We hear a lot about success in CRM and database marketing, but not enough
about failure. The fact is, not everything works.
Database marketing’s goals are simple: improved customer retention,
cross-selling, upselling and reactivation; better rates of customer acquisition;
and accomplishing the above with a higher return on investment than other
methods. Simple, perhaps. But too often doomed to failure.
Failure No. 1: Lack of a marketing strategy. A database
and related software do not produce profits. They produce expenses.
Profits are generated by personalized communications to customers
that build loyalty and cross-selling.
Most successful strategies create a few practical customer
segments and develop marketing strategies to appeal to the interests
of customers in each segment. This requires gathering extensive
knowledge about customers and using it to design relevant
strategies. Many companies have not accumulated the information,
created the segments or developed the strategies.
The basic strategy rule is simple: Put yourself in your
customer’s shoes. Ask, “Why would I want to be on that database?
What’s in it for me?” If you can’t come up with a good answer, your
database will fail.
Failure No. 2: Focusing on price, not service. Good
database marketing builds loyalty. Discounts do not build loyalty.
They get customers to think about how much they are paying instead
of what great service they are getting. If you use your database to
provide discounts, your database probably will fail because while
everyone wants low prices, customers also want recognition, service,
information, convenience and helpfulness. Use your database to
further customer relationships and loyalty, and it probably will
succeed.
Failure No. 3: Making a big production of database
construction. A good marketing
database of any size can be created and put into operation in six
months.
Write an RFP and send it to several service bureaus. They can do
the job (downloading data monthly from the legacy systems and
creating the database) in six months for one-time prices that
usually range from $100,000 to $300,000. They will put your database
in a relational format on a server, allowing your marketing and
sales team access through the Web. You will be able to do analysis,
drill down, create campaigns and craft personalized customer
communications.
Failure No. 4: Treating all customers alike. Some
customers are gold. Some are worthless. Lavish services on the top 5
percent to ensure you keep them. Develop relationship-building
programs for the middle three segments to encourage them to move up.
Discriminate. Spend your resources where they will do the most good.
Failure No. 5: Not developing a retention program. Most
companies are set up for acquisition, not retention. They focus on
sales objectives and bonuses for bringing in new customers, and few
have specific programs to keep the customers they already have.
This is a major mistake. Programs spent retaining customers
return more profit than the same amount of money spent on
acquisition. Customers like to hear from you. You can use direct
mail, e-mail — even phone calls. Set aside a control group that does
not get all these retention communications to prove to yourself, and
to management, that the retention programs are working and producing
the results you want.
Failure No. 6: Not using the Web. When the Web came along,
many thought it would be a sales bonanza. It wasn’t. But it has
become essential to modern customer communications and can be used,
in conjunction with your database, for profitable purposes.
Capture e-mail addresses. Send messages concerning every order
including receipt of the order, ship date and follow-up. When
visitors return to your Web site, use cookies so you can say,
“Welcome back, Arthur.” Create premium pages for your best
business-to-business customers. With the Web, we can communicate
often at comparatively little expense.
Failure No. 7: Lack of tests and controls. Database
marketing offers tremendous opportunities to test the effectiveness
of various marketing strategies. Whenever you want to try something
new, set aside a control group that does not get the program. Then
measure the response rate and subsequent sales to the test group and
the control group.
Failure No. 8: Not computing lifetime value. Lifetime
value contains in one number a great many factors: retention rate,
referral rate, acquisition cost, marketing costs, cost of goods and
services sold, orders per year, average order size and the discount
rate.
How did the last campaign, the survey, the newsletter or the
rewards program affect the performance of a group of customers over
the next two years compared with a control group that did not get
these programs? We often find that the non-respondents to a
promotion performed better than the customers who did not get the
promotion at all. The customers looked at the promotion and did not
buy, but their time spent looking at it improved their attitude
toward our company, and their lifetime value.
Failure No. 9: Lacking a forceful leader. Success in any
of the database marketing programs we have described require
forceful leadership within the company. Someone has to devise the
ideas and sell them to management. To make these things happen, you
need to build a team composed of the marketing staff, customer
service, tech support, telemarketers, your service bureau, your
direct agency, MIS and your fulfillment group. You, the database
marketing director, must be the leader of this team.
To succeed in database marketing,
you need first to put yourself into your customer’s shoes to
understand why you would want to be on the database. Then design
programs to make the customers happy. Think small: create lots of
little tests (with controls) instead of one big test. Learn how to
compute lifetime value, and use it to evaluate each strategy. Think
fast: build your database in six months or less. Discriminate among
your customers. Retain the best.
Arthur Middleton Hughes is Vice President of The Database Marketing Institute. Ltd. (Arthur.hughes@dbmarketing.com) which provides strategic advice on relationship marketing. Arthur is also Senior Strategist at e-Dialog.com (ahughes@e-Dialog.com) which provides precision e-mail marketing services for major corporations worldwide. Arthur is the author of Strategic Database Marketing 3rd ed. (McGraw Hill 2006). You may reach Arthur at (954) 767-4558 .
The articles on this web site are available to the general public to read, enjoy and for limited business use. If you want to reprint more than one or two of them for resale or use in a business or educational environment, send an email to Arthur Hughes at arthur.hughes@dbmarketing.com. He will give you permission by return email. The cost, depending on the number of copies you want to reprint, is very inexpensive.
