1. Optimal Database Marketing Drozdenko & Drake, 2002

2. Introduction to Database Marketing Concepts
Chapter 1
Introduction to
Database Marketing Concepts
Optimal Database Marketing Drozdenko & Drake, 2002

3. Chapter Objectives Define marketing databases
Review the environmental trends that help to explain why the use of marketing databases is growing at a rapid rate.
Examine direct/interactive marketing and compare it to marketing through conventional retail channels.
Explore advantages and disadvantages of database marketing
Provide a framework for the concepts and techniques covered in other chapters of the book.
Optimal Database Marketing Drozdenko & Drake, 2002

4. What Is a Marketing Database?
A marketing database is a file containing information about individual customers or potential customers that is relevant to the marketing process.
Optimal Database Marketing Drozdenko & Drake, 2002

5. What Is a Marketing Database?
This marketing database file can be simple or sophisticated.
For centuries, businesspeople recorded customer information on slips of paper or in notebooks.
In contrast, companies like American Express and Macy’s have computer databases that contain millions of names. Some of these names have hundreds of pieces of information.
Optimal Database Marketing Drozdenko & Drake, 2002

6. What is Direct Marketing?
Direct Marketing is an interactive system of marketing that uses one or more advertising media to effect a measurable response and/or transaction at any location, with this activity stored on database.
Direct Marketing Association
Optimal Database Marketing Drozdenko & Drake, 2002

7. Direct / Interactive Marketing
The term interactive marketing is often used interchangeably with direct marketing. However, interactive marketing sometimes refers only to Internet marketing. In this book, we use the terms interactive marketing and direct marketing interchangeably.
Optimal Database Marketing Drozdenko & Drake, 2002

8. Growth in Direct / Interactive Marketing
Direct marketing has been increasing at a rapid rate. According to the DMA (2000), direct marketing sales revenues are expected to increase by9.6% from 2000 to 2005.
This increase is greater than the expected increase of 5.4% in total U.S. sales during that same period. U.S. sales revenue attributable to direct marketing is estimated to reach $1.7 trillion in 2000 and grow to $2.7 trillion in 2005.
Optimal Database Marketing Drozdenko & Drake, 2002

9. Trends Leading to the Use of Databases in Marketing
Greater use of market segmentation
Emphasis on service and customer relationship management (CRM)
Changes in media
Changes in distribution structure and power
Lifestyle and demographic trends
Accountability for marketing actions
Integration of business functions
Technological advances
More informed customers
Optimal Database Marketing Drozdenko & Drake, 2002

10. Greater Use of Market Segmentation
Market segmentation means dividing a market into smaller pieces based on demographic, psychographic, or behavioral (purchase) patterns.
The marketer takes a diverse (heterogeneous) market and attempts to find similar (homogenous) groups of people or organizations.
Marketing strategies are developed based on the needs of a target segment.
A database that can be segmented according to these target characteristics can be a valuable marketing tool.
Optimal Database Marketing Drozdenko & Drake, 2002

11. Emphasis on Service and Customer Relationship Management (CRM)
The increased emphasis on CRM has brought database marketing to the forefront of many organizations. A database allows customers’ needs to be precisely documented and tracked.
More responsive service increases the probability of developing long-term relationships with customers, which leads to repeat purchases. That is a major advantage to the marketer, because retaining old customers is usually more profitable and less costly than acquiring new customers.
Optimal Database Marketing Drozdenko & Drake, 2002

12. Changes in Media
Marketers have traditionally reached customers through media that are today becoming more and more fragmented.
Direct marketing, including mail, , and telemarketing, can bring targeted messages to individual consumers and business customers with very specific characteristics.
They have the potential to communicate to people based on individual needs and relate these needs to the offer.
Optimal Database Marketing Drozdenko & Drake, 2002

13. Changes in Distribution Structure and Power
Power in the distribution channel has shifted. No longer are manufacturers in control of distribution channels, as they were in the past.
Now, with the consolidation of retailing on a regional, national, and even multinational level, one retailer has much more impact on the bottom line of a manufacturer.
In an attempt to maintain direct contact with customers, manufacturers have developed their own databases.
Optimal Database Marketing Drozdenko & Drake, 2002

14. Lifestyle and Demographic Trends
A number of lifestyle and demographic trends have moved consumers away from traditional retailers.
Higher percentage of women in the workforce
Higher percentage of family members working
More child-rearing activities that require parents’ time (e.g., lessons,carpools, sports, trips)
Increasing access to the Internet at home, which increases the chances of online shopping
Increase in ethnic populations seeking products that may not be available from local store retailers
Less brand loyalty, driving people to find convenient alternative sources for products
Optimal Database Marketing Drozdenko & Drake, 2002

15. Lifestyle and Demographic Trends…
In response to these trends, marketers will make more types of products available from nonstore sources (Internet, mail, TV).
As more nonstore sources become available, competition will increase, driving more consumers away from store retailers.
Because all forms of direct marketing are dependent on databases, the use of databases will also increase.
Optimal Database Marketing Drozdenko & Drake, 2002

