About Database Marketing

Introduction

One of the biggest misconceptions in business today is that data-driven marketing lies beyond the scope of many small-to-medium size businesses. Nothing could be further from the truth. In fact quite the opposite is true.

Regardless of the size of your business, a simple, soundly organised database can help you save marketing and advertising dollars while giving you detailed insight into the very real, purchasing behaviors of not only each and every one of your existing customers, but your potential new customers as well.

In this article we discuss:

• Why database marketing works?
• Can database marketing help fight a bigger competitor?
• Who should use database marketing?
• Economies of database marketing
• Key factors determining success
• Quality Information And Offers
• Where to get the database?
• Frequency of contact
• Role of the Database Software

Why Database Marketing Works

• Your marketing messages become more targeted as you can select who will receive them
• You can tailor your offers and marketing for different segments of your prospect base
• You collect feedback from your prospects, and adjust your messages accordingly

Marketing experts Rapp and Collins note: As in any good relationship it means learning to listen as well as talk, turning the usual advertising monologue into a dialogue, finding new ways to listen and hear what customers are trying to say and responding to them.”

Consider the case of a manufacturer or distributor of business equipment, software, or a business service provider.

Advertising in magazines and participating in trade shows is expensive and, in the case of trade shows, time consuming. Generally, once the initial contact is made, the prospect either buys or not, and the opportunity of further contact is lost until the next ad is run, or next trade show attended. Additionally, as our company places only one ad per publication, the ad is designed to appeal to all prospects generally, and ignores specific information relative to different, fringe prospect groups. As a result, only mainstream customers buy this product. In this circumstance, if a larger competitor targets the same market, the company can be easily out-muscled.

Now bring database marketing into the equation. Our company modifies its generic ad to include an offer; prospects can call for additional information and case studies. As prospects call, the receptionist confirms the address and contact name and asks a few targeted questions to enable us to better understand their business, and the likelihood of their purchase. This can include the size of the caller's business, industry classification, budget, etc. Meanwhile at the exhibition, our staff collects business cards and asks the same questions. We again ask the same questions on our company web site.

After having compiled a consistent database, the company begins regularly contacting the prospects, occasionally offering advice, sometimes providing additional information, sometimes with a promotional offer. By doing so, we kill several birds with one stone:

• We stay in the mind of the prospects that could be in the early stages of our sales cycle. This alone will generate extra sales as people who were previously lost are now prioritised for follow-up.
• We now have the opportunity to explain the benefits of our product or service in greater detail, framing the information in ways that individual prospects will find interesting or beneficial.
• We have the opportunity to establish ourselves as experts in the eyes of our prospects.
• We have a great opportunity to get more information and feedback from our prospects enabling us to further understand the requirements of our customer and prospect base.

Can Database Marketing Help Fight a Bigger Competitor

When advertising in mass media including the Yellow Pages, larger ads generally produce better bottom line results. Therefore larger advertisers generally have a competitive edge. In database marketing however, a bigger budget by itself does not give a competitive advantage. What counts in database marketing is the quality of the prospects, relevance of communications and maintaining a systematic approach.

Who Should use Database Marketing?

Although every business is unique and should make its own decisions about its marketing methods, Database Marketing is advantageous in the following situations: 

• You work in a market niche with a limited number of prospects, e.g. 100-10000.
  In this case, if you can compile a database of all your prospects, it may be more economical to communicate with them directly, rather than via mass media.
• Your business is repeat by nature: your product requires regular replacement, service or replenishment, or you sell complementary products. When you have customer details on the database, you can contact them at the right time with the right offer and gain extra sales for a very low cost to your business.
• Your sales cycle is three months or longer. Prospects will forget about you should you be out of contact for 90 days or longer, so you need to remind them that you are there. Database marketing is a targeted, cost-effective means of doing so.

Economies of Database Marketing

The all-important financial benchmark of marketing is the cost per sale. Any reductions of cost per sale go directly to your bottom line; any increases take from your bottom line.  

The costs in database marketing include:

• Creating and maintaining the database
• Creating sales and marketing collateral
• Cost of delivering the messages – via mail, email, fax or telemarketing.

