Special Report: Market Research: Getting to know the customer

David Saffer is executive vice-president of Market Vision Research, a Toronto-based firm which links database and marketing research for several North American clients.Database marketing is inherently research-driven.The irony is that many of the people involved in database marketing are not necessarily...

David Saffer is executive vice-president of Market Vision Research, a Toronto-based firm which links database and marketing research for several North American clients.

Database marketing is inherently research-driven.

The irony is that many of the people involved in database marketing are not necessarily researchers and may not be applying the right resources or know-how to make database marketing most effective for their clients.

On the other hand, traditional market researchers tend to know very little about database marketing.

Consequently, a sharing of knowledge and techniques is required in order to provide clients with real value.

If market research companies are to succeed in the era of the individual, then they must become better acquainted with the intricacies of database marketing research.

This article compares, in broad strokes, the two approaches, and suggests important ways for the disciplines to converge.

First, these two disciplines differ in their points of reference or level of consumer sensitivity.

Traditional marketing and media research uses information gathered from a relatively small group of people and projects the findings onto larger population groups. Such is the case with usage and attitude studies, and in media surveys like pmb, rpm and NADbank.

Database research, on the other hand, involves intimate knowledge of specific consumers’ buying patterns.

Consequently, traditional marketing research is largely insensitive to differences at the individual level; while database research is typically not applicable beyond its data set.

Companies such as Compusearch Micromarketing Data & Systems, Goldfarb Consultants and Market Vision help clients bridge this data set limitation by matching postal code information contained in the clients’ databases to psychographic and lifestyle clusters in the general population.

In this way, ‘birds-of-a-feather’ customer acquisition strategies are developed.

Second, these two paradigms differ in their ability to solve clients’ problems.

Traditional research is often passive, helping solve problems by providing clients with information concerning market share, consumer attitudes and their decision-making processes.

Database research is active, solving marketing challenges by direct manipulation, via targetted communications, of specific consumers.

Take, for example, the experience of a large American department store. This Chicago-based retailer uses database marketing and media advertising.

Its broadcast advertising is designed to consistently reinforce the store’s franchise with consumers and broaden its sales appeal with its wide consumer audience.

To ensure that its advertising is hitting the mark, traditional market research – psychographic profiles of customer groups, moment-to-moment testing of each of its tv commercials, and so on – is conducted.

Moreover, the store knows how consumers perceive its price and customer service attributes versus the competition.

Yet, if sales are down, it uses its database to activate direct marketing offers. It will send out special offers to its best customers, bringing them into the store.

Yet, in what respect can this ‘database marketing’ be called ‘research?’

Here are two important examples:

1. Split test marketing

Direct marketing that is based on an advertiser’s use of a customer database can be inherently research-driven.

For this example, let’s define ‘best customers’ as those who have spent $1,500 or more with the advertiser in the past 12 months.

The best customer profile is randomly divided into two groups.

One group receives offer X, the other gets offer Y.

Whichever offer (X or Y) yields a higher return on investment is used next time.

This method can be continually refined and augmented for larger or smaller groups.

In other words, it is marketing that incorporates research into its practice.

When the results are tabulated, the advertiser knows its sales figures and to what level each offer incrementally affected sales.

This is very different from traditional marketing research that is conducted without direct reference to individual customers’ buying patterns.

2. Modelled behavior/

purchase patterns

This advance on traditional marketing research has other, more complicated names, but the essence of it is simple: if Mrs. Field bought a vacuum, it is likely she will need vacuum bags in the near future.

Consequently, if the advertiser has a transactional database of its customers, then it can probe the database to find all those customers who have bought a vacuum and send them a special offer for vacuum bags.

More interesting is the use of advanced statistical techniques to model purchase behavior of customers to determine, for example, if there is a group of customers who buy certain types of things and not others.

If a group of customers tends to buy its lawn and garden supplies at your store, but not its paint supplies, then various offers can be made to this non-paint-buying group.

The learning from this research will enable the advertiser to increase its share of paint business among its lawn and garden shoppers.

In addition to statistical techniques – truly one of the strengths of database marketing – new neural network techniques are being used to model consumer behavior.

So far, this article has illustrated some of the advantages of database research.

Yet, a clear challenge facing the database marketing industry is its ability to provide marketing research savvy to any project.

The ability, for example, to design efficient survey instruments, calibrate consumer segments, or simply to analyze millions of data points and provide relevant feedback to clients is often the missing component to database marketers’ arsenals.

For example, one of our clients had a database of great customers. Yet the company had no effective means of establishing the age, income or shopping patterns of its best clientele.

Database marketers – as keepers of an advertiser’s greatest asset – are typically responsible for initiating customer satisfaction surveys.

Yet, without the 100 years of normative data and experience provided by market researchers, who is to say that a score of 4 out of 5 is good or bad?

Who, for that matter, will be designing the questionnaires that one’s best customers have to read?

We conducted an informal poll among suppliers of point-of-sale systems, data processing companies and some retailers who belong to a database coalition marketing program.

The consensus with respect to database marketing was, as argued in this article, that in addition to providing a lot of customer information, there was a real need for providing clients with information they could use.

In other words, too often the sophisticated uses of database research were being ignored because of lack of expertise on the part of the client, the supplier, or because of resource limitations.

Moreover, some of the retailers (presidents and marketing directors) we spoke with said that they were not sure if the program was working for them – even after a considerable length of time.

Clearly, the technical, research and marketing savvy of research professionals needs to be married to the skills of database marketing wizards in order for clients to receive real satisfaction from their database marketing and research suppliers.