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What Works (and what doesn’t work) in Database Marketing
Arthur Middleton HughesVice President for Business
DevelopmentCSC Advanced Database Solutions
NCDM 8:00 – 9:15 AM Tuesday Dec. 10 2002
What Works: Database Marketing!
Build a customer database with transactions and lifetime value
Segment customers by LTV Identify your Gold customers Communicate with them often Use the DB to personalize Build Loyalty and Repeat Sales
Two Kinds of Database People
Constructors People who build databases
Merge/Purge, Hardware, Software Creators People who understand strategy
Build loyalty and repeat sales You need both kinds!
What Works:Customer Contacts
Successful cataloger to builders Divided top 1,200 customers into two:
600 in Test Group 600 in Control Group
Test group got two person team who called decision makers over 6 months.
Controls got no such calls
6 Month Results – Purchase Rate
73%
76%
72%72%73%73%74%74%75%75%76%76%
Percent who
purchased in 6 months
1 2
Control vs Test Group
Change in number of orders
82%
112%
0%
20%
40%
60%
80%
100%
120%
Change in number of
orders
1 2
Control vs Test Groups
Change in Average Order Size
86%
114%
0%
20%
40%
60%
80%
100%
120%
Change in average
order size
1 2
Control vs Test Group
$2,600,000 Gain in 6 Months
70%
127%
0%
20%
40%
60%
80%
100%
120%
140%
Change in total
revenue
1 2
Control vs Test Group
This stuff works!
• Building a relationship with customers can be highly profitable
• Using a database to recreate the old family grocer is a winning strategy
• Relationship marketing is the way to go
What Doesn’t Work:Multi-Million Dollar CRM
“Before implementing a CRM package it is necessary to understand why nearly half of U. S. implementations and more than 80% of European implementations are considered failures. It’s difficult to fathom failures of such monstrous proportions, especially when complete CRM installations can cost millions of dollars and then hundreds of thousands of dollars more per annum” [email protected]
CRM is often based on assumptions that do not work!
You can predict individual behavior with data in a warehouse (You can’t)
Behavior is heavily dependent on timely offers (Only sometimes)
CRM warehouses have positive ROI (very rarely)
Warehouse Vs DatabaseBehavior Prediction Arthur Hughes will buy Product X within
3 months – You cannot know that. 70% of those in Arthur’s Segment of
3,000 will buy Product X in 3 months. That can be predicted accurately.
The first comes from a $$$ warehouse The second comes from a database.
CRM Warehouses have negative Return on Investment
Per CRM DatabaseQuantity Rate Year Annual Cost Annual Cost
DB/Warehouse $5,500,000 $1,600,000Mail Communications 3,000,000 $0.60 2 $3,600,000 $3,600,000Email Communications 3,000,000 $0.04 4 $480,000 $480,000CRM/Database Costs $9,580,000 $5,680,000
Communications
Without CRM DatabaseOr DBM With CRM Marketing
Customers 6,000,000 6,000,000 6,000,000Annual Sales $150 $165 $165Sales $900,000,000 $990,000,000 $990,000,000Profit per sale 10% 10% 10%Profit $90,000,000 $99,000,000 $99,000,000CRM Cost $0 $9,580,000 $5,680,000Net Profit $90,000,000 $89,420,000 $93,320,000
Database Marketing Results are Incremental
You already are selling through other channels
DBM will improve retention, and sales only by an incremental amount
You must justify CRM or DBM by the incremental profit resulting from these incremental sales.
What Works: RetentionStrategy based on Lifetime Value
Lifetime value is the future profit you will receive from a customer during his lifetime with you.
It is used to direct your marketing retention and acquisition strategies.
