“Good information is essential for fact based decision – making”
In the good old days, many “savvy” corporate CEOs and other assorted head honchos in the public and private sector routinely made critical decisions by the seat of their pants. They relied on their experience, their intuition and their “gut” to determine a course of action that could make or break the organization. Sometimes they were right, sometimes they were wrong, and sometimes the organization went down the drain. Today, more and more of these C-level decision-makers are turning to analytics for help in the decision-making process. The stakes are just too high and the competition is just too fierce to rely on your “gut.” Instead of shouting, “show me the money,” savvy CEOs are now shouting, “show me the data and the statistical analysis first . . . and then I’ll show our shareholders the money.” The trend toward data-based decision-making is being driven, of course, by astronomical increases in data, statistical modeling capabilities and computing power. Analytics is defined as “the extensive use of data, statistical and quantitative analysis, explanatory and predictive models, and fact-based management to drive decisions and actions.”That encompasses the work of hundreds of thousands if not millions of “analysts” of all stripes around the world.
Using and evaluating data are important steps to the improvement process. Data are any information about an organization that can be gathered, reviewed and analyzed in order to produce a useful knowledge. Looking at the combination of pieces of knowledge and facts together, whether it has to do with demographics, achievement, test scores, or climate, helps an organization formulate hypotheses to decide how best to use the information. Basing educated guesses upon data are the beginning steps in creating an effective and efficient improvement process. One can focus their attention on specific indicators that are being displayed by the data, and identify priority areas in which they direct their focus. Once priority areas are narrowed down realistic goals are made and moving into action becomes the next step. Reviewing data, forming hypotheses, and creating action plans helps to move toward the goal of creating positive changes.
The following is a list of the 23 essential techniques used in database marketing. Anyone who works in marketing today has to be familiar with and be able to use all of these methods.
1) LTV. Customer Lifetime Value can be calculated in any industry, business to business or business to consumer. It is used to direct marketing strategy. In the early days of database marketing few knew how to calculate it or how to use it. Today it is widely practiced. It is powerful and it works.
2) RFM (Recency, Frequency, Monetary Analysis) is a highly successful way of predicting which customers will respond to promotions. It has been around for fifty years, but even today many marketers do not understand it or use it properly. It is a versatile tool that has helped to make database marketing successful.
3) Customer Communications. Personalized customer communications, based on data in a database, can be shown (using tests and controls) to increase customer retention, loyalty, cross sales, up sales and referrals. They are effective and they work. They are the principal reason why you build a marketing database.
4) Appended Data. It is possible today to append data to any name and address file to learn age, income, home value, home ownership, presence of children, length of residence, and about forty other valuable pieces of information about any household. This information can be used to create customer segments, and guide strategy designed to create powerful customer communications. Similar information can be appended to business to business files: SIC code, number of employees and annual sales.
5) Predictive Models. Using appended demographic and behavioral data, it is possible to create models that predict, accurately, which customers are most likely to defect, and which customers are most likely to respond to new initiatives. Modeling, combined with customer communications, can be very powerful technique that can increase response and reduce your attrition rate.
6) Relational Databases. Putting customer databases in a relational form makes it possible to store an unlimited amount of information about any customer or prospect, and retrieve it in an instant in a hundred different ways. Relational databases are essential to modern database marketing. Marketers need to understand the principles involved.
7) Caller ID. Set up originally as a call routing device, Caller ID linked to a customer marketing database permits customer service to get a customer’s complete record up on the screen before taking a call. As a result, the CSR can speak to the customer as if she knew her, bonding with her and building close rapport. This helps deliver on the promise of database marketing.
8) Websites. The web has revolutionized database marketing. A modern website, with cookies can do almost everything that a live operator can do, and much more, showing and enabling customers to print pictures of the product, maps, instructions, background information and details. Web sites are not wonderful at selling. They are a tremendous research tool and customer bonding and ordering tool. No database marketer can be really successful without a personalized website with cookies.
9) Email. Despite the SPAM, emails have emerged as a powerful database marketing tool. The ability to contact customers immediately “Your product was shipped today. Here is the tracking number…” makes for vastly improved customer relationships leading to retention and increased sales.
