Why Databases Fail Nine deadly mistakes that will ruin your chances for success. Houston Direct Marketing Association Thursday, October 14, 2004 Arthur Middleton Hughes Vice President / Solutions Architect KnowledgeBase Marketing, Inc.
Mar 26, 2015
Why Databases Fail
Nine deadly mistakes that will ruin your chances for success.
Houston Direct Marketing Association
Thursday, October 14, 2004
Arthur Middleton Hughes
Vice President / Solutions Architect
KnowledgeBase Marketing, Inc.
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What KnowledgeBase Marketing Does
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Mistake: Lack of a Marketing Strategy
Building a database is easy
Making money with a database is hard
Most people don’t know that
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How to develop a strategy
Collect data on your customer’s purchases, demographics and lifestyle
Build a database that permits ad-hoc analysis
Construct a lifetime value table
Figure out what motivates your customers
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Two Kinds of Database People
Constructors
People who build databases
Merge/Purge, Hardware, Software
Creators
People who understand strategy
Build loyalty and repeat sales
You need both kinds!
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Examples of Profitable Strategies
User Groups
Newsletters
Surveys and Responses
Loyalty Programs
Customer and Technical Services
Membership cards and status levels
Event Driven Communications
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Event driven communication:Dear Mr. Hughes:
I would like to remind you that your wife Helena’s birthday is coming up in two weeks on November 5th. We have the perfect gift for her in stock.
As you know, she loves Liz Claiborne clothing. We have an absolutely beautiful new suit in blue, her favorite color, in a fourteen, her size, priced at $232.00.
If you like, I can gift wrap the suit at no extra charge and deliver it to you next week, so that you will have it in plenty of time for her birthday. Or, I can put it aside so you can come in to pick it up. Please call me at (703) 754-4470 to let me know which you’d prefer.
Sincerely yours,
Robin Baumgartner Robin Baumgartner, Store Manager
Ridgeway FashionsLeesburg, VA 22069
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Basic Strategy Rule:Put yourself in customer shoes
Say: “What would I want to be on this database? What’s in it for me?”
If you can’t come up with a good answer, the database will fail
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Mistake: Focus on Price instead of Service
Database marketing builds loyalty.
Discounts do not build loyalty.
Do not use the database to provide discounts.
Use the database to provide dialog, recognition and service.
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Customers today seek more than low prices
Recognition
Service
Information
Convenience
Helpfulness
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Example: Quaker Direct
Budget: $18 Million. Coupons to 20 million “targeted households.”
Quaker goal: “real one-to-one bonding with consumers”.
Cost: four times as much as FSI’s.
Why failed: Coupons do not build relationships.
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Example:Kraft Crystal Light
Million club members receive quarterly newsletter.
Catalog: Watches, mugs, jogging suits, with Crystal Light emblem.
Theme: fitness, exercise, weight loss, diet.
Why succeeded: Club based on valid idea, not just on discounting product.
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Mistake: Failure to use tests and controls
Database marketing is accountable
Everything you do can be measured
You must set up control groups that do not get your new communications
Key measurements: response rates, return on investment, profits, lifetime value.
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Example: Western Union
Preferred customer card sent to everyone who had used WU 3+ times
Worked well, but after 2 years, WU asked, “How has this boosted profits?”
Agency did not have a control group.
Profits could not be verified.
Agency lost the account.
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Example: Citicorp Reward America
Frequent shopper program for supermarkets
Goal: sign up 40% of all chains fast
Profit idea: sell data to manufacturers
Budget: $200 million -- 174 employees
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Failure: Citicorp Reward America
Program cancelled. Employees fired. Why?
Manufacturers didn’t buy the names.
Computers choked on the data.
Failure to test on small scale first.
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Mistake: Too big and slow
Database should be built in six months or less.
DB Marketing builds loyalty and sales -- but only when it is up and running.
If your plan requires more than a year, maybe your plan is too complicated.
Start small. Build Small. Learn as you go. Add to it later.
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How a database builds relationships
Hold information on customersAdd new data every day:
Surveys, Promotion history, Points Transaction history, Lifetime value, RFM Create a relational database that you can build inexpensively
Update it as often as required – several times a day if needed.Use it to create communications
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Mistake: Failure to use the Web
Your database contains customer information: purchases, preferences, contact names, etc.
