According to one-to-one marketing gurus Don Peppers and Martha Rogers, customer marketing is fundamentally driven by three basic principles. These three principles of customer marketing are:
- Acquiring customers,
- Retaining customers, and
- Broadening and deepening the customer relationship.
In other words, the objective of marketing programs is to get, keep and grow customer relationships. Within the context of the broad scheme of marketing strategies, programs and initiatives, database marketing represents one tactic for achieving the objective of developing and maintaining customer relationships. In recent years, database marketing has gained in general acceptance to the point where it is now practiced by a majority of major U.S. companies in one form or another.
The growth in the acceptance of database marketing can be attributed to several important factors. Each of these factors is the result of breakthroughs that have impacted traditional ways of doing business. The first factor is technology. Technology has made it possible for companies to amass and analyze customer information on a scale, and at a speed, previously unknown. The second factor is measurement. Marketing investments, like other investments, are expected to generate a measurable return. Measurement has become a developed discipline within marketing as finer levels of customer information become readily available to marketers. The final factor is targeted communication. The practice of marketing communications continues to evolve, from mass marketing through saturation marketing to targeted and relationship marketing. Newer technologies, including the Internet, make the goal of one-to-one customer marketing an ever-closer reality. Each of these factors comes together in the process known as database marketing.
Database marketing represents a classic example of a discipline born out of the marriage of technology, measurement and targeted communication, where technology is the enabler, measurement provides the justification and business rationale, and targeted communication is the goal. As technology evolves, database marketing becomes accessible and practicable to a larger audience, bringing us to the present point in time which is witness to the confluence of database marketing, sales force automation and call center management.
It is important to understand, however, that database marketing has evolved to a point today where many companies are able to access and sift through large and complex volumes of information to make more informed decisions about the means and costs of their customer marketing investments. Which customers do we target for a particular promotion? How do we tailor our message for that particular customer segment? Which customers are most valuable over the life of the relationship? What distinguishes our best customers? How do we find or develop more customer relationships of this kind? These are examples of the critical questions that we can attempt to answer through database marketing. Before reaching that point, however, database marketing entails a complex, and often highly sophisticated, process designed to organize divergent sources of customer information to support the kinds of questions posed here. The resulting answers to these critical questions are dependent upon the quality, accuracy and thoroughness of the processes that have preceded the point of database marketing readiness. For this reason, it is essential to understand that the many complex, detailed, data-oriented, mundane and often painful processes that are required to build a marketing database ultimately provide the inevitable foundation for database marketing success.
Building a marketing database is like architecting a great building. For all its beauty, elegance or style, a great and functional marketing database, like a great and functional building, depends upon a solid foundation and structure.
Architecting the Marketing Database
As noted, solid engineering is the key to success for a useable marketing database. Engineering and architecting are useful metaphors to employ when thinking about building a marketing database because the process is detailed, complex and requires precision planning and design. It has been said that "attention to detail" is one of the most often underestimated ingredients in database marketing construction. As one long-time practitioner explains it, "Building marketing databases is a very labor- intensive business." Another authority, Ralph Kimball, co-inventor of the Xerox Star workstation, notes, "It is strange that entire industries are being organized around [the data access issue and the query tool issue] but the [data integrity issue] seems to be something that we don't want to talk about. Data integrity languishes in the backwater. [We] don't adequately consider the business impact of bad data." Any successful database marketing initiative must begin with the data.
The art of database marketing is, in large measure, about organizing and transforming scads of scattered data into meaningful customer information. This process of data transformation is what architecting the marketing database is all about. In the beginning, there is only the data. Usually, this data resides in multiple locations and in diverse formats. The process of building a marketing database begins with identifying the sources of data and the elements of data available on each source. Typically, sources of data include transactional processing systems, order entry systems, accounting systems, operational manufacturing systems, sales tracking systems and outside lists.
To construct a marketing database, it is necessary to be able to link each element of data to a customer. For example, a transactional data record will usually answer the questions of who, what, when, where and how much. These translate into customer identifier, item purchased, date/time, location or point of sale and quantity and/or amount of purchase. By identifying the available sources and elements of data at our disposal, we now have the essential raw materials and building blocks from which the entire process of database construction will flow.
