Marketing
Highlight
22.1
Database Marketing:
A Question of
Extracting Gold from
the Information a 1
Ore
Databases are at the heart of contemporary direct
marketing. The latter has been boosted by
improvements in computer technology, which help
businesses to develop bigger, more complex databases
containing vast amounts of information about their
customers. Collecting data is one thing, using it
profitably is quite a different matter. More retailers
and manufacturers are now learning how to extract
gold from the informational ore.
They do so in a number of ways.
Fanning Relationships and Deepening Customer
Loyalty
Database marketers track individual customers and
work out what marketing stimuli they might respond
to next. The aim is to form a 'relationship' with the
target customer. Loyalty schemes run by airlines,
supermarkets and retail stores are good examples.
They identify the most profitable customers and
pamper them! Companies can also build customers'
interest and enthusiasm by remembering their
preferences and by sending appropriate information,
gifts or other materials. For example, Mars, a market
leader in pet food as well as confectioner;-, maintains
an exhaustive pet database. In Germany, the company
has compiled the names of virtually every German
family that owns a cat. It obtained these names by
contacting veterinarians and by offering the public a
free booklet entitled Uaw to Take Care of Your Cat.
People who request the booklet fill out a
questionnaire, providing their cat's name, age, birthday
and other information. Mars then sends a birthday eard
to each cat in Germany each year, along with a new
cat-food sample and money saving coupons for Mars
brands. The result is 3 lasting relationship with the
cat's owner.
Pattern Spotting
A second use for databases is to find patterns of
behaviour across large groups of customers.
Neural networks and massively parallel computers are
used to erunch huge amounts of data that are common to
attractive customers. Lands' End uses a technique known
as 'data mining' to identify different groups of catalogue
clothing purchasers; at the last count, it had identified
5,200 different segments! In Belgium, American Express
is using its customer database to test a system that links
cardholder spending patterns with postal zone data. If a
new restaurant opens, for example, the company might
offer a special discount to cardholders who live within
walking distance and who cat out a lot. Good pattern
spotting can help firms to replace conventional
advertising altogether. When Land Rover launched its
new luxury Range Rover in the United Kingdom, it spent
nothing on mass marketing, but instead splashed out some
£30 a head on quirky gifts (seashells, chrysanthemums,
maple leaves) to 11,000 people whom it had identified as
prime prospects. The strategy paid off: 85 per cent of the
targets visited Range Rover's showroom to see the new
model, compared with a 1-2 per cent response rate for
conventional mass advertising.
What works for a £42,000 Range Rover also
works for a 42p can of baked beans. In 1994 Heinz
abandoned conventional advertising for its ketchup and
baked beans, and adopted consumer database marketing
instead. Using its database of 1 million names, gathered
from people who had responded to an earlier promotion,
plus lists bought from brokers, Heinz built a database of
4.6 million consumers to whom the company sent a copy
of a free magazine, Ac Home, which contained recipes
and promotions of Heinz products. Heinz claims the
strategy has paid off.
Deciding Which Customers Should Receive a Particular
Offer
Companies identify the profile of an ideal customer for an
offer. Then they search their data bases for individuals
most closely resembling the ideal type. By tracking
individual responses, the company can improve its
targeting precision over time. Following a sale, it can set
up an automatic
 sequence of activities: one week later, send a thank-you
note; five weeks later, send a new offer; ten weeks later {if
the customer has not responded}, phone the customer and
offer a special discount. One clothing catalogue company
that specializes in clothes for large people has 21 million
names on its database, which can be grouped into 75
different segments. The firm adjusts its catalogues
accordingly. It uses pink dresses on the cover for one
group; blue trousers for another; free credit for frequent
buyers; overnight delivery for the impatient but high
spending, valued customers and so forth, Reactivating
Customer Purchases The database can help a company
make attractive offers of product replacements, upgrades or
complementary products just when customers might be
ready to act. One information service company, Firefly,
uses data about people's personal tastes - their likes and
dislikes — to suggest new films, books and music.
Database 'miners' have to learn how best to use all the data
they have extracted. In the past, the reputation of direct
marketers has been tarnished by supper-time interruptions
by telemarketers and the notion that direct mail is 'junk'.
Then there is the threat to consumer privacy that marketers'
databases present. Supporters of database marketing argue
that the whole point of collecting facts is to learn when not
to telephone
- and what not to shove through the letterbox! Yet
most people are not opposed to giving information
about themselves providing they get something in
return, be this a tailored product, a discount for
goods and services, or even a fee. Thus, database
marketers of the future may have to fearn how to
reward consumers for the privilege of being able
to sell to them. Like many other marketing tools,
database marketing requires a special investment.
Companies must invest in computer hardware,
database software, analytical programmes,
communication links and skilled personnel. The
database system must be user friendly and
available to various marketing groups, including
those in product and brand management, new-
product development, advertising and promotion,
direct mail, telemarketing, field sales, order
fulfilment and customer service. A well-managed
database should lead to sales gains that will more
than cover its costs.

