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APRIL 2008

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Database Marketing - A Smart Marketer's ToolBox
by Joe Kroog

Just how bleak is the environment? Potentially the worst in the last 15 years that I can easily recall. It doesn't matter whether you're a fortune 500 retailer, SMB B2B company, or consumer-based multi-channel marketer; everyone is impacted at varying degrees, for some it's make or break. An economic recession, of unknown magnitude, is looming in the wake of presidential elections. “While recessions are unusual and hard to predict, a call for a 2008 recession is looking easier and easier.” Stated John Makin, 'Recession 2008?' WSJ September 8, 2007. World uncertainty driven by war, declining stock markets (albeit the DOW is 4 times larger than it was 15 years ago), and despite our wonderful government is trying to infuse consumer spending; it's still down. Although, thank you George Bush for the incentive this year, it was timely.

The marketing industry too has been hit extremely hard. Direct marketers have been hit repeatedly with double digit cost increases in postage, paper and printing. Not to dig too deeply into any one issue, but I can still remember mailing customer loyalty and retention letter packets with a blue Pitney Bowes postage imprinter. That same mailer would likely cost 45% more today. The effect is real; direct mail circulation as measured by the US Postal Service has declined for 3 consecutive quarters, possibly the first time in history.

Okay, okay, enough of the doom and gloom. What do you do about it? In the words of the wise Stephen Covey, “We immediately become more effective when we decide to change ourselves rather than asking things to change for us." Moment of reflection… The great part about changing ourselves and our business is that there is a profound set of tools that can help embrace change and continue to be a Smart Marketer. Focus your efforts on those tools that can provide the greatest return. I wanted to share three top of mind tools to get the juices flowing.

Putting DM Tools to Work for You

The Hammer.
A.K.A. The Customer Database. It is the staple (ironic term) building tool. Regardless of whether your database utilizes the latest greatest database technologies (like a laser guided hammer with shock absorption grip), or is not much more than an Access database or Excel spreadsheet (like my wood handled, duck tape wrapped, 15 year old hammer), the most important thing you can do is to make sure your get what you need out of it. Design, or enhance, your marketing database with your end goals in mind.

Goal / Objective Design Elements
Client Segmentation Consider Multiple Segmentation Factors
  • Product
  • Persona
  • Behavioral
  • Value
Measuring Channel Effectiveness Consider Channel Usage
  • How do you measure
Contact Strategies Ability to Segment by client type
  • Touch-points by Channels
  • How much is too much? Diminishing returns?
Separate Acquisition & Retention strategies
Customer Value Life Time Value or Near Term Value calculations
  • # of products purchased
  • Repeat purchases
  • Profit per customer

Evaluate demand generation as if you are a multi-channel company with various contact strategies. If you are planning to invest more in online demand generation, make sure that you have the ability to evaluate the true effectiveness of that marketing spend. I have witnessed first hand errant allocation to SEO effectiveness because a lead filled out a web form. Truth of the matter was that they had been sent white papers, had met at a trade show, and received a direct mail piece - Integrated Marketing at its finest - but one can't assume this is cause to allocate more marketing spend to SEO and attend 2 less trade shows.

Consider how you measure contact strategies - in a silo or in aggregate? This may seem like a simple question, are you really equipped to answer the question and determine the best way for you to base your marketing budgets. Protect your budgets by precisely knowing your cost of customer acquisition across all channels and discretely to each channel. Equally important, don't rely on the adage that it costs 5x less to retain a customer. Leverage your marketing database to precisely know your cost of retention across multiple channels. Anecdotally, one recent finding suggested a 50% lift in response rate by integrating email contacts with direct mail.

Get to know your customers better. Instead of product purchase segmentation, consider persona based segmentation, value-based segmentation or behavioral segmentation. Advanced database marketers are able to evaluate their customers on multiple segmentation criteria to identify determine how to more effectively engage in product cross-sells, channel effectiveness and quantifiably determine the value of a customer. Your marketing database should support calculation of Life Time Value or Near Term Value of your customers. “Near Term Value,” as defined by Elisa Krause Ph.D., VP Analytics Epsilon, “is the net profit associated with each new buyer acquired at various points in time following acquisition - typically 6 months snapshots for 2-3 years forward. NTV enables marketers to understand how much they can spend to acquire a new customer given their subsequent spend potential (a.k.a. their payback rate).” Too often, marketing decisions are short-sighted, only based on the first time purchase(s) simply because there is no understanding or visibility into Life Time Value or Near Term Value.

