Database marketing
Encyclopedia
Database marketing is a form of direct marketing
Direct marketing
Direct marketing is a channel-agnostic form of advertising that allows businesses and nonprofits to communicate straight to the customer, with advertising techniques such as mobile messaging, email, interactive consumer websites, online display ads, fliers, catalog distribution, promotional...

 using databases of customer
Customer
A customer is usually used to refer to a current or potential buyer or user of the products of an individual or organization, called the supplier, seller, or vendor. This is typically through purchasing or renting goods or services...

s or potential customers to generate personalized communications in order to promote a product or service for marketing
Marketing
Marketing is the process used to determine what products or services may be of interest to customers, and the strategy to use in sales, communications and business development. It generates the strategy that underlies sales techniques, business communication, and business developments...

 purposes. The method of communication can be any addressable medium, as in direct marketing
Direct marketing
Direct marketing is a channel-agnostic form of advertising that allows businesses and nonprofits to communicate straight to the customer, with advertising techniques such as mobile messaging, email, interactive consumer websites, online display ads, fliers, catalog distribution, promotional...

.

The distinction between direct and database marketing stems primarily from the attention paid to the analysis of data. Database marketing emphasizes the use of statistical techniques to develop models of customer behavior, which are then used to select customers for communications. As a consequence, database marketers also tend to be heavy users of data warehouse
Data warehouse
In computing, a data warehouse is a database used for reporting and analysis. The data stored in the warehouse is uploaded from the operational systems. The data may pass through an operational data store for additional operations before it is used in the DW for reporting.A data warehouse...

s, because having a greater amount of data about customers increases the likelihood that a more accurate model can be built.

There are two main types of marketing databases, 1) Consumer databases, and 2) business databases. Consumer databases are primarily geared towards companies that sell to consumers, often abbreviated as B2C or BtoC. Business marketing databases are often much more advanced in the information that they can provide. This is mainly because business databases aren't restricted by the same privacy laws as consumer databases.

The "database" is usually name, address, and transaction history details from internal sales or delivery systems, or a bought-in compiled "list" from another organization, which has captured that information from its customers. Typical sources of compiled lists are charity donation forms, application forms for any free product or contest, product warranty cards, subscription forms, and credit application forms.

The communications generated by database marketing may be described as junk mail
Junk mail
Junk mail may refer to:* Junk Mail Publishing* Advertising mail* Spam , unsolicited electronic mail* Junk Mail * "The Junk Mail", an episode from the TV series Seinfeld...

 or spam
Spam (electronic)
Spam is the use of electronic messaging systems to send unsolicited bulk messages indiscriminately...

, if it is unwanted by the addressee. Direct and database marketing organizations, on the other hand, argue that a targeted letter or e-mail to a customer, who wants to be contacted about offerings that may interest the customer, benefits both the customer and the marketer.

Some countries and some organizations insist that individuals are able to prevent entry to or delete their name and address details from database marketing lists.

Background

Database marketing emerged in the 1980s as a new, improved form of direct marketing. During the period traditional "list broking" was under pressure to modernise, because it was offline and tape-based, and because lists tended to hold limited data. At the same time, with new technologies enabling customer responses to be recorded, direct response marketing was in the ascendancy, with the aim of opening up a two-way communication, or dialogue, with customers.

Robert D. "Bob" and Kate Kestnbaum were trailblazing pioneers of the new direct marketing, who were credited with developing new metrics including customer lifetime value
Customer lifetime value
-Definition of Customer Lifetime Value:In marketing, customer lifetime value , lifetime customer value , or lifetime value is the net present value of the cash flows attributed to the relationship with a customer...

, and applying financial modelling and econometrics
Econometrics
Econometrics has been defined as "the application of mathematics and statistical methods to economic data" and described as the branch of economics "that aims to give empirical content to economic relations." More precisely, it is "the quantitative analysis of actual economic phenomena based on...

  to marketing strategies. They founded Kestnbaum & Co, a consulting firm in 1967, and this was the training ground for many of database marketing's leading thinkers, including Robert Blattberg, Rick Courtheaux and Robert Shaw
Robert Shaw (Marketing)
Robert Shaw is a business author and consultant on the field of marketing, particularly Marketing performance measurement and management and Database marketing.- Life and career :...

. Bob Kestnbaum was inducted into the DMA Hall of Fame in October 2002.

