Focus on a direction for the organization rather than “hit or miss.”


19

Levels Of Planning

CorporateCorporate

DivisionalDivisional

Functional (Marketing)Functional (Marketing)

Operating LevelOperating Level(Sales, Advertising, Distribution, etc.)(Sales, Advertising, Distribution, etc.)

Individual PersonnelIndividual Personnel


20

Marketing Planning Starts with the Corporate Strategic Plan

• Prior to developing the marketing plan, marketing must review the company’s …• mission• objectives• strategies• resources, etc.


21

Marketing Planning Starts with the Corporate Strategic Plan

• If databases are being considered as a component of the marketing plan, it is necessary to review the corporate plan.

• The marketing manager needs to know if the introduction or expansion of a marketing database is consistent with the corporate plan.


22

For example…

• Does the company have the resources to support a database system?

• Are the financial objectives of the organization compatible with developing a customer database that will take 5 years before returns on investments are realized?

• Is the corporate strategy of diversification consistent with the expansion of the current customer database?


23

Steps in the MarketingPlanning Process

• Perform Situational Analysis• Specify Objectives• Develop Strategies• Implement Tactics (Programs)• Monitor and Control

Note: Marketing planning is a continual process which requires constant review.


24

The Marketing Planning Process: Situational Analysis

Situational Analysis includes analysis of …• General environmental factors: global, cultural,

economic, legal, political, social, demographic, technological, and so on

• Internal resources: technology, human resources, marketing, production, etc.

• Present and future markets: evolving and established segments

• Target market characteristics: demographics, psychographics, purchase patterns

• Competitors’ characteristics: direct and indirect


25

The strengths, weaknesses, opportunities and threats of the organization are evaluated within the context of the environment.



26

By examining each variable of the situational analysis, we can begin to access the feasibility of developing the database within our organizational objectives.



27

For example, growing competition at the retail level may be affecting growth in a product category. An analysis of the competition and the purchasing habits of our target market may point to an opportunity for using direct channels of promotion and distribution.



28

Establishing Marketing Objectives

• After performing a situational analysis, an organization has the necessary information to establish marketing objectives.

• General marketing objectives can reflect sales volume, profitability, and market share.

• Objectives are quantitative and time-specified.


29

• An example of a marketing objective might be:

Increase in sales volume by 10% in the next year



30

• Quantification of objectives is necessary for evaluation and control. How can you track your success on an objective of “increasing sales”? Is a 1% increase over 5 years sufficient?

• The advantage of implementing databases is that they allow clear, quantitative, and continual tracking of objectives.



31

The Marketing Planning Process: Strategy Development

• Strategy is the longer-term direction to influence customers and achieve marketing objectives. It involves developing products to meet customer needs and positioning products (i.e., communicating about benefits) to target segments.

• The situational analysis provides a guide to strategy development. Market segments, potential targets, competition, internal resources, etc. are considered when developing strategies.


32

• General strategies in marketing include marketing penetration, market development, product development, and diversification.

• The next slides show the relationships between markets, products and strategies.

The Marketing Planning Process: Strategy Development


33

Market PenetrationMarket PenetrationProduct

DevelopmentProduct

Development

Market DevelopmentMarket Development DiversificationDiversification

Existing ProductsExisting Products New ProductsNew Products

Existing MarketsExisting Markets

New Markets

New Markets

Product/Market Strategy Grid


34

Relating Strategy toDatabase Implementation

The marketing manager should evaluate how the database may assist in the strategy.

• Market Penetration

• Market Development

• Product Development

• Diversification


35

• Involves increasing product use for existing customers or non-customers with similar profiles.

• Products are not modified with market penetration strategy.

• A database may assist in reaching existing customers in a more efficient and effective manner or in modeling current customers in order to find new ones.

Market Penetration Strategy


36

Market Development Strategy

• Existing products are offered to new markets.• For example, a producer of an industrial cleaner

that primarily sells to manufacturing organizations, could acquire lists of customers in other industries (e.g., health care, hospitality).

