What Works (and what doesn’t work) in Database Marketing Arthur Middleton Hughes Vice President for Business Development CSC Advanced Database Solutions NCDM 8:00 – 9:15 AM Tuesday Dec

What Works: Database Marketing! Build a customer database with transactions and lifetime value Segment customers by LTV Identify your Gold customers Communicate with them often Use the DB to personalize Build Loyalty and Repeat Sales

Two Kinds of Database People Constructors People who build databases Merge/Purge, Hardware, Software Creators People who understand strategy Build loyalty and repeat sales You need both kinds!

What Works: Customer Contacts Successful cataloger to builders Divided top 1,200 customers into two: 600 in Test Group 600 in Control Group Test group got two person team who called decision makers over 6 months. Controls got no such calls

6 Month Results – Purchase Rate

Change in number of orders

Change in Average Order Size

$2,600,000 Gain in 6 Months

What Doesn’t Work: Multi-Million Dollar CRM “ Before implementing a CRM package it is necessary to understand why nearly half of U. S. implementations and more than 80% of European implementations are considered failures. It’s difficult to fathom failures of such monstrous proportions, especially when complete CRM installations can cost millions of dollars and then hundreds of thousands of dollars more per annum”

CRM is often based on assumptions that do not work! You can predict individual behavior with data in a warehouse (You can’t) Behavior is heavily dependent on timely offers (Only sometimes) CRM warehouses have positive ROI (very rarely)

Warehouse Vs Database Behavior Prediction Arthur Hughes will buy Product X within 3 months – You cannot know that. 70% of those in Arthur’s Segment of 3,000 will buy Product X in 3 months. That can be predicted accurately. The first comes from a $$$ warehouse The second comes from a database.

CRM Warehouses have negative Return on Investment

Database Marketing Results are Incremental You already are selling through other channels DBM will improve retention, and sales only by an incremental amount You must justify CRM or DBM by the incremental profit resulting from these incremental sales.

What Works: Retention Strategy based on Lifetime Value Lifetime value is the future profit you will receive from a customer during his lifetime with you. It is used to direct your marketing retention and acquisition strategies. Compute it, and compute for each customer, the risk of defection

Risk vs Lifetime Value Matrix Focus Retention of A and B

What doesn’t work: Treating all customers alike This 28% lost 22% of the bank’s profits! Bank Customers by Profitability

Marketing to Customer Segments GOLD Spend Service Dollars Here Spend Marketing Dollars Here Reactivate or Archive Your Best Customers - 80% of Revenue Your Best Hope for New Gold Customers Move Up 1% of Total Revenue These may be losers

What Works: Next Best Product Banks determine Next Best Product for all customers: Which product do they not have, but are eligible for? Which product will make the most $$ for the bank? Which product is the customer most likely to buy?

Business to Business Next Best Product Score all B 2 B Customers by SIC Which products are the most profitable? Which most profitable product do those in the same SIC buy, that this customer does not buy? That is the next best product.

What doesn’t work: Package Goods Database Kraft built a huge data warehouse Great idea, but it never paid off. You can’t put a coupon in every product So, you can’t know if promoted people are buying your product What works: mass marketing and shelf space.

What Works: Frequent Shopper Cards Give everyone a plastic card Keep track of what they buy Lower prices for those with cards Identify and reward the best customers “We increased the number of our $100+ customers over the past two years by 87%” – Supermarket Mgr.

What doesn’t Work: Becoming Customer Centric You have brand and product managers with goals and bonuses For Customer Centric, you have segment managers. It is a dream. If the Silver Segment manager is successful, all his customers will become Gold, and he will lose them! Who wants to do that?

What Works: Web Customer Response Mail & Phone works, but Web Response is wonderful Customers never get put on hold Saves millions of dollars Data is immediate Customers do all the work…

Landing Page Web Microsite

Store Locator Viral Component Viral Marketing

Web Focus Groups

What Doesn’t Work: Web Supermarkets Regular supermarket: customers do all the work. Impulse buying. Margins thin. Web Supermarket, company does all the work, delivers in refrigerated trucks to widely scattered households. No impulse buying. Margins also thin. There is no way that such outfits can make a profit in short or long run.

What Works: Marketing

Where else can you get these results in 3 days?

B 2 B vs Direct Mail Results Business to Business mail by a major computer disk manufacturer The direct mail response rate 1.42% and a registration rate of 1.01% The promotion response rate of 3.49% with a registration rate of 1.95%. promotion eleven times as cost effective as direct mail:

Works versus Doesn’t Work Database Marketing Customer Contacts Retention based on LTV Next Best Product Frequent Shopper Cards Web Customer Response Marketing CRM Warehouses Becoming Customer Centric Treat all customers alike Package Goods DB Web Supermarkets

What should you do? Collect s with permission NOW. Use Micro-sites & viral marketing Compute LTV and retention strategy Communicate with customers often Determine the Gold, work to keep them Determine next best product. Sell it.

Books by Arthur Hughes From McGraw Hill. Order at New Book This Year: What Works (And What Doesn’t) in Database Marketing (McGraw Hill 2002)

For copies of the presentation Arthur Middleton Hughes Vice President for Business Development CSC Advanced Database Solutions