16. Accountability for Marketing Actions
Accountability for expenditures is more prevalent in business today. In publicly held companies, shareholders are becoming more sensitive to financial reports.
Within the organizations, upper-level managers want to know whether expenditures on specific promotions (ad campaigns, trade promotions, etc.) yield an appropriate return on investment.
It is often difficult, however, to directly relate mass media advertising to changes in sales.
Marketing databases allow expenses and revenues to be tracked and evaluated.
Optimal Database Marketing Drozdenko & Drake, 2002

17. Integration of Business Functions
When all the functional areas of a business work together (marketing, accounting, finance, operations, human resources, information systems, etc.), the organization usually becomes more effective and efficient.
Databases facilitate this integration.
Costs can be clearly documented, and sales levels can be more accurately forecasted and monitored to allow for adjustments in production, inventory, and staffing levels.
From the financial perspective, sales revenues from individual items and product lines can be tracked more closely for better financial planning and resource allocation.
Optimal Database Marketing Drozdenko & Drake, 2002

18. Technological Advances
The computer technology needed for developing marketing databases has decreased in price and increased in power.
Consequently, more organizations have the financial resources to purchase the hardware and software necessary to develop a marketing database.
In addition, because of the increasing power of low-cost PCs, smaller organizations can utilize databases.
Within the organization, more people have access to technology and, therefore, can take advantage of the database.
Optimal Database Marketing Drozdenko & Drake, 2002

19. More Informed Customers
Consumers and business customers have access to substantially more information now than in the past. Greater product knowledge brings more critical evaluation of products and greater consideration of price.
With databases, marketing communications can be more specifically targeted so that the information matches the characteristics of the consumer.
Optimal Database Marketing Drozdenko & Drake, 2002

20. Database Marketing versus Aggregate (Mass) Marketing
Aggregate marketing, which is the method to reach customers through mass media and traditional retail distribution channels, does not depend on data from individual customers.
Database marketing maintains records of individual customers.
Optimal Database Marketing Drozdenko & Drake, 2002

21. How Direct Marketing is Different Exhibit 1.1
Marketing Database
Data Storage and Analysis
Media
Mail
Phone TV
Internet
Fulfillment
Process Order
Provide info
Sales Contact
Response
Purchase
Further Contact
Individual Customer

22. Example of a Retail Channel Exhibit 1.2
Marketer
Intermediaries
(e.g., wholesalers, brokers)
Retailer
Individual Customer

23. How Are Customers Reached in a Distribution System That Uses Retailers?
How do customers learn about products?
How do marketers learn about the success (or failure) of marketing programs?
How do marketers learn about customers?
Optimal Database Marketing Drozdenko & Drake, 2002

24. (e.g., wholesalers, brokers)
Does the marketer know anything about the individual consumer in this example? Exhibit 1.3
Re-order
Marketer
Re-order
Intermediaries
(e.g., wholesalers, brokers)
Sale
Retailer
Individual Customer

25. Marketing Communication to the End Consumer in the Retail Channel Exhibit 1.4
Marketer
MASS MEDIA
(Print, TV, Radio)
Retailer
Store
Promotions
Individual Customer

26. Information about the End Consumer in the Direct Marketing Channel Exhibit 1.5
Marketer
Marketing
Research
(Anonymous Sample)
Individual Customer
Individual Customer
Individual Customer
Individual Customer
Individual Customer
Individual Customer
Individual Customer
Individual Customer
Individual Customer
Individual Customer
Individual Customer
Individual Customer

27. Optimal Database Marketing Drozdenko & Drake, 2002

28. Optimal Database Marketing Drozdenko & Drake, 2002

29. Optimal Database Marketing Drozdenko & Drake, 2002

30. Optimal Database Marketing Drozdenko & Drake, 2002

31. Optimal Database Marketing Drozdenko & Drake, 2002

32. Disadvantages of Database Marketing
Cost Issues
Cost of database technology
Cost per customer contact
Global Markets
Expansion to some markets limited
Competition From Traditional Retailers
Increased efficiencies lower costs
Difficult to compete in some product categories
Negative Perceptions
“Junk mail” and annoying telemarketers
Privacy concerns
Optimal Database Marketing Drozdenko & Drake, 2002

33. Framework for Optimal Database Marketing
This book starts by examining general concepts and examples of marketing databases and then moves on to more specific database analysis techniques. The following areas are covered.
Strategic review of database development
Basic technical aspects of the database
Comprehensive review of data analysis techniques as related to database segmentation, predictive modeling, lifetime value and testing
Databases in Internet marketing
Current topics related to database marketing: ethics, the global marketplace, and future trends
Optimal Database Marketing Drozdenko & Drake, 2002

34. Review Questions
1. In the vignette about Keri Lee, how have databases benefited her life? Are these benefits substantial or superficial?
2. What is a marketing database, and why are databases important to marketers?
3. What are some of the trends that have led to the utilization of marketing databases?
4. How is database marketing different from aggregate marketing?
5. What are some of the advantages and disadvantages of database marketing compared to traditional brick and mortar marketing?
6. What do you think about the concerns some consumers have about database marketing? How would you respond to those concerns?
Optimal Database Marketing Drozdenko & Drake, 2002