Kestnbaum collaborated with Shaw in the 1980s on several landmark online marketing database developments - for BT (20 million customers), BA (10 million) and Barclays (13 million). Shaw incorporated new features into the Kestnbaum approach, including telephone
Telemarketing
Telemarketing is a method of direct marketing in which a salesperson solicits prospective customers to buy products or services, either over the phone or through a subsequent face to face or Web conferencing appointment scheduled during the call.Telemarketing can also include recorded sales pitches...

 and field sales
Sales
A sale is the act of selling a product or service in return for money or other compensation. It is an act of completion of a commercial activity....

 channel automation, contact strategy optimisation, campaign management and co-ordination, marketing resource management
Marketing Resource Management
Marketing Resource Management provides the software infrastructure to support Marketing Operations Management. Marketing Operations Management is the alignment of people, process and technology to support marketing activities and improve marketing effectiveness...

, marketing accountability
Marketing Accountability
Marketing accountability is a term that signifies management with data that is understandable to the management of the enterprise.-Overview:...

 and marketing analytics. The designs of these systems have been widely copied subsequently and incorporated into CRM and MRM packages in the 1990s and later.

The earliest recorded definition of Database Marketing was in 1988 in the book of the same name (Shaw and Stone 1988 Database Marketing):
"Database Marketing is an interactive approach to marketing, which uses the individually addressable marketing media and channels (such as mail, telephone and the sales force): to extend help to a company's target audience; to stimulate their demand; and to stay close to them by recording and keeping an electronic database memory of the customer, prospect and all commercial contacts, to help improve all future contacts and to ensure more realistic of all marketing."

Growth and evolution of database marketing

The growth of database marketing is driven by a number of environmental issues. Fletcher, Wheeler and Wright (1991) classified these issues into four main categories: (1) changing role of direct marketing; (2) changing cost structures; (3) changing technology; and (4) changing market conditions.

DRIVER #1: THE CHANGING ROLE OF DIRECT MARKETING
  • The move to relationship marketing for competitive advantage.
  • The decline in the effectiveness of traditional media.
  • The overcrowding and myopia of existing sales channels.

DRIVER #2: CHANGING COST STRUCTURES
  • The decline in electronic processing costs.
  • The increase in marketing costs.

DRIVER #3: CHANGING TECHNOLOGY
  • The advent of new methods of shopping and paying.
  • The development of economical methods for differentiating customer communication.

DRIVER #4: CHANGING ECONOMIC CONDITIONS
  • The desire to measure the impact of marketing efforts.
  • The fragmentation of consumer and business markets.


Shaw and Stone (1988) noted that companies go through evolutionary phases in the developing their database marketing systems. They identify the four phases of database development as:
  1. mystery lists;
  2. buyer databases;
  3. coordinated customer communication; and
  4. integrated marketing.

Sources of data

Although organizations of any size can employ database marketing, it is particularly well-suited to companies with large numbers of customers. This is because a large population provides greater opportunity to find segments of customers or prospects that can be communicated with in a customized manner. In smaller (and more homogeneous) databases, it will be difficult to justify on economic terms the investment required to differentiate messages. As a result, database marketing has flourished in sectors, such as financial services, telecommunications, and retail, all of which have the ability to generate significant amounts of transaction data for millions of customers.

Database marketing applications can be divided logically between those marketing programs that reach existing customers and those that are aimed at prospective customers.

Consumer data

In general, database marketers seek to have as much data available about customers and prospects as possible.

For marketing to existing customers, more sophisticated marketers often build elaborate databases of customer information. These may include a variety of data, including name and address, history of shopping and purchases, demographics, and the history of past communications to and from customers. For larger companies with millions of customers, such data warehouse
Data warehouse
In computing, a data warehouse is a database used for reporting and analysis. The data stored in the warehouse is uploaded from the operational systems. The data may pass through an operational data store for additional operations before it is used in the DW for reporting.A data warehouse...

s can often be multiple terabytes in size.

Marketing to prospects relies extensively on third-party sources of data. In most developed countries, there are a number of providers of such data. Such data is usually restricted to name, address, and telephone, along with demographics, some supplied by consumers, and others inferred by the data compiler. Companies may also acquire prospect data directly through the use of sweepstakes, contests, on-line registrations, and other lead generation activities.

Business data

For many business-to-business
Business-to-business
Business-to-business describes commerce transactions between businesses, such as between a manufacturer and a wholesaler, or between a wholesaler and a retailer...

 (B2B
Business-to-business
Business-to-business describes commerce transactions between businesses, such as between a manufacturer and a wholesaler, or between a wholesaler and a retailer...

) company marketers, the number of customers and prospects will be smaller than that of comparable business-to-consumer (B2C) companies. Also, their relationships with customers will often rely on intermediaries, such as salespeople, agents, and dealers, and the number of transactions per customer may be small. As a result, business-to-business marketers may not have as much data at their disposal as business-to-consumer marketers.