The number of sales can be estimated as a number of messages sent out multiplied by anticipated conversion rate. Over time, you will be able to measure your conversion rate and forecast the results of future mailings based on the past campaigns’ conversion rate. In some cases, industry benchmark data may be available. If no other data is available, the following estimations could be used:

• Mailing to a database of existing customers:  10-50%
• Using a mailing list after a first round of postage: 1%

Example: Posting to 2000 names from a purchased mailing list:

There are two main ways to reducing cost per sale:

• Using fax or email instead of postage
• Improving conversion rate

Faxing can be done from your own computer or outsourced to a specialist service provider. Of course, faxing is limited to B2B marketing, as few people have fax machines at home. Fax communication has an air of urgency about it and people are quite likely to read it. Faxing from your own computer could be cheaper than using a service provider, but the costs of tracking down undeliverable messages and the time it takes for a single machine to send out all the information could make it difficult to handle more than a couple hundred faxes at a time.

Although emailing costs are low, people tend to ignore, delete and block commercial emails, unless it comes from somebody they already know. With that in mind, good results could be achieved by emailing a new offer to a database consisting of only your existing customers and strong prospects.

Conversion rates will improve with repeated mailings, dedicated follow-up, and continual refining of your offers and of your database. The reasons for that are, firstly, is that you will learn more about your prospects as you collect feedback, and it is therefore natural that your subsequent messages become increasingly targeted. Secondly, your prospects grow to know your business; they gain a better understanding about what you have to offer. If you do things right, you can build long-term relationships with your customer base to the benefit of both parties.

However, conversion rates are not automatically achieved and cannot be taken for granted. In order to increase them, you need to have a good product, good offers and a process supported by appropriate material (letters, brochures, offers and/or telemarketing scripts, etc.)

Key Factors Determining Success

• Quality of the database
• Quality of information and offers
• Systematic approach

Quality and size of the database are the single most important factor determining the success of your marketing efforts.

To select good prospects for your database, look at your best customers, past and present. Then ask yourself: ‘What do they have in common?’ Is it their income, home ownership, the car they drive, size of their family or their business that drives them to buy your products? Ideally, you would profile your existing customer database, but if you don't have a database or it does not render itself to profiling, use customers you know personally as a starting point. Then ask the next question: ‘where can I get more prospects like that?’ Targeting all dog owners with cars? You might not be able to find an exact match, but perhaps a database of dog owners will provide a good place to start building and refining your database.

As far as size of your database is concerned, marketing guru Wendy Evans in "How to get new business in 90 days and keep it forever" had this to say: "No longer choke the life out of too few prospects, but build relationships with many". Simply speaking, you need a sufficiently large database to generate enough business.

Quality Information and Offers

One of the advantages of database marketing is that it gives you an opportunity to describe your product or service in detail. You can achieve this through providing additional photos of your product, providing technical descriptions, or through giving your expert advice or assessment of prospect’s requirements. Whatever your promotional material is, it should be structured in such a way that each paragraph is relevant to, and entices the reader to act – whether that be completing the survey, or picking up the telephone.

As we have generally stated, successful database marketing typically consists of a systematic process of contacting your customers and prospects using specifically targeted communications. This process of contacts should direct your customer or prospect through the steps required to arrive at the decision to purchase your product or service. Each supplemental interaction you have with your client or prospect should provide you with additional information on the customer, and enable you to focus your efforts on finding more of those most likely to purchase, or to unearth ways to move them forward through your sales cycle.

Where to get the database?

In House.

Start with your in-house database of previous clients and prospects. Where possible, record details of people who contacted you with enquiries, or those who have purchased and inform them you will be keeping in touch with them.

For example, if you publish an ad and prospects start calling with enquiries, this creates an excellent database for database marketing. Prospects have already raised their hand and identified themselves. You now have the opportunity to find out who they are, what they want, how much money they may spend and their criteria for purchase.

