Co-op Databases

Co-op’er-a-tive, adj.

1. Involving cooperation

2. Willing to act with others

The definition alone brings to mind families coming together to harvest their neighbor’s crop, a small town coordinating and executing the annual 4th of July celebration or business owners sharing ideas not only to increase their own profitability but to benefit their entire industry.

Standing alone provides little shelter from the rain. Standing together provides the unity to build and strengthen a solid foundation to withstand any storm.
—Direct Marketing Technology’s

Brochure for Zero24

The concept of a cooperative database is at once seductive and scary as hell.

Seductive, because you, the cataloger, can raid the customers of other catalogs who—through sophisticated modeling—are deemed to be your very best prospects. Scary, because all these other catalogers will be raiding your house file under the same parameters.

The granddaddy of cooperative databases is Abacus, dreamed up by Tony White, a native of Ireland and veteran of NDL, who opened his doors in 1989.

The concept:

I knew there was a lot of waste out there—catalogers spending a lot of money on mailings to people who had no intention of buying. I believed that if I could bring a majority of the large players together and share transactional information, a perfect picture could be created.

The Abacus system works like this:

• If you are a cataloger and wish to join the syndicate, you agree to send your database and transactional information to Abacus.

• Each month you send updates and new transactions.

• Abacus performs electronic alchemy on your database, comparing your customers with all the others in the giant cooperative database. Your customers are profiled, modeled and scored in terms of demographics, behavior patterns, purchasing history and seasonality of action (if relevant).

While you, the Abacus consortium member, continually mail your own best customers from your own database, the Abacus scheme radically alters the process of acquiring new customers. You tell Abacus how many pieces you want to mail, and Abacus searches the co-op database and finds the ideal prospects for you. Your cost: $60/M. Because Abacus has your entire database, the new names you receive are net of your house file, thereby eliminating the need for a net-name arrangement.

White had a hard time convincing catalogers of the concept until 1995 when prices of postage and paper rose dramatically. That year, catalogers realized they had to do something, whereupon his business took off.

In the 1990s, two other co-op databases were born: Experian’s Zero24 and Acxiom’s SmartBase, which is in the process of being folded into Abacus.

Co-ops: Advantages to the Cataloger

• Precisely targeted names based on your individual model, which eliminates waste.

• Cheaper than renting outside names, which means you can spend less money or reach more people for the same money. For example, the base cost for names is $60/M versus as much as $100/M or more for outside names with equivalent selects and presumably far less targeting precision.

Database consultant Arthur Hughes points out the huge leverage of co-op databases is realized because of the vast amounts of response data. These are confirmed mail-order buyers with complete information about what they bought, when they bought it and how much they paid. Targeting can be far more precise than with loosey-goosey compilations and self-reported data used as overlays.

Disadvantages to the Cataloger

• Competitors can cash in on your acquisition marketing.

• Theoretically, it’s great for smaller catalogers. For example, if you put 500,000 names in the pot and a pipsqueak puts in 5,000, his universe of your names is a lot bigger than your universe of his. At the same time, catalog consultant Susan McIntyre makes the point that big catalogers need the new names of the small fry to keep the file fresh; these names often come in from shallows, reefs and shorelines that the driftnets of the giants can’t reach.

Abacus counters this problem by allowing its members to mail only 12 times their own databases.

Zero24 has no such limits. And regarding the above-mentioned 12-times rule, Experian/Direct Tech’s John Messner notes, “It has been our experience that this rule is no longer enforced.”

• If no new names are added to the co-op database, you are marketing in decreasing concentric circles until you disappear up your own PC.

Tony White counters this argument by noting that with 1,100 catalogs and transactional data on 88 million households out of the 100+ million households in the United States, he is effectively reaching every family with disposable income worth reaching. White says:

Basically, the number of names and addresses doesn’t change; it’s the freshness of the data that is key.

The Disadvantage to All Catalogers

Tony White’s statistic: In a given year, catalogers spend $600 million on list rental, of which Abacus receives about 5 percent, or $30 million. White believes he has the lion’s share of co-op rentals.

But even if catalogers spend 10 percent to 15 percent with the other database, a fat load of outside rental money is still out there for grabs. White claims that massaging data means better and more responsive customers; as a result, many of his members actually report increased list rentals.

