More from the conference floor

This column is the second of two highlighting the National Centre for Database Marketing conference, held recently and focussing on database marketing as a key future medium. The first part appeared on page one of the July 26 issue.Chicago: Douglas McCormick,...

This column is the second of two highlighting the National Centre for Database Marketing conference, held recently and focussing on database marketing as a key future medium. The first part appeared on page one of the July 26 issue.

Chicago: Douglas McCormick, of Target Mail of Scarborough, Ont., had an interesting observation on the role of database marketing for packaged goods products: it is great for converting competitive users.

Does pay

McCormick pointed out that in the case of loyal, or even occasional, users, database marketing does not generally pay out, but it does in the case of a competitive product user, where every conversion is incremental revenue.

His conclusion is partly based on the economics of a low margin/broad distribution environment (at the bottom of the customer relationship hierarchy, according to noted academic and author Philip Kotler) and partly on brand managers who have a ‘one- to two-year mind-set.’

McCormick said brand managers find 12-month value ‘more acceptable’ than lifetime value, and so programs must be designed to fit that time parameter.

He said many brand managers use fsis, ostensibly to convert competitive users. However, research conducted by several firms, and validated by his experience, shows that 70% to 90% of coupons redeemed through fsis are by loyal or occasional users of the product.

By using the techniques of dbm and mailing only to certain competitive users, a brand manager can more effectively convert competitive users, and avoid the dilution in revenue which is associated with mass coupon distribution.

Key factors

At the conference, McCormick presented the key factors in coupon redemption using targetted mailings, based on 2,000 separate campaigns representing many product categories.

The top five are: (1) coupon use habits of the customer; (2) brand loyalty; (3) volume of consumption; (4) difference between the retail price and coupon face value, and (5) face value of the coupon.

According to Baine, a strategic consulting group, an increase in the customer retention rate of five percentage points can increase profits by 25% to 125%, making the cost of the program well worthwhile.

Some business examples: automobile service +28%; business banking +35%; credit card +125%; insurance brokerage +40%.

Growing in favor

While database marketing is not the only tactic for customer retention, it is a technique that is growing in favor as it becomes better understood and as visible successes are registered in other categories.

Mike McIntyre of Hunter Business Direct cited the following example at ibm.

In 1990, ibm’s Wisconsin sales operation did $12.9 million, $9.8 million in 1991. In 1992, McIntyre’s firm developed and helped ibm implement a customer/ prospect program which had this ibm unit tracking at $16.1 million by year’s end.

McIntyre said ‘we can talk confidently to our clients about a net increase of 15% to 25% in sales productivity using integrated direct marketing, and those savings drop right to the bottom line.’

Why they fail

Arthur Middleton Hughes, author and seasoned dbm practitioner, said two of the main reasons databases fail are the lack of a marketing plan, and focussing on price instead of service (there are seven other factors.)

A list of customer names is just that – a list. Hughes said ‘a marketing plan using a database aims at building a relationship with each customer: making her feel recognized and special.’

The marketing plan must outline how that relationship will evolve (using tactics such as personal letters and by-invitation-only events) and be managed. This is work.

Second, Hughes asserted that a focus on discounting will limit the success of a database marketing program.

‘A discount is what everyone else offers,’ he said. ‘Discounts do not build loyalty or relationship; they make people forget about quality, service or loyalty.’

List

In fact, Hughes said, do not use database marketing if all you have to offer is a discount because it is just too expensive.

Larry Hawks, of Marketing Communications of Lenexa, Kan., offered several case studies, and here is one.

A cruise line wanted to raise money to build a ship, so it mailed this offer to its 42,000 customers: send us $2,500 now, and you will receive $5,000 in cruise value next year. More than 4% of the list responded, raising more than $3 million for the cruise line.

David Foley Associates specializes in design implementation and evaluation of database marketing programs. Please direct comments and questions to David Foley, David Foley Associates, 48 Woodman’s Chart, Unionville, Ont. L3R 6K7, or call or fax (416) 940-8784.