The Tape Measure.
Ah, the tape measure - what a time saver, eliminates rework, recalibration and frustration. It might be the most under-priced, underestimated, and highest value tool in the toolbox. Equally so, a clear view into discrete channel measurement and appropriate matchback is often undervalued. Furthermore, in a multi-channel environment, the path to purchase is equally as important when evaluating performance and marketing payback from those channels.

Going back to the mistake I mentioned earlier regarding SEO allocation. Had we clearly spelled out that a path to purchase would include the white paper, trade show experience, and DM piece which drove traffic to the web form, we could have credited each of those marketing tactics with a fractional value of the total order. We would have been much smarter to have appropriately credited that marketing spend.

The challenge gets more complex when a company is utilizing multiple overlapping sources (SEO and Affiliate Ads, multiple mail list sources, etc). Bottom line: if you can't strategically create and measure the path to purchase and clearly distinguish between overlapping sources - you're doing nothing more than eating into your immediate profit per client and setting yourself up for marketing budget cuts.

The Drill.
The power drill, cordless of course, is the most commonly used tool in my house. I thought it an appropriate analogy to Analytics, which should be the most commonly used tool in your database marketing toolbox. Provided that you can capture those design elements that are most important to guiding your marketing decisions, Marketing Analytics can become your mechanism to tap into future opportunities, patch holes in retention efforts, and strategically join marketing and sales profitably. I'm not encouraging analysis paralysis; instead I'm reinforcing this is the mechanism by which you can close the loop and manage return on marketing.

Unlocking the data in your customer database, and leveraging select outside sources to complement your own transactional information can yield powerful, actionable tactics:
  • Market Share/ Wallet Share Trends - my sales are increasing, but how am I performing against competitors in the same market/ category?
  • Quantifiable Forecasting - leverage past marketing campaign history to project sales performance or lead generation and isolate key predictors within that model.
  • Marketing Allocation - quantifiably assess path to purchase and respective channel contributions to profitably shift marketing allocation accordingly - is it really online, or can you get more from a predictive direct mail channel?
  • Best Buyer Profiling - detail who are your best buyers and go find more like them. Simple logic, but why spend a lot of hard fought marketing dollars to get more of your less profitable customers.
Are you a smart marketer?
At the end of the day, smart marketers leverage the power of their marketing database to focus their demand generation, customer acquisition and retention efforts through database marketing. What makes them so smart is because they simply have the facts to answer business critical questions - who are my best customers? How can I find more of them? How can I protect my loyal customers and get non-loyal customers purchasing more often? Can I still prospect profitably? How many marketing touches does it take to trigger a contact event?

The Hammer, the Tape Measure, and the Drill obviously aren't the only tools in the toolbox, just a sampling. But consider how well you are using these tools today. What's your biggest challenge to hold onto or increase your marketing budgets because it's the right thing to do in this economy? Chances are that you're struggling like many others to justify marketing spend because of a lack of quantifiable evidence from past campaigns. An aligned view of past campaign performance, channel and contact strategies is incredibly powerful when combined with the ability to quantifiably project forward expected returns on marketing. Even better, with the right analytics in place, you can be far more agile in tweaking strategy as you go.



Joe Kroog is Senior Manager of Product Strategy at Epsilon in Lafayette, Colorado. Channeling more than 15 years in Marketing and Product Strategy, Joe is primarily responsible for new initiatives which include the market launch of Abacus [ONE], a unique, high-performing platform transforming the way Abacus fulfills its modeled universes. Joe resides in Littleton, Colorado with his wife and son. An alumni of the University of Colorado; Joe is also a 15 year member of the Business Marketing Association, an avid golfer and competes in local AVP Amateur Volleyball.

Epsilon is a leading provider of multi-channel, data-driven marketing technologies and services. Epsilon helps leading companies manage, measure and optimize their customer relationships. Services include strategic consulting, database and loyalty technology, predictive modeling, and interactive communications including web design, comprehensive email programs, creative positioning and direct marketing production. Epsilon is an Alliance Data company. For more information, visit www.epsilon.com.


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