Question of Extracting Gold from the Information a 1

Marketing Highlight

22.1

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 databases 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 telemar-keters 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.

sources: 'How to turn junk mail into a gold mine, The Economist (1 April 1995), p. 31; Weld F. Royal, 'Do databases really work'-'. Saks and Marketing Management (October 1995), pp. 66-74; 'Hi ho. hi ho, down the date mine we go', The Economist (23 August 1997), pp. .55-6', Jonathan Berry, 'A potent new tool for selling; database marketing', Business Week (5 September 1994), pp. 56-62; Richard Cross and Janet Smith, 'Customer bonding and the in formation cor«'. Direct Marketing Afetgítsme (February 1995), p. 2H.

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 parttime. Besides, door-to-door selling does have an image problem, whieh, although inaccurate, has stuck. And, with recent advances in interactive direet marketing technology, the door-to-door salesperson may well he replaced in the future by the household telephone, television or home computer.

Advertising With Circulars

Advertising With Circulars

Co-op Mailing means that two or more businesses share in the cost and distribution of a direct mail campaign. It's kind of like having you and another non-competing business split the cost of printing, assembling and mailing an advertising flyer to a shared same market base.

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