• The list could be the foundation for a customer contact database.


37

Product Development Strategy• The database can help in product

development through the use of systematic testing paradigms.

• Discovering that current customers have certain hobbies or are involved in certain activities may provide clues for product development.

• Potential product offerings can be evaluated through “hypothetical” offerings.

• More about testing later.


38

Diversification• Diversification occurs when organizations move

into new markets with new products.• Diversification strategy is usually the riskiest,

because the organization is moving away from both markets and products they know.

• For example, an organization that sells commercial ovens may be interested in developing products for the home gourmet kitchen. A database of potential customers could be developed based on variables such as subscriptions to gourmet magazines and recent home purchases.

• Database methods could reduce diversification risk by using a direct distribution channel and testing the new products on a selected list of potential customers.


39

Strategy Development, Targeting and Positioning

• Strategy also has to developed at the level of the target market. After the market is segmented a target group is selected.

• Positioning a product relates to how the target group perceives the product and its benefits relative to competitors.

• The desired characteristics are incorporate into the product

• A database can help expedite the segmentation process and specify the needs of customer for positioning.


40

The Marketing Planning Process: Marketing Tactics

• Marketing tactics (also called marketing programs) are the specific means to implement the marketing strategy.

• Each relevant element of the marketing mix (promotion, price, distribution, product) should be considered.

• For example, a market penetration strategy may be implemented by increasing distribution or promotion to the existing target market.


41

The Marketing Planning Process Marketing Tactics

Distribution• Target new customers by mailing to lists of

potential customers who do not currently have easy access to your existing retail channel.

• A database system can also be used to track the performance of channel members through incentive programs.

• The distribution program should include how the lists will be accessed and a plan for testing the lists.


42


Promotion• Develop a relevant mail communication

based on the benefits this target group is seeking.

• For example, this new segment may be more responsive to the durability of your product as compared to the fashion orientation of your current customers.

• The database might provide a more personalize message to an under-served segment.


43


Price

• Pricing levels for this new segment could be systematically tested.

• Because of the establishment of a direct distribution channel, the marketer may have more pricing flexibility for this segment


44


Monitor and Control

• Marketers must constantly monitor marketing programs. Performance is compared to objectives. If performance does not reach objectives at specific milestones, the program or strategy may need to be modified.

• Performance deficits may occur due to improper analysis, over-optimistic objectives, inappropriate strategy, or poor implementation.


45

•Database marketers can track performance rapidly and accurately. This allows a quicker response to problems. Additional, testing of programs can be more extensive and less expensive relative to mass marketing through retail channels.


Monitor and Control


46

Databases and the Planning Process

• Ideally, the possibilities of database development or expansion should be considered at all levels of the planning process.

• However, some organizations are not strategically oriented.


47

Databases and the Planning Process

• A database may be developed to solve an immediate tactical problem without much consideration of longer term strategies or objectives.

• For example, a database may be developed to support a specific promotional campaign for product introduction. The re-use of the database after the promotion is not anticipated.


48

Databases Are Best UtilizedFor the Long-term

• While the temporary use of a database may help achieve some short-term objectives, the real power of databases are in their ability to track and evaluate customers over the long-term.

• Databases can help develop relationships between the customer and marketer by making the marketer aware of changing needs.


49

Databases Are Best Utilized For the Long-term

• From a performance perspective, databases can be used to evaluate marketing programs over time and determine the lifetime value (LTV) of the customer to the organization.


50


51

Review Questions1. What is the primary purpose of a marketing

database?2. What is the difference between a customer

database and other types of marketing databases?

3. Why is it important to examine the marketing environment and organizational resources before proceeding to develop a marketing database?

4. How are database marketing strategies different from marketing programs?

5. What advantages do databases provide to marketers for implementing marketing programs?

6. Provide an example of how tactical database implementation is different from strategic database implementation.

Optimal Database Marketing Drozdenko & Drake, 2002 1.

Documents

customer information

hypothetical database

mental database

simple database

review of marketing

marketing functions

examples of databases

customer characteristics