Customer service has to have this info when they talk on the phone.
Your web site must have this info when you receive customers as visitors.
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Using a database to personalize
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Provide recognition!
Welcome Back, Arthur!
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Immediate Feedback!
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30 seconds later: Email
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Retail Email Success
Video chain sent email newsletters to 170,000 customers about movies
16,000 asked for but got no emails
Test group total sales over 6 months were 28% higher than the control group
Emails can be a powerful sales boost
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Catalog Email Success
Cataloger selected 40,000 who had bought on the web.
20,000 got emails saying “watch mailbox for our new catalog”
20,000 got only the catalog.
Sales to the test group were 18% higher than the control group.
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Mistake: building in-house
Marketing databases are unlike any other IT function.
DB requires special skills and software
There are scores of vendors with experience in building marketing DBs
In-house will take far longer and cost far more.
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What to do?
Send an RFP to find a vendor that understands you and has experience
Get it going fast and at lower cost. Once it is up and running, you can
migrate it inside. But even then, you should not do it. Why? Because you should concentrate on
marketing: building profits from it.
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Mistake: Treating all customers alike Loyal customers are more profitable
than new or disloyal customers Loyalty can be built and maintained $1 million retention budget spread over
1 million customers is $1 per year. You can’t build much loyalty for $1
$1 million spread over 100,000 is $10 per year. You can build loyalty with that
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Segment by profitability & focus your attention
79.67%
24.82%15.83%
1.52%
-21.83%
-40.00%
-20.00%
0.00%
20.00%
40.00%
60.00%
80.00%
5% 11% 28% 28% 28%
Pro
fita
bili
ty
Profitability Segment
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GOLD Spend Service Dollars Here
Spend Marketing Dollars Here
Reactivate or Archive
Your Best Customers - 80% of Revenue
Your Best Hope for New Gold Customers
Move Up
1% of Total Revenue These may be losers
Marketing to Customer Segments
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Mistake: Failure to develop a retention program
Most companies are set up for acquisition
Few have a specific retention program.
$1 spent to retain customers returns more profit than $1 of acquisition
($62)
$48
($80)($60)($40)($20)
$0$20$40$60
New Customer 3rd YearCustomer
Annual Profit
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Retention = Communications
People like to hear from you.
Personalize your communications.
Use email, direct mail, phone calls
Set aside control groups so you know that your communications are working
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Key retention strategy: cross selling
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
Retention Rate
1 2 3 4 5
Number of Products Owned
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Concentrate retention $$ on where you need help
Probability of Leaving SoonLTV High Medium LowHigh Priority A Priority B Priority CMedium Priority B Priority B Priority CLow Priority C Priority C Priority C
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• Manufacturer of lighting products
• Catalog sent to 45,000 contractors
• Previous policy: wait for the orders
• Test: pick 1,200 customers, split into test of 600 and control of 600
• Two person pilot program build relationship with test customers to see the results
What proves that database marketing works?
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82%
112%
0%
20%
40%
60%
80%
100%
120%
Change in number of
orders
1 2
Control vs Test Groups
Change in the number of orders after 6 months
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86%
114%
0%
20%
40%
60%
80%
100%
120%
Change in average
order size
1 2
Control vs Test Group
Change in the Average Order Size
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70%
127%
0%
20%
40%
60%
80%
100%
120%
140%
Change in total
revenue
1 2
Control vs Test Group
Total revenue gain: $2.6 million over six months
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This stuff works!
Building a relationship with customers can be highly profitable
Using a database to recreate the old family grocer is a winning strategy
Relationship marketing is the way to go
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Mistake: Lack of a forceful leader
Success requires directing the activities of many internal and external units
The Web, MIS, Customer Service, Tech Support, Telemarketers, Service Bureau, Direct Agency, Fulfillment, Market Research
Database Marketers must be leaders
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Summary: The Nine Mistakes
Lack of a Strategy
Focus on Price
Lack of tests & controls
Too big and delayed
Failure to use the web
Building In-House
Treating all customers alike
Lack of a retention program
Lack of leadership
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Rules for success
Put yourself in your customer’s shoes
Build a lifetime value table
Build a database team
Think small, and think fast
Keep your eye on the bottom line
Thank You
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Books by Arthur Hughes
From McGraw Hill. Order at www.dbmarketing.com
Contact Arthur: [email protected]