Step one is identifying the data sources and elements. Step two is cleaning the data. This seemingly simple and straightforward step involves many intricate and sophisticated sub-steps. Elements of data cleansing include name-and-address standardization, gender assignment, geocoding, ZIP+4 processing, postal coding (for foreign addresses), data correction and validation. Entire companies exist simply to focus on one or more of these activities. The goal of this step is data quality. In a January 1998 DM Review article entitled, "The High Costs of Low Quality Data," Larry English, a leading international authority on data quality, poses this question: "If the state of quality of your company's products and services was the same level of quality as the data in its databases, would your company survive or go out of business?" English goes on to cite "poor data quality" and "poor data architecture" as the major reasons why data warehousing or database marketing projects fail. With so much importance riding on data quality, it is remarkable that this aspect of building a marketing database has so often been trivialized. Clean data is essential for understanding customers. Parsing enables the database marketer to transform data from legacy systems into unique identifiable elements that are required for building an accurate, integrated view of customers and the services they use. Geocoding is used to enhance addressability by verifying address integrity and assigning postal codes, or by assigning geographic codes to support geodemographic mapping and site planning activities. The business costs of poor data quality can be significant. If, for example, 20 percent of the addresses were incorrect as part of a 500,000 piece direct mail campaign, even at a 10 percent response at $10/piece, the loss would equal $100,000. An investment in data quality generates a payback many times the initial investment.
Step three in the process of constructing a marketing database is what I call organizing the data. Organizing the data refers to the set of processes required to build a customer view. Building the customer view may be the most complex, sophisticated and important phase in building a marketing database. To appreciate the importance and the significance of the customer view, let's consider the complexity of customer relationships. Customers come in many varieties. Some customers are individual consumers. Other customers represent businesses. Yet other customers represent a hybrid between business and consumer customers, such as the SOHO (small office, home office) customer. Among consumers, the customer can be an individual or a household. Each unit can demonstrate its own buying behaviors and characteristics. Among businesses, the situation can be exponentially more complex. For example, a business buyer is usually referred to as the contact. There can be one or more contacts involved in a purchase by a business. Contacts may represent business sites, departments, divisions or corporate parent/subsidiary units. Businesses may define "the customer" as a contact, site, corporation or some combination of these categories. While businesses tend to remain constant, the individual contacts that buy on behalf of a business are likely to change over time through promotion, reassignment or attrition. For many businesses, the site becomes the critical unit of customer measurement. It is mailable. And, it tends to be constant. Organizing the data around a stable customer view, also known as matching, is one of the most critical success factors for a marketing database system.
The notion of a stable customer view leads to a second critical concept within data organization the need for continuity management. Because customer data is highly dynamic, managing customer data over time represents a critical challenge. Shifts and transfers occur with frequency within many customer relationships. Contacts change roles or business units. Individuals get married, move, have children, start home businesses. These events change the composition of a household or business. The ability to incorporate shifts and transfers so that your view of the customer relationship remains consistent is critical to accurate measurement over time. This can be accomplished through the assignment of constant relationship keys, which make it possible to leverage historical information to detect changes in the customer relationship. Constant key management means retaining the originally assigned relationship key, thereby ensuring recognition of the same customers from cycle to cycle. The same assignment process can also be used to maintain relationship history on former customers, providing an ability to reactivate these relationships when the appropriate marketing opportunity arises. The process of organizing your customer data and maintaining a relationship-centric customer view is central to database marketing success. It is through this process that a business develops a complete view of their customer relationships their purchase history, their transactional activity over time, across locations.
Advances in computing technology have made it possible to process large volumes of customer data, clean the data in intricate detail, organize the data into a customer view and, through this process, create customer information which provides the basis for measurable database marketing programs and initiatives. The result of these processes is a single, central repository of high-quality, accurate customer information.
Having achieved this objective and having created the foundation for analyzing your customers and asking insightful questions, the next step is to build or select a set of tools that will facilitate the process of gaining access to the customer repository that has been constructed.
Access and Execution
Having tackled the tough data issues through the careful crafting of a centralized repository of customer knowledge the foundation of database marketing success the objective of the database marketing implementation shifts from getting the data in to getting the information out. This necessitates an access solution.
Within organizations that engage in database marketing, implementation of the access solution may take many forms and may incorporate a range of tools. Most of the early database marketing access tools, developed during the late 1980s and early 1990s, employed proprietary database engines and were optimized for fast performance. These systems were designed to be self-sufficient. More recent solutions have taken an open approach, with an eye toward integration of specialized marketing application tools within a set of more general complementary tools employed to constitute a total solution. The requirement for access to the customer data repository is constant regardless of the scope and structural architecture that has been implemented.