One other complication is that B2B marketers in targeting teams or "accounts" and not individuals may produce many contacts from a single organization. Determining which contact to communicate with through direct marketing may be difficult. On the other hand it is the database for business-to-business marketers which often includes data on the business activity about the respective client.

These data become critical to segment markets or define target audiences, e.g. purchases of software license renewals by telecom companies could help identify which technologist is in charge of software installations vs. software procurement, etc. Customers in Business-to-Business environments often tend to be loyal since they need after-sales-service for their products and appreciate information on product upgrades and service offerings. This loyalty can be tracked by a database.

Sources of customer data often come from the sales force employed by the company and from the service engineers. Increasingly, online interactions with customers are providing B2B marketers with a lower cost source of customer information.

For prospect data, businesses can purchase data from compilers of business data, as well as gather information from their direct sales efforts, on-line sites, and specialty publications.

Analytics and modeling

Companies with large databases of customer information risk being "data rich and information poor." As a result, a considerable amount of attention is paid to the analysis of data. For instance, companies often segment their customers based on the analysis of differences in behavior, needs, or attitudes of their customers. A common method of behavioral segmentation is RFM
RFM
On Wikipedia, RFM may refer to Wikipedia:Requests for mediation. For other uses, see RFM .RFM is a method used for analyzing customer behavior and defining market segments...

, in which customers are placed into subsegments based on the recency, frequency, and monetary value of past purchases. Van den Poel (2003) gives an overview of the predictive performance of a large class of variables typically used in database-marketing modeling.

They may also develop predictive models, which forecast the propensity of customers to behave in certain ways. For instance, marketers may build a model that ranks customers on their likelihood to respond to a promotion. Commonly employed statistical techniques for such models include logistic regression
Logistic regression
In statistics, logistic regression is used for prediction of the probability of occurrence of an event by fitting data to a logit function logistic curve. It is a generalized linear model used for binomial regression...

 and neural networks
Neural Networks
Neural Networks is the official journal of the three oldest societies dedicated to research in neural networks: International Neural Network Society, European Neural Network Society and Japanese Neural Network Society, published by Elsevier...

.

Laws and regulations

As database marketing has grown, it has come under increased scrutiny from privacy advocates and government regulators. For instance, the European Commission
European Commission
The European Commission is the executive body of the European Union. The body is responsible for proposing legislation, implementing decisions, upholding the Union's treaties and the general day-to-day running of the Union....

 has established a set of data protection rules that determine what uses can be made of customer data and how consumers can influence what data are retained. In the United States
United States
The United States of America is a federal constitutional republic comprising fifty states and a federal district...

, there are a variety of state and federal laws, including the Fair Credit Reporting Act, or FCRA (which regulates the gathering and use of credit data), the Health Insurance Portability and Accountability Act
Health Insurance Portability and Accountability Act
The Health Insurance Portability and Accountability Act of 1996 was enacted by the U.S. Congress and signed by President Bill Clinton in 1996. It was originally sponsored by Sen. Edward Kennedy and Sen. Nancy Kassebaum . Title I of HIPAA protects health insurance coverage for workers and their...

 (HIPAA) (which regulates the gathering and use of consumer health data), and various programs that enable consumers to suppress their telephones numbers from telemarketing
Telemarketing
Telemarketing is a method of direct marketing in which a salesperson solicits prospective customers to buy products or services, either over the phone or through a subsequent face to face or Web conferencing appointment scheduled during the call.Telemarketing can also include recorded sales pitches...

.

Advances in database marketing

While the idea of storing customer data in electronic formats to use them for database-marketing purposes has been around for decades, the computer systems available today make it possible to gain a comprehensive history of client behavior on-screen while the business is transacting with each individual, producing thus real-time business intelligence for the company. This ability enables what is called one-to-one marketing or personalization
Personalization
Personalization involves using technology to accommodate the differences between individuals. Once confined mainly to the Web, it is increasingly becoming a factor in education, health care Personalization involves using technology to accommodate the differences between individuals. Once confined...

.

Today's Customer Relationship Management
Customer relationship management
Customer relationship management is a widely implemented strategy for managing a company’s interactions with customers, clients and sales prospects. It involves using technology to organize, automate, and synchronize business processes—principally sales activities, but also those for marketing,...