The advantages of door-to-door selling are consumer

convenience and personal attention. However, the high costs of hiring,
training, paying and motivating the sales force often result in higher prices.
Although some door-to-door companies are still thriving, door-to-door
selling has a somewhat uncertain future. The increase in the number of
single-person and working-couple households decreases the chances of
finding a buyer at home. Home-party companies are having trouble finding
non-working women who want to sell products part time. Besides, door-to-
door selling does have an image problem, whieh, although inaccurate, has direct-mail marketing
stuck. And, with recent advances in interactive direet marketing technology, Direct marketing through
the door-to-door salesperson may well he replaced in the future by the single mailings that include
household telephone, television or home computer. letters, ads, samples, fold-
outs, and other 'sales-people
Direct-Mail Marketing on •cozies' sent to prospects
Direct-mail marketing involves mailings of letters, ads, samples, fold-outs on mailing lists
and other 'salespeople on wings' sent to prospects on mailing lists. The
mailing lists
are developed from eustomer lists or obtained from mailing-list houses that provide
names of people fitting almost any description - the supcrweallhy, mobile-home
owners, veterinarians, pet owners, the typieal catalogue purchaser and many, many
others.
Direct mail is well suited to direct, one-on-one communication. It permits
high larget-market selectivity, can be personalized, is flexible and allows easy
measurement of results (the firm can count the responses it gets and the value of those
responses to the business). Whereas the cost per thousand people reached is higher
than with mass media such as television or magazines, the people who are reached are
much better prospects, since direct-mail marketers target individuals according to
their personal suitability to receive particular offerings and promotions. Direct mail
has proved very successful in promoting and selling books, magazine subscriptions,
insurance and financial products. Increasingly, it is being used to sell novelty and gift
items, clothing, gourmet foods, consumer packaged goods and industrial products.
Direct mail is also used heavily by charities, such as Oxfam and Action Aid, which
rely on correspondence selling to persuade individuals to donate to their charity.
Within the EU, direct mail is worth over ecu!2 billion. Direct mail in Europe
represents around d(J per cent of Europe's total spend on direct marketing. Over the
past decade, expenditure on direct mail has grown faster than expenditure by
organizations on other advertising media. However, a number of barriers must be
overcome to assure direct mail's future. These include: EU legislation that prejudices
its use; differences in postal standards, systems and prices; and 'cowboy' operators,
whose indiscriminate mass mailings earn direct mail the 'junl< mail' tag. In the case
of junk mail, the cowboys' efforts can effectively be strangled through compulsory
observation of industry standards or a code of practice, and linkages with national and
international regulatory- authorities to expose these operators. Users of direct mail
and the direct-mail industry, in general, agree that the way forward must be to seek
balanced consumer protection with a mixture of statutory and self-regulatory
controls."
The direct-mail industry constantly seeks new methods and approaches. For
example, videocasscttes have become one of the fastest-growing direct-mail media.
Some direct marketers even mail out computer diskettes. For example, Ford sends a
computer diskette called 'Disk Drive Test Drive' to consumers responding to its ads in
computer publications. The diskette's menu provides technical specifications and
attractive graphics about Ford cars, and answers frequently asked questions.
Until recently, all direct mail was paper-based and handled by postal and telegraphic
services and other mail carriers. Recently, however, three new forms of mail delivery
have become popular:

 Fax mail. Fax machines allow delivery of paper-based messages over telephone
lines. Fax mail has one major advantage over regular mail: the message can be sent
and received almost instantaneously. Marketers now routinely send fax mail
announcing offers, sales and other events to prospects and customers with fax
machines. Fax numbers of companies and individuals are now available through
published directories. However, some pro.speets and customers resent receiving
unsolicited fax mail, which clutters their machines and consumes their paper.
 E-mail. E-mail (i.e. electronic mail) allows users to send messages or files directly
from one computer to another. Messages arrive almost instantly and are stored until
the receiving person retrieves them. Many marketers now send sales
announcements, offers, product information and other messages to e-mail
addresses - sometimes to a few individuals, sometimes to large groups. As people
begin to receive more e-mail messages, including unimportant ones, they may look
for an 'agent' software programme to sort out the more important messages from
those than can be ignored or discarded.
 Voice mail. Voice mail is a system for receiving and storing oral messages at a
telephone address. Telephone companies sell this service as a substitute for
answering machines. The person with a voice mail account can check messages by
dialling into the voice mail system and punching in a personal code. Some
marketers have set up programmes that will dial a large number of telephone
numbers and leave the selling messages in the recipients' voice mailboxes.