Prospect Databases - - A New Direction
by Arthur Middleton Hughes

 

Despite the success of the Internet, direct mail continues to be the absolutely best way for many companies to acquire new customers. During the past two decades, mailers have developed very efficient and profitable direct mail methods. There are thousands of lists for rent, many of which contain households that will respond to promotions for credit cards, insurance, publications, and scores of products and services. Intense competition has reduced the price of rental names to make direct mail highly profitable with the right offer to the right audience. Most people think that after twenty years of direct mail experience we have tried everything, but they are wrong.

What I am going to outline in this article will astonish some long time direct mail practitioners. It represents a new direction that breaks the mold of traditional merge purge mailing.  The technique is the creation of a prospect database.

How large mailings are done today

In traditional direct mail, a mailer may rent names from 300 or more different lists. He has a service bureau conduct a merge purge to come up with a clean unduplicated mailing file. In selecting names, he would like to use criteria like age and income, but usually is limited to selecting names by what list they are on. All he can identify in the output of the merge purge are the multi-buyers (appearing on more than one list). He also can target the hot line names (bought within the past month).  His final mailing file is divided into hundreds of segments. After the promotion, he checks to see which list performed best. He will rent names from those lists again.  Next month, he will start the process all over again renting from 300 more lists. He has learned something (which lists work the best), but each month's mailing costs are about the same and get almost the same response rates.

Traditional prospect mailings are typically stand-alone events. They require:

  • Campaigns based on lists, rather than on households or individuals
  • Detailed back-end analysis of responders.
  • Measurement of the ROI of each campaign.
  • Erasure of prospect names after each campaign. No analysis of non-responders is possible.

 How a prospect database works

Let's see how a prospect database works.  Instead of renting names for a single use, the mailer, or his service bureau, makes an offer to the list owners to permit him to rent their names for a full year, paying them for each use. He puts the names into a database. Instead of doing an expensive merge purge every month, he does one massive merge purge at the start of the year (e.g. the initial database ‘load’), and then minor updates to the prospect database each month as customers are acquired, and new hot line names become available.  Rather than continuing to merge/purge the entire database through additional database builds, additions and change files are fully hygiened and consolidated within the database to keep the file constantly ready for mailing. Overlays and other proprietary update techniques can be applied quarterly or monthly to keep all the information in the database as updated as practical.

Once the names are in a prospect database, he can afford to append data to each household. He will know the income, age, family composition, house type, lifestyle, length of residence, and mail responsiveness. He may be able to know how much they spend in his category. He may have credit data.  He will know a lot more about each prospect than he ever can discover with traditional merge purge, which is usually limited to which lists their name appears on.

Each name in the prospect database has previous promotion history appended to it.  It may have channel history -- did this person buy from someone over the web?  The data can be updated frequently from appended data, from hot line data, from NCOA and from other sources.

In traditional merge purge, the mailer never gets his hands on the actual data. With a prospect database the mailer accesses his prospects over the web using software like Brio or E.piphany. With this rich data on the prospects available on his desktop, he can develop acquisition models, which are impossible with traditional merge purge.  With a prospect database, it is possible to determine how many times a particular person has been mailed in the past, and to develop a strategy for mailing that person in the future. This is almost impossible with monthly rented lists.  Some marketers can develop matrices like this:

Probability to Purchase Based on Behavior
Probability Based on Demographics   High Medium Low
High Priority A Priority B Priority C
Medium Priority B Priority B Priority C
Low Priority C Priority C Priority C

Every name can be assigned a priority, based on previous purchase behavior and based on demographics. Here for the first time is a really scientific and profitable way of categorizing prospects before they are mailed.  Is your method working? You can tell this by the results of your promotion. Your models get better and better. Your response rates and sales get better and better. Your costs go down.

A prospect database permits:

  • Better selectivity and segmentation based on better information

  • Ability to manage complex campaigns

  • Identifying "offer addicts" who are not qualified, but respond anyway

  •  Faster time to market.  Since the merge purge is eliminated, a hot line name can be mailed in a week or two instead of four or five weeks.

  •  Management of names by contact frequency

  • Ongoing use of modeling and analytics

  • Significant cost efficiencies

A prospect database is particularly useful in situations in which the responder fills out an application, which has to be reviewed and approved. In many cases, the merge purge process does not catch these applications, and the prospect is mailed another time while his application is under review. This is not only costly, it may complicate the application review process, particularly if the second mailing contains a different offer.  With a prospect database, all responses are posted to the database immediately. The prospect does not get mailed a second time.

A case study

A major mailer has 35 campaigns per year selling six related products. The mailer asked KnowledgeBase Marketing to create a prospect database that included the results from their  customer-marketing database, which his marketing staff could access on line.

The resulting prospect database covered roughly 90% of the 277 million individuals in the U.S. and was built based on these three core strategies.

They:

  1. Used advanced hygiene and processing capabilities to dramatically reduce duplicates and wasted mail

  2. Rethought their list acquisition strategy

  3. Implemented an innovative approach to modeling to improve the results

The modeling program included response and performance models, which predicted conversion to sales, not just response. They focused on what really mattered.  The model increased not only the ROI from each campaign,  also the Lifetime Value resulting from the prospect database. 

After a year of operation, list rental costs had dropped by more than 70%, merge purge costs decreased and response rates to each campaign increased significantly. There was a major favorable impact on the bottom line.

Conclusion

Building a prospect database will work for you if:
  • You’re marketing to consumers (rather than B2B)

  • You’re a high-volume mailer

  •  Mail drives your business

  • You use a wide variety of lists

  • You manage multiple campaigns each year

  • You aren’t locked into long-term, unbreakable list deals

  • You’re willing to negotiate with list managers and owners

If you have not looked into the creation of a prospect database, now might be a good time to do so. You might save a lot of money, and improve your bottom line.

 


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.