Compute it, and compute for each customer, the risk of defection
Risk vs Lifetime Value MatrixFocus Retention of A and B
Probability of Leaving SoonLTV High Medium LowHigh Priority A Priority B Priority CMedium Priority B Priority B Priority CLow Priority C Priority C Priority C
What doesn’t work:Treating all customers alike
79.67%
24.82%15.83%
1.52%
-21.83%
-40.00%
-20.00%
0.00%
20.00%
40.00%
60.00%
80.00%
5% 11% 28% 28% 28%
This 28% lost 22% of the bank’s profits!
Bank Customers by Profitability
Marketing to Customer Segments
GOLD Spend Service Dollars Here
Spend Marketing Dollars Here
Reactivate or Archive
Your Best Customers - 80% of Revenue
Your Best Hope for New Gold Customers
Move Up
1% of Total Revenue These may be losers
What Works:Next Best Product
Banks determine Next Best Product for all customers: Which product do they not have, but
are eligible for? Which product will make the most $$
for the bank? Which product is the customer most
likely to buy?
Business to BusinessNext Best Product
Score all B 2 B Customers by SIC Which products are the most
profitable? Which most profitable product do
those in the same SIC buy, that this customer does not buy?
That is the next best product.
What doesn’t work:Package Goods Database
Kraft built a huge data warehouse Great idea, but it never paid off. You can’t put a coupon in every
product So, you can’t know if promoted
people are buying your product What works: mass marketing and
shelf space.
What Works:Frequent Shopper Cards
Give everyone a plastic card Keep track of what they buy Lower prices for those with cards Identify and reward the best
customers “We increased the number of our
$100+ customers over the past two years by 87%” – Supermarket Mgr.
What doesn’t Work:Becoming Customer Centric You have brand and product
managers with goals and bonuses For Customer Centric, you have
segment managers. It is a dream. If the Silver Segment
manager is successful, all his customers will become Gold, and he will lose them! Who wants to do that?
What Works: Web Customer Response
Mail & Phone works, but Web Response is wonderful Customers never get put on hold Saves millions of dollars Data is immediate Customers do all the work…
Landing Page
Web Microsite
Store Locator
Viral Component
Viral Marketing
Web Focus Groups
What Doesn’t Work:Web Supermarkets Regular supermarket: customers do all
the work. Impulse buying. Margins thin. Web Supermarket, company does all
the work, delivers in refrigerated trucks to widely scattered households. No impulse buying. Margins also thin.
There is no way that such outfits can make a profit in short or long run.
What Works:Email Marketing
Where else can you get these results in 3 days?
Speech Email Follow Up Results on 3rd DayDelivered Viewed Clicked Do Not Mail
168 131 75 0
Download % Viewed % Clicked % Download68 78% 45% 40%
B 2 B Email vs Direct Mail Results
Business to Business mail by a major computer disk manufacturer
The direct mail response rate 1.42% and a registration rate of 1.01%
The email promotion response rate of 3.49% with a registration rate of 1.95%.
Email promotion eleven times as cost effective as direct mail:
Cost Cost of Response Registration Number Cost Per Each 50,000 Rate Responses Rate Registered Lead
Direct Mail $0.71 $35,500 1.42% 710 1.01% 505 $70.30 Email $0.12 $6,000 3.49% 1,745 1.95% 975 $6.15
Works versus Doesn’t Work
Database Marketing Customer Contacts Retention based on LTV Next Best Product Frequent Shopper Cards Web Customer
Response Email Marketing
CRM Warehouses Becoming
Customer Centric Treat all
customers alike Package Goods DB Web
Supermarkets
What should you do? Collect emails with permission NOW. Use Micro-sites & viral marketing Compute LTV and retention strategy Communicate with customers often Determine the Gold, work to keep them Determine next best product. Sell it.
Books by Arthur Hughes
From McGraw Hill. Order at www.dbmarketing.com
New Book This Year:
What Works (And What Doesn’t) in Database Marketing
(McGraw Hill 2002)
For copies of the presentation
Arthur Middleton Hughes
Vice President for Business Development
CSC Advanced Database Solutions
www.dbmarketing.com