Database marketing systems have been implemented in a variety of environments that can range from large, centralized corporate data warehouses to progressively more decentralized environments, which include marketing-specific data warehouses, marketing data marts, client/server database marketing systems and stand-alone database marketing systems. In each case, regardless of environment, critical considerations include:
- Data timeliness,
- Customer updating and data refresh requirements,
- Access speed for querying purposes,
- Reporting power, flexibility and features, and
- Functional depth and application breadth.
The challenge of architecting a database marketing solution requires not only getting the data in, but getting the information back out efficiently and successfully. Kimball has observed that the process of getting the data in has been largely ignored in comparison to the attention paid to the issue of access. He comments, "The database marketplace has responded to the need for data access with...whole families of communications schemes to connect users to their data. The query tool marketplace is an embarrassment of riches." Within the realm of query tools and solutions, the options available to organizations that are investigating ways of gaining access to their customer repository tend to fall into two broad categories general-purpose tools and specialized marketing tools.
Marketing application tools differ from general-purpose application tools in that they are designed to address a very specific business problem. This class of tools has been developed to facilitate and support specialized database marketing applications. The functionality incorporated within these tools is focused on addressing needs such as customer analysis, campaign management, predictive modeling and data mining. The kinds of tools employed for this purpose are intended to support complex queries that scan large data sets of customer records. General-purpose tools, in contrast, are typically used to access marketing databases for multipurpose applications including reporting, statistical analysis, spreadsheet analysis and mapping. Open implementations may employ a combination of best-of-breed tool sets.
The most widely implemented database marketing systems, often referred to as "first generation" systems, provide a "turnkey" solution that integrates specialized marketing applications to provide a complete database marketing desktop solution. For more than ten years, these systems have enabled organizations engaged in database marketing to achieve their objectives with a generally high degree of success. Because of their specialized nature, many of the first-generation database marketing systems were built to optimize performance. The objective of these systems has been to provide marketing users with fast answers to marketing questions. An additional strength of these systems has been in the robustness of their functionality.
However, the movement toward the integration of customer contact functions has altered the database marketing landscape. The uses, applications and requirements for accessing customer data have increased and evolved. As a result, today it has become nearly impossible to segregate customer information and customer responsibility solely within the domain of the marketing organization. As database marketing expands beyond customer analysis and as the uses and applications of customer data grow, an operational marketing perspective has been developed to reflect a more holistic and integrated view of customer marketing. This more far-reaching view attempts to incorporate a fuller range of customer "touch-points" within a broader database marketing framework.
The natural evolution of this progression is evidenced by a movement in the direction of continuous event marketing, a process that focuses on the return on ongoing customer communications. Rather than exclusively measuring the return on a single program or campaign, continuous event marketing attempts to move us closer toward understanding true lifetime customer value. This process is alternatively known as longitudinal marketing.
What we are witnessing today on the access side of the database marketing equation is a phased evolution from the era of the "turnkey" desktop solution to an era of integrated tools and systems. This evolution is in its earliest stages. Within the coming years, as the broader requirements for customer information needs evolve, the mature shape and form of the next-generation of access solutions will unfold. This promises to be an area of opportunity and growth.
Database marketing is likely to continue to grow and evolve at an increasingly rapid pace in the coming years. Yet, the considerations for businesses engaged in database marketing, customer marketing, one-to-one marketing or whatever term is employed to describe the process, are likely to remain the same. Timeliness of data, the need to refresh customer information on a regular basis, the ability to obtain fast answers to marketing questions, flexible reporting requirements and rich functionality will continue to be requirements of future generations of database marketing solutions. I suspect that we will see greater evolution, overlap and eventual integration across customer development activities such as database marketing, response management, sales force automation and call center management. All of these activities represent aspects of the same fundamental need the desire to acquire new customers, retain existing customers, and to build upon and strengthen those customer relationships that are most loyal and beneficial.
Twenty years ago, many businesses persisted in maintaining a product focus. Industry deregulation and other competitive factors, including global competition, have altered the landscape of American business. A greater awareness of the centrality and importance of customer relationships has fueled acceptance of the principles of database marketing across industries. Now, we look forward to the next phases in this evolution, as Web-based marketing and further innovations in technology open new horizons for what is possible in communicating to and understanding our customers. How these developments will come together and unfold cannot be foreseen precisely, even by the most visionary among us. Nevertheless, a knowledge of the history and foundations of database marketing success will likely provide a pretty good road map.
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