This can be the cheapest and generally the best source for obtaining high quality prospect information for your marketing database. You get top-level prospects, and as much information about them as questions you dare to ask. The downside is that in most cases this method does not generate a sufficient number of prospects required for effective database marketing.
 

Web site visitors.

Your web site is also provides an excellent opportunity to capture information. Offering valuable material for download in exchange for simple registration information provides a fast and easy forum for the collection of prospect data. Offer a subscription to a newsletter, or simply offer to inform about specials. Ask a few targeted questions relevant to your business to create customer profiles.

For example, on our site, since we sell to businesses, we ask questions about the visitor’s business, industry and so on. We ask questions when our visitors are most ready to answer them - prior to downloading our trial software. Since people are not prepared to fill in long questionnaires (nor to read them), we keep each question short, and then collate answers together to create a comprehensive profile of a visitor.

External mailing lists.

Professional list companies either sell existing lists, or research and create lists based on specifically requested target market criteria. Typically these lists are available through list brokers rather than original vendors. Lists are typically accompanied by profiles demonstrating how the list was collected, the number of names included and the specific criteria used to compile the list such as geographic location or industry-specific categories.

Purchased lists typically carry an accuracy guarantee such as ‘95% of mails will be delivered if mailed within next 30 days.’ This is of course dependant on the turnover or rotation of those listed. 

In Australia, we know of the following list companies:

Note. Although we are happy to list these organisations as resources, we do not specifically endorse them as we have not personally used their services. As with any recommendation, please thoroughly investigate the product or service prior to purchase. 

Although the products list brokering companies provide vary, a typical cost would be in the range of $150-$400 per thousand records. Generally a minimal order size or setup fee is required to cover the costs in processing your order, extracting data and sending it to you. List brokers can extract subsets of data from their lists by any characteristics of the customer profile they collect. For example, a list of IT directors of companies in a specific industry located in Sydney West would be fairly easy to compile. Please note however, that information related to company or individuals characteristics, other than an address recorded on a database is not always accurate. It is common practice when purchasing a list to be supplied with a data sample allowing you to test the integrity of the database prior to purchase.

Currently, we have little information regarding list management companies in other countries. If you have information you would like to share, please write to us.

Frequency of Contact

Important point: to get your message across, you need to put it in front of people at least three times, more if you are promoting something principally new. The number of times the same audience sees the commercials for a particular product is called frequency, and it is a key parameter in planning mass media campaigns.

So, how often do you need to contact prospects? To ensure that your target market remembers who you are, you should contact them at least once every 90 days. There is nothing wrong with staying in touch more often, providing your message is interesting and provides value to your audience. This communication is the point at which your marketing activity may connect with your sales cycle. For example, car dealerships will contact past customers 2.5 years after purchase, as at this time, they begin considering replacing their old car with a new model.

Can you get customers angry by contacting them too often? Maybe, but prospects are more tolerant to frequency when your message is relevant. Our Internet domain registrar started contacting us about 1 month before our domain registration was due for renewal. They sent us numerous emails, two faxes and one letter. Result – we have renewed our registration with them and no, we weren’t annoyed.

Wendy Evans writes: “It is amazing how little following up people do. All over the world I ask people to raise their hands if they have ever had a second call from a salesperson to whom they first said ‘No’. And all over the world, I get the same response: very few hands showing or none at all. Then I ask, “Keep your hand up if you ever had a third call from a salesperson to whom you first said ‘No’. Every hand is down. It is that easy to be different. You just have to keep calling back, and being creatively interesting in your follow-up activities”.

Role of the Database Software

Throughout this discussion, we have looked at a number of tasks a marketer needs to perform in order to run Database Marketing successfully. To review, these steps are:

• Analyse your existing customer base and understand what is common between the best customers
• Accumulate a large database of well-qualified prospects
• Stay in touch with them at least once every 90 days
• Send tailored communications relevant to these prospects
• Follow-up persistently
• Collect feedback and adjust your marketing accordingly.

To perform these tasks, a specialised software program such as Simply Contacts Database is required. In our next article, we will discuss how Simply Contacts Database can help accomplish these essential marketing tasks.