10) Tests and Controls. Since 1980 marketers were sending out direct mail, and measuring the response to each campaign. Today, we can use our database to measure much more. Setting aside customers in a control group, we can measure with pin point accuracy the short and long term effect of any marketing initiative.
11) Loyalty Programs. Most customers are delighted to participate in well designed loyalty programs. Airlines have been outstandingly successful in these programs. Their use has spread to supermarkets, hotels, retail stores, and a variety of industries. They are part of the mix of retention building services that database marketing has made possible.
12) Analytical Software. It used to be that after a campaign, you got canned printed reports showing what happened. Today, marketers have very sophisticated analytical software linked to their database so that each analyst can do any type of standard or ad hoc report before, during and after a campaign, with the results printed on his PC printer. We have “hands on” marketing which has made database marketing very powerful.
13) Web Access to the database. Today the marketing database is in a relational format on a server which is accessed online over the web by anyone in the company, from any location. Instead of a couple of analysts working with the data, it is available to management, sales, customer service, marketing, and market research. Web access has made marketing databases a useful tool throughout the enterprise.
14) Rented Lists. In the past, most companies kept their customer lists strictly private. Today, most lists are shared, exchanged or rented. Sharing of lists created the catalog industry, and has spurred the growth of hundreds of other direct response industries.
15) Campaign Management Software. Direct marketing campaigns used to be generated by memoranda to a service bureau: “Select these groups, divide them into these segments with these codes, and fax me the counts”. The process of getting the mail out the door took three to six weeks. Today, marketers have campaign management software linked to their database so that they can do the planning and the actual selections themselves in an afternoon. It cuts weeks off of the direct mail time, resulting in higher response rates.
16) Profitability Analysis. We used to know that some customers were more profitable to us than others, but it was hard to measure. Today banks, supermarkets, insurance firms, business to business enterprises, and many others can compute the monthly profitability of each customer. They have discovered that many customers are unprofitable. As a result they have changed their marketing and pricing strategy to increase their profits.
17) Customer Segmentation. There used to be so few customers that sales and marketers could keep needed information about them in their heads. Today, companies have many more customers – some in the millions. A database is needed to store the information. To develop marketing strategies for all these customers, you have to divide them into segments usually based on demographics and behavior. Success comes from creating useful segments, and developing customer marketing strategies for each segment.
18) Multi-channel marketing. Customers buy through multiple channels: retail, catalog, and web. We have learned that multi-channel customers buy more than single channel buyers. To be successful, you need a database that provides a 360 degree picture of your customer, coupled with strategies that recognize and communicate personally with the customer when she shows up in any of the three channels.
19) Treating customers differently. All businesses have Gold customers – a small percentage that provides 80% of your revenue and profit. With a marketing database, you can identify these Gold customers. Then you develop programs designed to retain them. You use resources that you could not afford to spend on all of your customers. Profits come from working to retain the best, and encouraging others to move up to higher status levels.
20) Next Best Product. The database is used to determine what customers in each segment normally buy. From this, you can determine anomalies: customers who are not buying what the others are buying (usually because they are buying this product from somewhere else). This is their Next Best Product. The NBP is put into the customer database record and used by customer service and sales in communicating with customers.
21) Penetration Analysis. Using a database and on line analytical software, marketers can do their own penetration analysis. What percent of sales do we have in each zip code, or SIC code, or income level, or age group? This is a versatile tool that can help you to locate retail stores, place advertising, and direct your sales force.
22) Cluster Coding. In many industries, using clusters with penetration analysis can help you identify who is buying your products, and who isn’t. It can be a creative tool to use in improving your marketing and sales.
23) Status Levels. The airlines started it: Platinum, Gold, and Silver. It has spread to other industries. Customers now understand their status, and work to move up to a higher level. Companies provide special benefits, rewards and services for higher status customers. In a democracy, it is an egalitarian method of customer differentiation which assists in building customer loyalty and company profits.
If you are not familiar with and using all 23 techniques in your work, you may not be getting the level of customer retention, cross sales, up sales, referrals and profits that others are getting.