Alice Zea, of AZ List Marketing, disagrees. Her stand is that co-op databases have a negative effect on brokerage revenue, although it cannot be precisely measured. Chris Lynde of Direct Marketing Technology points out that Zero24 makes the deal more palatable to members by charging $60/M and then paying a royalty of $30/M to all members whose names are used.

When White launched Abacus, he set a price of $100/M for the members with a 50-percent rebate to the list owner whose names others used. When he realized that the process was creating a lot of unnecessary paperwork, Abacus dropped the price to $45/M with no rebates. His current price is $60/M, with no surcharge for supplying names based on the member’s model.

Susan McIntyre points out that these databases raise response now, but this finite pool of names—the very best customers—stands to be inundated with catalogs. Will this overmailing change the psychology of catalog buyers to the point that they sign up for the DMA Mail Preference Service? We may not see the effect this year or next, but what about five years out?

White admits that in the early days all the catalogers were chasing multi-buyers, whereupon they were “hitting a wall in terms of universes we could supply,” since they were mailing the same number of names every time.

Now, with far more sophisticated modeling, Abacus looks not only for multi-buyers but relatively light buyers who have made precisely the right purchases based on various profiles and models.

White cites his “Optimization Service,” which works like this.

Let’s say an Abacus member is planning a one-million mailing of names—its own, names from Abacus and outside rentals and exchanges. After the merge/purge, Abacus goes through each name and decides whether it’s worth, say, 70 cents to mail that person a catalog. The process eliminates about 15 percent of the names, saving 150,000 catalogs not sent to the wrong person. The cost savings: $105,000 at 70 cents each.

Catalog consultant Jack Schmid finds the Abacus model works well only if a participant pushes Tony White’s alchemists to the limit.

You can’t settle for the simple Abacus Synergy model. You have to spend time and work them hard. I was working with a gardening cataloger whose prospecting was a shambles. Their database guy in Chicago was working with Abacus for two years to fine-tune their modeling. I saw the results of a prospect mailing to over a million names that broke a buck a book, and I knew they were on to something.

With its Zero24 co-op database, Experian is offering an equivalent to the Abacus Optimization Service called DT-ABC, which includes credit information and identifies both great prospects and those who should be suppressed.

Advantage for Tony White

White, of course, is some kind of genius. As one list expert points out, he has persuaded 1,100 catalogers to give him all their data for free and then is selling it back to them an unlimited number of times which means the scheme must be wonderfully profitable.

White says nonsense. “We get rewarded by delivering great value to our members.” Nonsense or not, in June Abacus and DoubleClick Inc., the database-driven online advertising network, announced a merger transaction valued at $1 billion.

The Future: Beyond Catalogs?

Since cooperative databases work for catalogers, why not in other areas of direct marketing?

• Experian/Direct Marketing Technology has started CircBase for Publishers with the participation of ±200 magazines with 66 million active subs from Hachette Filipacchi, Primedia, Time, McGraw-Hill, Kiplinger and more.

• American List Counsel (ALC) has launched a cooperative database of fund-raising files called The American Donor Connection that is made up of more than 20 fund-raising files comprising 5.4 million households. In addition, ALC has also launched the American Senior Connection containing catalog, fund-raising, book buyer and magazine subscriber files with a total universe of five million. Both are blind databases; most of the files are not managed by ALC.

• Mal Dunn Associates started the Premier Executive Database 15 years ago—an assemblage of 400 business-to-business lists, primarily in the fields of publishing and seminars as well as its MarketShare, some 80 million consumer magazine subscribers (net 60 million, since a fair percentage subscribe to more than one publication).

For Information:

Tony White, Abacus, (212) 698-8850; John A. Messner, Experian/Zero24, (303) 460-6275; Fran Green, American List Counsel, (908) 874-4300; Alice Zea, AZ Marketing Services, (203) 629-8088; fax: (203) 661-0920; Arthur Hughes, ACS Inc., (703) 742-9778; Steve Dunn, Mal Dunn Associates, (914) 277-5558.

Denny Hatch, consultant and freelance copywriter, founder of Who’s Mailing What (now Inside Direct Mail) and former editor of Target Marketing, is the author of “Method Marketing” and “2,239 Tested Secrets of Direct Marketing Success.” He can be reached at www.methodmarketing.com or dennyhatch@aol.com.