Thirty years ago, direct marketing was typically confined to catalog shopping. However, over the years, the development of ZIP codes, geodemographic systems such as PRIZM, large databases for third-party appends, software for analysis of customer files and other advancements have made direct marketing a formidable competitor to market research.
Market researchers, for the most part, misunderstand direct marketing. Market researchers are accustomed to small samples. In market research terms, a sample of 1,000 respondents is substantial. On the other hand, direct marketers have easy access to 100,000 people in one of their analyses. Of course, direct marketers usually have limited variables, whereas market researchers have a broad range of variables to analyze.
Market researchers offer their respondents anonymity, while database marketers know the names and intimate details of their subjects. When market researchers collect data, they stringently avoid selling; database marketers, in contrast, are almost always selling. It's unfortunate that in the database marketer's case, the customer on the other end of a telephone line may sometimes be led to believe the call is a market research survey.
When combined, the differences between these two disciplines create singular strengths. Direct marketing researchers are very good at finding out who, but are exceptionally weak at knowing why. Market researchers, because of their broad questionnaires, are good at finding out why, but not good at knowing who.
Under all circumstances, but particularly in economies such as ours today, businesses must root out all inefficiencies. By combining both market research methods and database analysis techniques, databases can be better segmented for higher "hit rates." Solicitations must reach the right person with the right message. Therefore, knowing both who and why are critical.
An example of using both market research and database analytic methods to tackle a strategic problem comes from a utility that wanted to understand how customers felt about various services it offered or could offer, and how those offerings would affect retention.
The utility's database was very limited in its scope, having mostly addresses and usage data. To accomplish the company's goals, it was necessary to combine direct marketing and market research objectives. To "fatten up" the customer file, we appended third-party demographics and behaviors. Determining what customers wanted required conducting a primary segmentation research project in the utility's trading area.
To make this project work, it was essential that the same demographics and behaviors were collected in the same way as the data appended from third-party sources. Without similar data sets, it would be quantitatively impossible to connect the market research insights into the database.
The market research project collected all the necessary data from a balanced sample of customers, representing age, income and geographic regions. Much detail about customer needs, expectations and levels of satisfaction was collected. Typical of market research, respondents were guaranteed anonymity.
The market research data was analyzed to determine customer segments based on differences of perceived need for services, level of usage and other variables. Several segments emerged revealing different need patterns, as well as propensities to switch to a different utility if expectations were not met.
To combine the market research data to the database, models were developed based on segment differences using the demographic and behavioral variables in the market research data set. Because the demographic and behavioral variables were matched in both the market research and database sets, it was possible to categorize all of the customers in the database using the models.
The attitudinal segments and certain demographics were significantly related. Examination of the relationships indicated areas of dissatisfaction among many clients that had not been known. Uncovering these problem areas was important because the utility recognized action had to be taken to correct these problems or these clients would defect as soon as alternatives were available. By examining the segments and utilization data, the utility was also able to prioritize its activities to assure its retention of the most profitable clients.
Both market research and database marketing methods were, in this case, used effectively to maximize the utility's understanding of its customers, as well as enhance its customer relationship management files. Using one or the other, but not both, would have produced an inferior outcome.
Obviously, database marketing and market research should not be seen as enemies of one another. Each has strengths and weaknesses. However, by combining the strengths of each to better understand customers and produce vastly more usable customer files, marketers will better compete, even in poor economic climates.
Editor's Note: This will be Doran Levy's last column in DM Review as he is now devoting his time to promotion of his new book. We thank him for sharing his insights with DM Review readers.
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