Beware, the 9 Deadly Mistakes of Database Marketing

Many database marketing programs lack focus, proper execution, segmentation and adequate testing. With this in mind, Arthur Middleton Hughes, vice president/solutions architect at KnowledgeBase Marketing, reeled off nine mistakes direct marketers make when it comes to database marketing during a session at the DM Days New York conference, June 10-12. He also proposed some solutions. Here follows his list:

Mistake #1: The lack of a marketing strategy. “Building a database is easy, but making money with it is hard, and most people don’t know that,” Hughes said.

Solution: Collect data on your customers’ purchases, demographics and lifestyle; build a database that permits ad hoc analysis; construct a lifetime value table; and figure out what motivates your customers.

Marketers need constructors who build databases, merge/purge, hardware and software; and creators who understand strategy, build loyalty and repeat sales, he noted.

Profitable strategies include user groups, newsletters, surveys and responses, loyalty programs, customer and technical services, and membership cards, among others.

A basic strategy rule, Hughes said, is to put yourself in your customers’ shoes.

Mistake #2: Focus on price instead of service. Database marketing builds loyalty; discounts do not.

Hughes recommends marketers not use their databases to promote price discounts because customers today seek more than low prices. They want recognition, service, information, convenience and helpfulness. “You can deliver this if you build a database and offer these things to them,” he said.

Mistake #3: Failure to use tests and controls. Database marketing is accountable, Hughes said, and everything you do can be measured. Set up control groups that don’t receive your new communications. Key measurements include response rates, return on investment, profits and lifetime value.

“Testing is essential,” he said. “Test on a small scale first, and constantly test.”

Mistake #4: Poor segmentation strategy. Divide your marketing database into segments, such as business customers, affluent/retired, young singles, families with kids, low-rate shoppers and check cashers, Hughes said. Break these out accordingly into gold, silver and bronze status levels.

Hughes pointed to a retailer who created nine customer segments: loyalists, buy the best, buy a lot, enjoy shopping, sale items only, quick shoppers, low-cost items only, necessities and once-a-year shoppers. “This is brilliant,” he commented. “This is where you want to go.”

Mistake #5: Failure to link your database to the Web. Your database contains customer information, such as purchases, preferences, contact names, etc. Customer service reps have to have this information when they talk on the phone. Your Web site must have this information when you receive customers as visitors.

Amazon.com finds out what its customers are interested in, then offers it to them. “This is what the old corner grocer used to do,” Hughes said. “It’s a technique that goes back 6,000 years.”

Staples sends an e-mail 30 seconds after an order is placed. “Very important to get an e-mail out in 30 seconds,” he said. “We’re in a fast-moving world today. It was all right in the old direct mail days to wait a week, but today you don’t want to wait longer than 30 seconds. People know the world is moving much faster. If your software engineers tell you they can’t get it out in 30 seconds, get yourself other software engineers.”

A video retailer’s test group’s sales over six months were 28 percent greater when customers received e-mails.

In Miles Kimball’s case, the cataloger selected 40,000 customers who had bought online. Among them, 20,000 got e-mails saying, “watch your mailbox for our new catalog.” The other 20,000 only got the catalog. Sales to the test group that received e-mails were 18 percent greater than the control group.

Miles Kimball always does a little test to prove this continues to be worthwhile.

Mistake #6: Building in-house. Marketing databases are unlike any other IT function. Databases require special skills and software. There are scores of vendors with experience, and doing it in-house takes longer. Do an RFP.

Mistake #7: Treating all customers alike. Loyal customers are more profitable than new or disloyal customers. Segment by profitability, and focus your attention. Reprice products to those who are low-profitability customers.

Mistake #8: Failure to develop a retention program. Most companies are set up for acquisition. Few have specific retention programs. One dollar spent to retain customers returns more profit than $1 of acquisition.

Key retention strategy is cross-selling. One of the best ways is to figure out a second product to sell them. Sell them two products and their chances of leaving you are much lower, Hughes said. Concentrate retention money on where you can help. Calculate who among your customers are most likely to leave. Spend the most on these.

What proves that database marketing works? A B-to-B lighting products catalog company sent catalogs to 45,000 customers. It set up a two-person pilot program consisting of a customer service rep and an engineer to build relationships with test customers to see the results. People who they called had greater average order size and order frequency. Total gain was $2.6 million in revenue over six months.

Mistake #9: Lack of a forceful leader. Success requires directing the activities of many internal and external units, Hughes said. The Web, MIS, customer service, tech support, telemarketers, service bureaus, agencies, fulfillment and market research — database marketers must be leaders of all these.