 (CRM) systems use the stored data not only for direct marketing purposes but to manage the complete relationship with individual customer contacts and to develop more customized product
Product (business)
In general, the product is defined as a "thing produced by labor or effort" or the "result of an act or a process", and stems from the verb produce, from the Latin prōdūce ' lead or bring forth'. Since 1575, the word "product" has referred to anything produced...

 and service offerings. However, a combination of CRM, content management
Content management
Content management, or CM, is the set of processes and technologies that support the collection, managing, and publishing of information in any form or medium. In recent times this information is typically referred to as content or, to be precise, digital content...

 and business intelligence tools
Business intelligence tools
Business intelligence tools are a type of application software designed to retrieve, analyze and report data. The tools generally read data that have been previously stored, often, though not necessarily, in a data warehouse or data mart....

 are making delivery of personalized information a reality.

Marketers trained in the use of these tools are able to carry out customer nurturing, which is a tactic that attempts to communicate with each individual in an organization at the right time, using the right information to meet that client's need to progress through the process of identifying a problem, learning options available to resolve it, selecting the right solution, and making the purchasing decision.

Because of the complexities of B2B marketing and the intricacies of corporate operations, the demands placed on any marketing organization to formulate the business process by which such a sophisticated series of procedures may be brought into existence are significant. It is often for this reason that large marketing organizations engage the use of an expert in marketing process strategy and information technology
Information technology
Information technology is the acquisition, processing, storage and dissemination of vocal, pictorial, textual and numerical information by a microelectronics-based combination of computing and telecommunications...

 (IT), or a marketing IT process strategist. Although more technical in nature than often marketers require, a system integrator
System integrator
A systems integrator is a person or company that specializes in bringing together component subsystems into a whole and ensuring that those subsystems function together, a practice known as System Integration...

 (SI) can also play an equivalent role to the marketing IT process strategist, particularly at the time that new technology tools need to be configured and rolled out.

New advances in cloud computing
Cloud computing
Cloud computing is the delivery of computing as a service rather than a product, whereby shared resources, software, and information are provided to computers and other devices as a utility over a network ....

 and marketing's penchant for both outsourcing services to third-party agencies and avoiding involvement in the creation of complex technological tools has provided a fertile soil for Software as a Service
Software as a Service
Software as a service , sometimes referred to as "on-demand software," is a software delivery model in which software and its associated data are hosted centrally and are typically accessed by users using a thin client, normally using a web browser over the Internet.SaaS has become a common...

 (SaaS) providers to centralize the marketing database under a hosting service model that incorporates functions from CRM, content management and business intelligence under one offering to automate the marketing

Challenges and limitation of database marketing

While real-time business intelligence is a reality for select companies, it remains elusive to many as it is dependent on these premises: the percentage of the business that is online, and the degree of level of sophistication of the software. Technology companies like Google, Dell, and Apple are best positioned to capitalize on such intelligence. For other companies, more traditional methods still apply, either to maintain communication with an existing customer base (retention) or, as a more established growth driver, to build, acquire or rent new databases (acquisition). A major challenge for databases is the reality of obsolescence - including the lag time between when data was acquired and when the database is used. This problem can be addressed by online and offline means including traditional methods. An alternative approach is real-time proximity marketing
Proximity marketing
Proximity marketing is the localized wireless distribution of advertising content associated with a particular place. Transmissions can be received by individuals in that location who wish to receive them and have the necessary equipment to do so....

 for acquisition purposes.

See also

  • Proximity Marketing
    Proximity marketing
    Proximity marketing is the localized wireless distribution of advertising content associated with a particular place. Transmissions can be received by individuals in that location who wish to receive them and have the necessary equipment to do so....

  • Customer Relationship Management
    Customer relationship management
    Customer relationship management is a widely implemented strategy for managing a company’s interactions with customers, clients and sales prospects. It involves using technology to organize, automate, and synchronize business processes—principally sales activities, but also those for marketing,...

  • Lifetime value
  • Marketing Resource Management
    Marketing Resource Management
    Marketing Resource Management provides the software infrastructure to support Marketing Operations Management. Marketing Operations Management is the alignment of people, process and technology to support marketing activities and improve marketing effectiveness...

  • Direct Marketing
    Direct marketing
    Direct marketing is a channel-agnostic form of advertising that allows businesses and nonprofits to communicate straight to the customer, with advertising techniques such as mobile messaging, email, interactive consumer websites, online display ads, fliers, catalog distribution, promotional...

  • Drip Marketing
    Drip Marketing
    Drip marketing is a communication strategy that sends, or "drips," a pre-written set of messages to customers or prospects over time. These messages often take the form of email marketing, although other media can also be used...


Further reading


External links

The source of this article is wikipedia, the free encyclopedia.  The text of this article is licensed under the GFDL.
 
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